Benchmarking

The fund of funds team defines each portfolio's investment objective and sets performance targets. In general, the team seeks to outperform its benchmark, the relevant IMA sector median, over one and three years. For the purposes of risk monitoring, funds are also compared with stock market indices.

Strategy

The team makes extensive use of in-house and third party research as well as quantitative risk analysis in constructing efficient portfolios. Factors influencing the composition of portfolios include structural and cyclical macro-economic forecasts and detailed quantitative analysis. Once the team has completed their review, including their view on how industry sectors and geographical regions are likely to perform, each fund's portfolio is adjusted (if appropriate) to capture the best potential return within its risk profile.

Statistical screening

The fund of funds team uses screening to discover the funds with the best risk-adjusted returns over one and three years. In addition, a fund that has recently experienced a change in manager will be subjected to additional scrutiny. This process enables the team to reduce the number of funds under investment consideration to a smaller group. At this point it becomes feasible to undertake more detailed research.

Style research

The team uses Style Research™ software to generate detailed portfolio breakdowns of funds of potential interest. It also allows the team to verify a manager’s claims about the sources of his or her returns and to develop for each portfolio of funds a “style bias”, such as an emphasis on growth or value. Style research is also used to monitor the portfolios on an on-going basis.

Manager analysis

The team holds meetings at least twice a year with the managers of those funds in which it has invested. In addition, the team carries out interviews with managers of funds that particularly interest them. They analyse managers' strengths and weaknesses to determine whether they are running their funds as they claim and can consistently add value for their investors.

Research reports

Each interview with a fund manager forms the basis of a research report that serves as a formal assessment. Each manager is assigned a score between one and 10 covering categories such as skill, process, portfolio construction, strategy and style. The fund is then rated with an overall confidence score. Such a system helps the team to clarify whether a particular fund should be included in the portfolios.

Investment team meeting

All research is presented at weekly team meetings. Each member of the team is encouraged to debate the results and, if appropriate, request further research. This is the forum for analysing all the quantitative and qualitative research generated and is critical in helping the team to reach conclusions about a fund's performance.