There are a number of factors to take into account whetheryou are planning and managing your investments yourself or getting professionaladvice.
We consider five keyfactors when undertaking investment analysis for our clients.
These are:
1. Compliance
2. Liquidity
3. Volatility
4. Cost & Value
5. Return
Perhaps surprisingly return is not top of the list; it isthe one we consider after the other factors.
In this article we discuss these issues and how we manageand analyse investments to help optimise solutions for our clients.
At Black Swan Capital, we are more focused on our clients’ long-term goals than short term flavour of the month investments or asset classes. Naturally we take into account macro-economic (government policy on interest rates, tax, exchange rates etc) and micro-economic(people, businesses, supply& demand, market performance) variables, market cycles and other influencing factors, when assessing our clients’ objectives, central to our recommendations.
An important component of holding an independent license aswe do, is that we make sure we have considered a suitably broad range ofinvestment solutions from the available universe. For greatest efficiency we dothis through our centralised Investment Selection Committee.
Once an investment has made it through the Investment SelectionCommittee, we once again assess it by these 5 factors to determine itsapplicability to a specific client’s needs.
We will discuss these 5 components further.
1. Compliance– itmay seem obvious that a potential investment is compliant, and from aninvestment committee perspective it is. However, what is compliant andappropriate between one client and another can be variable. For example, aninvestment structure that may be appropriate for a British person living in theBenelux, might be inappropriate or non-compliant from a tax perspective for aUS person living in the same place with similar needs. This reinforces theimportance of tailoring and individually assessing recommendations for each and every client.
If a potential investment cannot pass the compliance test,there is no point in considering the other factors, it is rejected.
2. Liquidity– Webelieve this is one of the most important factors for all international andexpatriate clients. One thing we have observed repeatedly in decades of looking after clients, isthat life changes! This isparticularly true for expats. If you are living outside your home country,whilst people are tending to stay longer, particularly in European countries,there is a chance you will move on to another location, or back home. Thetiming of this can sometimes be sprung upon you. Therefore, we do two things.
One, we make sure there is a high level of portability, so you do not have toliquidate your investments if you move. For the most part, you should be ableto continue your investment plans and take your investments with you.
The second thing we do is make sure you always have liquidity. This means if there is anemergency, you can get your hands on your funds, without penalty or unduedelay. In the past, many investment structures would lock people in for up to20 years and if they tried to access their money, they would be heavilypenalised. We believe these structures for the most part, are not appropriatefor most modern-day expats and so we always ensure that you have the securityof liquidity. It is an important factor that should not be overlooked.
3. Volatility– Wefollow the philosophy of taking on the lowestlevel of volatility or market risk required to achieve our clients’objectives. As we discussed in previous articles, volatility or risk is not badper se, it is essential to generate returns on investment. What we are ensuringis that the client is not taking on more than they require to achieve theirgoals. How does a particular investment correlate with the person’s personalrisk profile? And how does that investment compare with its peers? These arefactors we consider when assessing investments for each of our clients.
4. Cost & Value–the cost of an investment is obviously important but many of the costs can behard to understand. You should always look for the OCF or TER (the OCF is the Ongoing Charge Figure whichis the replacement term for TER, which meant Total Expense Ratio). This isthe total cost of an investment. We prefer investment structures that can takeadvantage of wholesale pricing and cost-efficient underlying investmentstructures. This can result in relatively lower costs of management which ispassed on to you, the investor. Lower cost translates in higher returns and youachieving your goals.
It is not as simple as cheaper is better. We differentiatevery clearly between cost and value.In undertaking our analysis, cost comparisons of otherwise very similarinvestment structures can result in significant savings, which translate ashigher net returns, for our clients.
5. Return– Performanceis not just about top line return, it is about how you achieve that return.Ultimately it is net return that yougenerate: your investment performance returns less the costs of creating thosereturns. Similarly, when considering returns, it is important to see howthe returns were generated, relative to risk adoption. We need to ensure thepotential investment performs well in absolute terms and in relative terms bothin a performance ranking and also performance for a given volatility level. Ofcourse, you also have to consider the restrictions, and an investment that maygenerate strong returns, but which requires money to be locked away forextended periods, compromising your liquidity, may not be worth it.
Considered together, we make informed and smart investmentrecommendations that can meet your needs and allow for contingencies. That is,good net returns and peace of mind.
Whether you are managing your investments yourself, orwherever you are receiving support and advice from, we encourage you to followa process of comprehensive research and analysis to make sure it is reallyright for you.
If you have existing investments in place, we are happy toreview these for you to make sure you are in the optimal structure and thatyour investments are working for you. Feel free to contact us to get a reviewon your existing investments. As always we welcome any questions, you cancontact us at [emailprotected].
