by | Mar 1, 2021

According to research by Investment Trends, the average advisor spends more than seven hours producing a financial plan and suitability report.  This excludes the time required for responsibilities such as setting an appropriate asset allocation, constructing a portfolio and providing ongoing risk management.  It takes time to construct portfolios that meet our clients’ unique goals, financial circumstances and risk tolerances – And time is expensive.

It is for this reason that Resolute Wealth has partnered with Morningstar as our independent discretionary investment manager, freeing up our time to focus on other fundamental aspects of our clients’ financial plans and to deliver a more personalised client experience.  Herein lies the distinction between financial planning and managing assets.

You may have seen in the press that the Raging Bull Awards (amongst several others) was recently held.  This is an annual ceremony that celebrates the top performing investment managers across a range of sectors and acknowledges such managers in terms of “top outright performers, best risk-adjusted performers and the best unit trust management companies”. The first Raging Bull Awards ceremony was held in 1997, with top performers awarded to the most consistent performers over three years.  Consistency is golden when it comes to compounding of returns.

This is where the danger creeps in – When excitement leads to chasing performance.  We have seen this story play out many a time, when investors, against their better judgement, “buy high”, expecting to reap the rewards of the past, only to be disappointed in the results.  It’s too late to buy into a fund that has already delivered the stellar returns and been awarded as such.  The entry price typically sets the tone for the ongoing performance, and hence an expensive entry point erodes the potential for benefitting from such superior returns thereafter.

At Resolute Wealth, we do things differently.  We are immensely proud of how our portfolios have delivered for our clients during a year of uncertainty, chaos & volatility.  A number of the fund managers we include in our portfolios have been awarded a Raging Bull Award within their category; however, these funds were already included due to the adoption of a rigorous investment process, and hence the rewards have been enjoyed by our clients.  These awards highlight our unwavering commitment to delivering good investment outcomes for our clients over the long term.  Morningstar’s beliefs are strongly aligned with ours in that a first-class investment process 1) focusses on the end-investor, 2) strives to minimise costs and 3) provides long-term solutions that draw on tangible expertise. Morningstar applies their expertise in asset allocation, manager selection and portfolio construction to create investment strategies for our clients.  This is strengthened by access to independent investment research, data and analytics of the global Morningstar group.

Fairtree Equity Prescient Fund – portfolio managers Stephen Brown (left) and Cor Booysen (right) accept 2 Raging Bull Awards for “Best South African General Equity Fund on a risk-adjusted basis over five years” and “Best South African General Equity Fund straight performance over 3 years”.

Ninety One – South African Manager of the year

Debra Slabber CFA®, Portfolio Specialist at Morningstar South Africa, expands on these capabilities, which require full-time dedication:

Asset Allocation

Financial markets are increasingly complex, and the range of investment opportunities continues to expand, locally and abroad.  Morningstar understands the mammoth challenge of evaluating all these opportunities and assessing their suitability for clients. When returns from asset classes are lower and volatility is higher, the responsibilities of managing and monitoring client portfolios become even more taxing. And even more necessary.

2020 was a year in which emotion had the power to destroy client wealth.  Instead, with the help of Morningstar, we filtered through the noise and made the hard decisions on behalf of clients, with the mind – not the heart.

During the past year, we (with the expertise of Morningstar) increased our S.A. Government Bonds position when yields blew out, we increased our S.A. Equity exposure when equity markets tumbled, we took advantage of a stronger Rand to increase our Global exposure and we reduced cash as rates decreased dramatically. These asset allocation decisions all had a positive impact on client portfolios.

Manager Selection

Once Morningstar’s asset class convictions are established, they search for managers that best align with their asset class views. Their manager selection process follows a rigorous qualitative and quantitative method to identify the best of breed managers we chose to work with.

Morningstar meets with fund managers continually and has an ongoing structured review program to ensure we remain informed and can question managers where needed. Funds that appear to have strayed from their investment styles, experienced management and/or organisational changes, trigger a review of the initial quantitative analysis. Funds that experience declines in their performance or risk rankings are subject to immediate qualitative review.

Together with Morningstar, we strive to provide clients with a consistently good outcome throughout their investment journey with us, and we achieve this by blending different managers and styles whilst still being valuation cognisant. This highlights the importance of holding managers in our portfolios with different roles and therefore different alpha cycles (so that they won’t all perform the same at the same time).

Portfolio Construction

Closing the loop on the first two aspects; portfolio construction is just as important as asset allocation and manager selection.

Maintaining portfolios is a task one can never truly finish:  Clients’ circumstances change, as do market conditions, asset managers’ performance and other factors that can affect whether a decision is suitable. Every portfolio carries ongoing monitoring and reporting responsibilities.

Portfolios are actively managed and subjected to rigorous qualitative and quantitative analysis when selecting underlying funds. The portfolios provide us with many benefits in terms of flexibility, liquidity and transparency. Morningstar combines risk-profiling, renowned asset-allocation research, strict investment selection and professional investment expertise, using unbiased, objective research from Morningstar, Inc. (Chicago) to create a range of portfolio options for clearly defined risk profiles.

Morningstar constantly reviews and seeks to maximise the reward for risk across the clients’ journey. To do this, they have a formal structure to regularly reassess asset class convictions, their manager buy-list and the underlying portfolio compilation given the changes in investment ideas, aggregate risks and exposures. This iterative process reconsiders the opportunity set, with a constant eye on fundamental diversification while remaining biased toward inaction and long-term holdings. A key element is, therefore, keeping turnover and transaction costs as low as possible.

Independent investment research, data and investor education

It’s not enough for us, as financial advisors, to be investment experts – we need to understand people. By helping clients uncover their true financial goals and aligning them to a portfolio, we’re putting them on track to achieve whatever they define as financial success.  That’s when our clients start to understand and appreciate the value of advice.

Morningstar eagerly share their knowledge, whitepapers, research insights and adviser tools with us to enable investor success. They provide us with the information, materials and support we need to build client relationships and expand our business. They provide direct communications about the markets and portfolio changes and the reasons behind them, so we are always informed and able to explain such changes to our clients.

Morningstar is focused on helping us empower investor success

At Resolute Wealth we know the real value of our service is in making sure our clients’ financial affairs are in order. We ensure that clients are increasing their savings rather than accruing debts. We help clients save enough to live well in retirement. We create protection policies that can support children in case the worst should happen.

Where once investors and advisors alike didn’t have enough investment news and information, today there’s too much. Now we need a filter to identify appropriate investments from the rest, those investments that best fit into our strategies and get our clients closer to meeting their personal financial goals.  We simply cannot be expected to shoulder this investment management burden alone.

Working with Morningstar allows us, as the advisor, to overcome capacity constraints and development expenses. This enables us to concentrate on growing a healthy business, in the knowledge that we can lean on them as our highly respected investment management provider.

In summary

Performance is what we strive for; it’s a by-product of a robust investment process. Performance can never be rushed, nor chased.  It’s like that pot of gold at the end of a rainbow – You know it’s there, but you never find it.  The intangible curse.  Instead of trying to time the market, chasing the “winners” and churning the portfolio, reducing its ability to play out on its strategy, it’s time in the market, whilst following a rigorous, repetitive, robust investment process.   The “winners” will come and go; it’s the benefits that are gleaned from having ridden their waves to success that count.

Source:  Morningstar