Introduction to Liontrust - Flipbook - Page 20
Investment process
The Liontrust Multi-Asset investment process is based on a number
of core beliefs. These beliefs have been accumulated over the
long combined careers of the Liontrust Muti-Asset team and have
developed over many years. Among these beliefs are:
• This scorecard informs the risk budget and the over and
underweights that the Multi-Asset team expresses through
portfolio construction.
• Sentiment can cause market prices to move away from their
fundamental value over the short term
Portfolio construction
• We test the performance and interaction of factors, such as value,
growth, quality or size, versus each other over the long term
and we identify a blend which we believe will provide the most
effective risk-adjusted exposure to the equity region in question.
• Over the long term, markets tend to revert towards levels justified
by their fundamentals
• The decision of where to use passive vehicles depends on two
main considerations: availability and suitability.
• Active management of asset allocation can add value through
exploiting mispricing and their subsequent return to normal
• Each asset class or sub-asset class is assigned a weight through
the TAA process and the combination of the target manager
allocations and the TAA weights provides a target holding size
for every manager.
• Investment markets are inefficient
• We believe that equity markets remain the key driver of long-term
real returns
• Within equity markets, factors such as value, growth, quality and
size have inherent tailwinds due to either behavioural or market
structure inefficiencies
• Each of these factors in isolation can be volatile but a combination
of these factors should outperform the broader index over time
• Asset allocation is the means by which we combine complementary
asset classes together to create a risk and return profile that is
appropriate for different investor cohorts
• We believe that an appropriate time horizon is essential and as
a result, a long-term, disciplined, robust and repeatable process
will give investors the best chance of long-term outperformance
There are five parts to the Multi-Asset investment process:
Strategic Asset Allocation (SAA)
To determine the SAA, historical returns and volatilities of a range of
asset classes, as well as their correlations with each other, and other
market dynamics are collated and studied.
Tactical Asset Allocation (TAA)
TAA determines the overweight or underweight exposure to an asset
class or sub-asset class when compared to the SAA.
• All the Multi-Asset team members provide a score from 1 to 5 for
each asset class, sub-asset class, the overall market environment
and a handful of other factors.
• The quants data cover a wide array of asset classes and sub-asset
classes and provide a quantitative perspective on, for example,
the relative attractiveness of an equity market both against other
markets and against its own history.
• The Liontrust Multi-Asset team employs an independent consultant
to challenge the asset class scoring.
20 - Liontrust investment teams and funds
• The team tests the new targets to ensure they comply all
appropriate portfolio rules and restrictions.
Manager selection
• The Liontrust Multi-Asset team has access to a number of databases
which enable filtering of the large universe of potential funds.
• Managers are subjected to significant levels of quantitative
analysis to ensure the Multi-Asset team understands current
and past positioning in detail.
• The most important parts of past performance analysis
are the characteristics within performance. This relates to
the stylistic exposure of managers, which is assessed through
holdings-based style analysis. Performance is also considered
on a disaggregated basis to identify the attributed drivers of
performance.
• The type of areas that the Liontrust Multi-Asset team will consider
are manager philosophy and process, team structure, business
structure and incentivisation, stock selection process, portfolio
construction, historical and current positioning as well as
Environmental, Social and Governance (ESG) considerations.
• Operational Due Diligence (ODD) ensures that the selected funds
are suitable not just from an investment perspective but also from
an operational and compliance perspective..
Implementation
The implementation ensures the Multi-Asset team implements in
a manner that treats customers fairly, creates consistency across
the ranges wherever possible, finds an optimal balance between
trading and portfolio turnover, and ensures the implemented holdings
reflect the Liontrust Multi-Asset team’s views generated through the
investment process.