By: Kamini Naidoo – Chief Investment Officer at Equilibrium
We (continue to) live in uncertain times, where economic volatility, geopolitical tensions, and rapid technological advancements create a complex investment landscape. Amidst these uncertainties, constructing a robust investment portfolio becomes crucial for securing financial stability and achieving long-term financial goals.
At Equilibrium, we believe that diversification is the key to constructing resilient portfolios. Through diversification and the strategic use of various asset classes, we aim to create robust portfolios that are capable of weathering market volatility and increases the probability of achieving portfolio outcomes. Our investment approach is a multi-faceted one and involves the strategic selection and allocation of various asset classes, striving for a well-balanced mix that aligns with clients’ risk tolerance, investment horizon, and financial goals.
The journey starts with the strategic asset allocation, which is like planning a road trip before you set off – it is the long-term plan designed to get to the destination (long- term financial goals) despite any ups and downs of the journey. This involves choosing asset class allocations and rebalancing the allocations periodically. Tactical asset allocation is then used to make short-term adjustments through the journey based on changing conditions (risks and opportunities). Constructing a portfolio is like assembling and packing your vehicle for the road trip. This includes choosing the right vehicle (model portfolio or fund of fund) and the engine and mechanics (investment holdings).
As a discretionary fund manager (DFM), we consider these investment decisions in line with the unique set of financial outcomes of the client. At Equilibrium, we follow an outcome-based investment approach in our portfolios. This requires us to come up with a strategic asset allocation for each portfolio that maximises the likelihood of delivering on the long-term client outcomes. We focus on long-term fundamentals to determine the forward-looking return expectations for each asset class in which we invest. These forward-looking expectations, in conjunction with the client risk budget, are key inputs into our portfolio construction process to determine the optimal long-term asset allocation to achieve the client outcome.
The market environment is constantly changing, and we are continuously evaluating the market landscape to determine if there are any tactical opportunities or risks that may require dynamic adjustments to portfolio allocations.
As part of the portfolio construction process, manager selection is a critical component that involves choosing the right fund managers who align with the portfolio’s investment strategy and goals. When selecting managers, it’s essential to consider their track record, investment philosophy, and consistency in performance. This decision often hinges on whether to adopt an active strategy or a passive strategy, or a combination. At Equilibrium, we leverage our extensive and experienced manager research capabilities to evaluate the merits of the various investment strategies and active, smart beta and passive strategies are blended in diversified portfolios.
We also maintain a rigorous review process and continuously test the alignment of the long-term fundamentals, and portfolio constructs to the long-term objectives of our clients.
At Equilbrium, our commitment to outcome-based investing and strategic diversification forms the cornerstone of our portfolio construction approach. By focusing on our clients’ unique financial goals, we carefully balance investment strategies to optimise performance, and try to ensure a smooth journey for our clients on the journey to achieving long-term financial success.
Equilibrium Investment Management (Pty) Ltd (Equilibrium) (Reg. No. 2007/018275/07) is an authorised financial services provider (FSP 32726) and part of Momentum Group Limited, rated B-BBEE level 1.
