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Morton-Wilson Investment Philosophy
Morton-Wilson’s primary aim is to deliver a successful investment experience for our clients. A question that has challenged us for many years has centred on the best method of delivery.
Our investment philosophy and process go hand in hand. The investment process can be summarised as follows:
- Purpose - Determine financial objectives, timescales and risk tolerance
- Asset Allocation - Divide the portfolio appropriate to the purpose between growth assets and defensive assets
- Diversify - Invest in the greatest number of companies within each asset class that display the characteristics most likely to be rewarding
- Review - on a regular basis to ensure the portfolio remains fit for purpose
Rewards from investing compensate risks that investors are prepared to take. If no risk is taken, the prospect for reward is negligible. Successful investing is the result of focusing on risks that are likely to lead to reward and steering clear of risks that are not worth taking.
Many investment managers either aim to exploit shares they believe are incorrectly priced in the market so they engage in traditional active management in the hope of adding value; or they believe they can do nothing to add value over a portfolio of shares that make up a commercial index (eg the FTSE 100), so they passively track the selected index.
We believe in a different approach. We employ strategies which combine broad diversification and low cost of index strategies but add value through strict eligibility conditions and a flexible trading approach.
Over time, a well-grounded and structured investment approach will add value with a higher reliability and confidence level than one based on either instinct and prophesy or simply tracking a commercial index. This, coupled with a patient and price-conscious buy and hold approach to trading will not only minimise total costs, but also reduce the opportunity to make poor investment decisions.
This approach is based on academic research by leading professors of finance which led them to conclude that the sources of investment returns lie in three factors:
- Equity Market - Shares are riskier than fixed income bonds and have higher expected long term returns.
- Company Size - Small company shares have higher expected returns than large company shares.
- Company Price - Lower priced ‘value’ shares have higher expected returns than higher priced ‘growth’ shares.
In addition and again based on further academic research, we believe that the primary role of fixed income bonds is diversification to dampen overall portfolio volatility. By keeping maturities short (under 5 years) and credit quality high, portfolio risk is minimised. Consequently investors can afford to focus the risk on equity assets with much higher expected return factors.
Our philosophy is based on many years of evaluating the market and how best to deliver a successful investment experience for our clients. We are not complacent and will continue this evaluation process but are confident that our current process provides greater diversification at far lower cost than hitherto.