Our Investment Philosophy
FNB Capital Asset Management strives to maintain a consistent investment approach. The following core principles of our investment philosophy guide us:
- Over the long term, most of a portfolio’s risk and return are explained by asset allocation, rather than security selection or market timing.
- Diversification remains the key to building optimally structured portfolios. As long as different asset classes are not perfectly correlated, better risk-adjusted returns can be generated by constructing portfolios that combine these asset classes.
- Diversification is further enhanced by looking beyond the traditional asset classes of stocks, bonds, and cash. The judicial use of "alternatives" such as real estate, infrastructure, commodities, and hedge funds can significantly enhance the investment experience in a low interest rate, high volatility market environment.
- Although short-term market movements remain inherently unpredictable, tactical asset allocation can add value over longer-term time horizons.
The amount of value added by an asset manager can only be accurately determined by considering both the investment return earned and the risk taken to generate this return.
Our Investment Process
The amount of value added by an asset manager can only be accurately determined by considering both the investment return earned and the risk taken to generate this return. That is why risk controls are paramount to our disciplined investment process which we outline below:
- Identify longer-term investment themes based on fundamental analysis.
- Construct diversified portfolios using exchange-traded funds (ETFs) to capitalize on their benefits.
- Select individual ETFs based on a uniform evaluation grid that examines the following:
Apply rigorous risk management constraints across both the individual asset classes and the portfolio as a whole. Attributes we monitor to ensure minimum and maximum exposures to asset classes include:
- Does the ETF deliver what it promises after fees and taxes are taken into account?
- Is the ETF liquid enough to be traded in a cost-effective manner?
- Is the ETF the best fit given our investment themes?
- Duration, credit quality, and yield curve positioning for fixed-income investments.
- Geography, sector, size, and investment style for equities.
- Correlations for alternative investments.
- Deviations from assigned benchmarks with regards to foreign currency and tactical asset allocation exposure.
A key element in our risk-focused approach is a proprietary risk management dashboard allowing us to see at a glance exactly where our exposures lie. The goal is not to eliminate all investment risks, but to ensure that our portfolios behave as intended. As a final check, we apply stress tests to our portfolios that allow us to analyse historical characteristics such as volatility, upside and downside capture, best and worst periods of performance, and tracking error.