A DFM with an outcomes-based focus | Philosophy and Process
Amity Investment Solutions is a boutique discretionary fund manager with a unique investment philosophy. With outcomes-based strategies still far and few in the South African market, our proprietary outcomes-based investment process adds value to advisors and private investors alike. These solutions reduce the uncertainty of investment outcomes.
How does Amity apply an outcomes-based philosophy?
We manage a range of outcomes-based model portfolios and CIS funds based on the four cornerstones of our investment process. The investment solutions are managed with the aim of delivering the following outcomes:
- Outcome: Delivering a predetermined range of returns over a specified rolling investment term.
- Consistency: Enhancing the consistency of achieving the specified return profile.
- Risk management: Actively minimising the risk of not achieving the return outcome, and reducing the quantum of downside risk over the specified rolling investment term.
- Capital preservation: Actively managing the probability of achieving a return better than inflation over the specified rolling investment term.
It is possible to achieve these four cornerstones or pillars of our investment process by actively managing certain decisions. These decisions are:
Asset allocation
Our continuous research into the characteristics of asset classes and our proprietary outcomes-based scorecard methodology, assist in determining the asset allocation that has the highest probability of consistently delivering the predetermined return and risk budgets for each mandate. By following a building block approach Amity applies risk-based asset allocation. This ensures that each portfolio is always aligned with both the risk budget and the return outcome of each investment solution’s mandate. As our asset class research is done using indexes, we have a high conviction that the risk and return outcome can be achieved without being dependent on asset managers delivering alpha.
Manager selection
The second key decision in our process is to determine if active asset class specific managers can enhance the return and risk profile of each asset class in the portfolio. All asset class specific managers and index trackers are evaluated using our proprietary quantitative scorecards which incorporates mandate specific criteria. This assists in identifying managers for which qualitative due diligences need to be done. Based on this manager evaluation process building block funds or index trackers that can contribute to improving the outcomes of the different portfolios, are identified. The building block approach allows Amity to select asset class specialists for each asset class instead of having to use multi-asset funds. This ensures that each manager can be evaluated based on how they added value compared to the specific asset class, and provides criteria for continuously monitoring and evaluating the building block managers.
Portfolio construction
The third key decision in managing our outcomes-based portfolios is determining how different managers or indexes should be combined for each building block. This is determined based on how the combination of funds improves the return and risk criteria for the building block, as well as the overall portfolio. Amity’s outcomes-based investment philosophy, strategy and process reduces the uncertainty of achieving the investment goals of clients, and reduces investment and behavioural risk.
We’ll highlight and showcase the stellar performance and consistency numbers in part 4 of our blog series.