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Value Investing, Whatever the Fashion

Updated: May 18, 2022

This article is about the new investment process that was introduced while I was chief investment officer at Seneca Investment Managers, now part of Momentum Global Investment Management

"Risk can’t be reduced to a single number"

We adhere to our value ethos come what may. Value investing is a patient game. It should never be out of fashion, but for most of the last five years the crowd has favoured other styles. We’re happy to be judged on our record over that period. Here’s an overview of what makes us tick.

We work as a team

Each of our managers focuses on investment research for one discipline, be that asset allocation, areas of the equity market, bonds or specialist asset (e.g. infrastructure, leasing, private equity). We only invest in things we really understand. We like to dive deep – if we come up mucky, better before we buy than after. Each specialist’s findings and recommendations must be value-based, and are subject to scrutiny from the team. When ideas are implemented, it tends to be across all our portfolios.

Process rules!

Ours is simple and strict. Investors know what they will get. We maintain target holding portfolios for each fund. Each research specialist is responsible for target weightings in their area across every portfolio. Any change to the target for an individual holding or change to asset allocation has to be approved by the team, and logged on our research intranet, the grid. If it’s not on the grid, it doesn’t exist. In our real portfolios, implementation is the responsibility of named pairs of individuals with oversight for each fund. The deviation between each actual portfolio and its target holding portfolio is monitored closely, with a maximum deviation of ten percent to accommodate factors like income management.

Simple, active management

Multi-asset is a crowded space. Traditional balanced funds invested purely in equities and bonds sit alongside smoke and mirrors funds, whose returns are obscured through the use of derivatives. We sit between these extremes. Our funds are straightforward, long term, long only funds, investing in a wide range of risk assets.

How active are we?

Very. We ignore the composition of indices. We want our positions to count. For example, at the end of March 2017 in UK equities in the Seneca Global Income & Growth Trust plc, we owned twenty-two equally weighted stocks in position sizes of circa 1.5%, of which three were top 100 companies and 19 were mid-caps. Our funds are diversified at asset class level and conviction driven within each asset class.

Multi-faceted approach to risk

Risk can’t be reduced to a single number, and it’s absolutely not simply short term volatility. The most significant risk is the permanent loss of real capital. We strive to avoid this. For example we hold no developed market government debt because it is screamingly expensive. While not volatile, it will lose money in spades. A more rounded view is required, incorporating factors such as risk of loss, volatility, liquidity and more, with value offering a margin for error in every decision.

Published in Kepler Advisers

The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.

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