Asset Allocation
The most important determinant in investment performance is the asset class into which the portfolio is invested. Almost invariably funds showing historic out-performance do so by investing in higher risk asset classes. Different asset classes offer different levels of risk and hence achieve greater or lesser degrees of performance compared with other asset classes.
Importantly, however, the risk of each asset class is measurable. We can demonstrate likely returns and potential losses. Our approach is to guide the client to a choosing a combination of asset classes which they personally feel most likely to meet their objectives.
Investment theory defines two main components to risk: market risk and specific risk. The former of these is the simple risk of being invested into a particular asset class, i.e. stock markets may go down as well as up, and the latter is the risk of being invested into an asset class but failing to participate in the returns achieved, i.e. under-performing a benchmark.
In essence, Rowan ask that our clients understand and assume the responsibility for market risk; with the professional guidance of their Adviser, the client must make their own decision as to which combinations of asset classes are most suitable.
Rowans’ Investment Managers assume the responsibility for specific risk; it is their job to make sure that the client fully participates in the returns offered by the asset class combination selected. By definition, our clients can define the performance potential of their own investments.
To do this effectively requires a clear approach to explaining the risk and returns presented by different asset classes.
