Marlborough Investment Management: Investment Process
The objective of the investment process employed by the Marlborough Investment Management (MIM) portfolio management team is to construct, manage and maintain portfolios capable of matching or outperforming specified indices or risk and return outcomes. Each portfolio is designed to perform predictably in accordance with the respective index or targeted risk/reward outcome.
The investment process allows for the creation of diversified investment portfolios with varying risk profiles. Each portfolio is able to access the broad and varied expertise of our asset allocation knowledge, investment experience and expert fund manager selections.
Asset allocation involves the distribution of capital among various asset classes (such as equities and bonds), and geographies. It is based on the principle that the values of different assets react in different ways and at different times to changes in economic and market conditions.
In setting our asset allocation for each portfolio, the team evaluates investment research encompassing a wide range of views to make shorter-term (tactical) and longer-term (strategic) assessments of the most appropriate assets to take advantage of prevailing global economic and market conditions. Asset allocation is a constant ongoing consideration, and the Investment Committee monthly meetings undertake a full review of it on behalf of all portfolios and make appropriate adjustments where necessary.
Fund Research and Selection
The fund research and selection process utilises leading edge technology to create a series of filters with the objective of identifying funds with the characteristics we wish to target. Software allows the Investment Team to complete a quantitative analysis of the fund universe to establish mathematical metrics such as cumulative performance, discrete performance, risk adjusted returns, alpha, beta, standard deviation, correlations, Sharpe ratio, and Information Ratio. This process eliminates a significant proportion of the funds within any one geographic or security type peer group to generate a shortlist of funds for consideration.
Having identified a smaller pool of funds of quantitative interest a detailed qualitative analysis is undertaken. This involves assessing the management firm itself, the ACD, and the manager/management team of the particular fund. This focusses on amongst other items management style, manager tenure, manager resources, portfolio liquidity, ESG policy, SRD II, the approach to the Stewardship Code, and wider processes. The aim is to understand how historic returns have been achieved and whether that pattern is sustainable and repeatable, and also the market environment in which the process is likely to out and under perform. If warranted, the fund will then find a place on the buy list.
Portfolio Construction and Management
Having established the desired asset allocation for each portfolio and completed fund research and selection, the portfolio construction process can begin. The firm’s portfolio management team create each portfolio in accordance with the objective and investment mandate for each. Investments are selected from the central buy list and ensure that each portfolio exists and operates within the results of the quantitative and qualitative process as approved by the Investment Committee, with additional challenge provided by the independent members of that committee. Following the initial construction phase, each portfolio is constantly monitored and adjusted as deemed necessary.
Within the global framework mapped out above the company offers a range of three regulated Fund of Funds (FOFs) products, a Model Portfolio Service (MPS) and a Bespoke Portfolio Management Service for High Net Worth Individuals. Within all of these services the ultimate objective as suggested above is that within certain parameters, we seek to ensure that the outcomes we achieve for clients are logical and to demonstrate a degree of predictable returns and predictable risk, based on the level of each portfolio that is exposed to company shares and fixed interest securities such that:
The overall outcome is to varying degrees a distinct set of risk and return co-ordinates which MIM then seeks to align, using various reverse engineering approaches to our strategic asset allocations, to an efficient frontier.