Long-term returns of the Courtiers funds remain incredibly strong, thanks to diversification, flexibility and our ISRRA (Investment Strategy Risk and Return Analysis) model. We may be working with our own model, but it all stems back to Harry Markowitz’s Modern Portfolio Theory and the eggs you have in your basket.
“Diversification is the only free lunch.”
This is a quote attributed to the legendary Nobel Prize winner Harry Markowitz, the godfather of Modern Portfolio Theory and the architect of some of the formulae that sits behind the ISRRA (Investment Strategy Risk and Return Analysis) – Courtiers’ proprietary model developed to provide insight to our clients around how their portfolio may look in the future.
Although this concept is referred to as Modern Portfolio Theory it was in fact introduced back in 1952. Sadly, Professor Markowitz passed away last year at the ripe old age of 95 but his ideas surrounding the importance of diversification remain relevant to this day.
What is Modern Portfolio Theory?
Modern Portfolio Theory helps select investments to maximise overall returns within an acceptable level of risk. It is not enough to look at the expected risk and return of one asset class; Modern Portfolio Theory promotes diversification, designing an optimum portfolio of many different asset classes that optimises returns for a quantifiable amount of risk.
Investment is not just about picking individual stocks, but instead, about choosing the right combination of assets to distribute between.
A more colloquial way of thinking about this concept lies in the phrase “don’t put all your eggs in one basket”. So, with Easter arriving early this year, here’s an opportunity to show you how many “eggs” you’ve got and how many different baskets they are held in.
Courtiers Multi-Asset Funds
Knowing that the best way to limit risk is diversification, the Courtiers Multi-Asset Funds are extremely flexible, mitigating the risk of one asset class by balancing it with the others. Their main exposure is to equities, which are shares in publicly traded companies. The funds also have indirect exposure to over 1,600 stocks across 22 developed nations and six emerging markets. This exposure is obtained through a mixture of direct stock holdings, mutual funds and derivatives, the latter of which offers very broad exposure to a highly diverse selection of companies. We constantly manage our risk and reward across asset classes as well as the underlying equity sectors, understanding our exposure and defining our – and your – success.
The same is true for the fixed income universe, we have exposure to over 290 bonds issued across the world ranging from Government debt to loans issued by corporations. We also have exposure to over 300 infrastructure assets from bridges in Canada to mobile phone masts in New Zealand and the power cables that connect offshore wind farms to the national grid.
Diversification protects against the unknown. While short-term returns are a rollercoaster longer term returns are more predictable, so staying in the game for as long as possible is the most important thing. Maintaining strong diversification across assets has helped – and continues to help – our funds through periods of extreme market turmoil from the likes of the global financial crisis, the Covid pandemic and the multitude of inflation shocks we have seen in the last few years.
Diversification is our safe passage through volatile times. Yes, it can be painful if one aspect of the market is doing well and we are not concentrated in it. You have to diversify, building a portfolio across different asset classes, different countries and different sectors. As always, ‘the proof of the pudding is in the eating’, and the long-term returns of the Courtiers funds are incredibly strong.
