At Seed we take a multi-manager approach; we seldom select the underlying securities across the various asset classes, but instead outsource that responsibility to third party fund managers.
We select and blend both passive and active investment building blocks, including index tracker funds, factor based investment funds (Smart Beta) and concentrated active managed funds. By doing this we significantly lower the portfolio costs without compromising performance.
Seed has developed quantitative tools that work in conjunction with data providers BCA Research, Morningstar, MoneyMate, and I Net to objectively analyze manager performance, across a variety of metrics. This assists with idea generation across the entire manager universe.
Funds are ranked according to the following main factors:
- Alpha generation
- Downside Capital protection
Funds are scored and ranked against their peers on 1, 3, and 5 year rolling periods.
Research indicates that there are common traits exhibited by successful managers. Seed targets managers on this basis during the due diligence (qualitative) phase. Over the past 7 years Seed has built up extensive skills and knowledge of the investment manager landscape, through taking part in over 750 manager interactions (comprising in excess of 2 000 man hours). This knowledge is brought to bear in all investment management and advisory actions the team undertakes.
In addition to tradition manager research Seed also undertakes extensive research for itself and third party institutions on alternative investment managers and hedge fund managers. This additional level of research provides significant insights in manager behavior and portfolio construction.
We don’t believe in only looking at historic performances when it comes to selecting managers. Instead, we consider five major factors and a number of sub-factors when it comes to selecting the best fund managers. A balanced approach is therefore necessary when selecting these managers. The five major factors are:
- Company structure e.g. administration and sustainability
- Percentage ownership of management
- The credibility and repeatability of the investment process
- The skill of the investment professionals evidenced by the outputs
- Historic performances and statistics
The first four factors are “qualitative factors” while the last factor is the “quantitative factor” that considers historic performances and risk statistics.
Additional characteristics that are favorable are that:
- The managers are generally bottom-up stock selectors
- The managers experience a low turnover of staff
- The managers manage a relatively small portfolio
We believe these criteria are critical to consider when selecting managers.
Asset Class Valuation
Seed has developed proprietary valuation models for a range of asset classes which assist in assessing current value versus fair value. In addition and specifically in order to obtain a global perspective, third party research is sourced from BCA an independent global research house.
An investment horizon of 3 – 5 years is taken when assessing the value of each asset class. The valuation models are run on a monthly basis with ad hoc monitoring in times of extreme volatility.
Where necessary, asset classes are tactically under or over weighted versus the predetermined strategic asset allocation based on the relative valuations.
Portfolio Construction & Management
Targeting a predetermined real return is important for investment planning. Strategic Asset Allocation (SAA), which makes use of long-term capital market expectations to derive equilibrium asset class weightings, is used by Seed to ensure that our portfolios’ real return requirements will be achieved over an average predetermined time horizon.
We make use of the following toolkit when developing each portfolio’s SAA:
- Post modern portfolio theory: Risk is defined as downside deviation and the aim is to protect the portfolio on the downside.
- Yale endowment investment approach: Each portfolio is exposed to multiple asset classes which reduces its variability of return over time.
Seed then makes use of Tactical Asset Allocation (TAA) to alter the Asset Allocation of the portfolios versus their Strategic Asset Allocation (SAA). Broadly speaking, assets that are trading below fair value are up weighted and assets that are trading above fair value are down weighted.
Once we have determined the target asset allocation, the portfolio is populated with the funds that form part of our short list. Special note is made of combining asset managers / funds that complement each other, rather than track each other, to ensure that the correlation between funds/ managers in the portfolio is as low as possible. This results in portfolios with enhanced risk/reward characteristics.
On a monthly basis individual manager performance is formally evaluated and compared to the benchmark and objectives. It is also monitored and informally assessed on a daily basis.
The Seed Fund Management Team is accountable for overall fund performance, which is compared to peers on an ongoing basis.
Seed developed from its origins as an independent financial advisor to providing multi manager investment solutions across a range of investment products from wrap funds to multi manager solutions within funds.
This history of having a keen understanding of client’s investment requirements and especially the desire to minimize levels of investment drawdown, is a key input into the construction of investment portfolios.
As a manager of manager on a range of unit trust funds, Seed Investments makes use of discrete mandates with underlying fund managers, rather than using these same managers’ wholesale funds. This allows for a much higher degree of customization with attendant cost benefits.
Seed is independent of any financial institution and has the ability to access and include both boutique and large managers into portfolios.
Seed has a well-defined investment process which it is continuously refining.