Investment Selection

The Harmony Portfolios mostly consist of a wide range of underlying fund holdings. Instead of researching individual companies and securities in order to implement asset allocation decisions, our investment team outsources the selection of these securities to a wide range of different specialist providers (managers). In this way the Harmony Portfolios are essentially being managed by many more investment professionals than Momentum’s team alone. Furthermore, Momentum’s large asset base provides strong buying power which leads to competitive fees.

The financial markets have many different types of investment management companies and strategies. Major categories include active strategies, passive (index tracking) strategies, generalist managers and specialist managers.

We have the option to invest in passive index-tracking funds or exchange traded funds (ETFs) for most asset classes, but we generally invest with an active approach where we believe that managers are capable of delivering outperformance versus the benchmark. We recognise that the world-class, active managers we seek will not outperform every year, so rather we invest in them with a view to benefitting from outperformance over a full market cycle, or at least a three year horizon. However, in certain asset classes where it is harder to sustain an informational advantage relative to the rest of the market (e.g. Government bonds), consistent outperformance is hard to achieve and in these cases we will tend to invest in passively managed vehicles instead.

Generalist managers are useful for providing a broad selection of funds in one location, but these funds may lack the specialisation and expertise compared to their more focused counterparts. Indeed, we believe that no single fund management house can create a monopoly of quality across the spectrum of products that they offer and our ability to invest with different specialists across the world is essential. Specialists create pockets of excellence in their key areas of focus. Our approach therefore enables clients to access a portfolio of investments that are allocated across leaders of the global investment industry.

Selecting specialist active managers requires extensive due diligence and significant resources, but this is expected to be justified by superior results. Momentum’s dedicated investment professionals undertake detailed and extensive due diligence into all underlying managers. This creates great insight into the individual investment characteristics of any particular fund and allows us to blend best of breed managers from across the globe that we believe will complement each other to the benefit of the portfolio as a whole.

Further to our research into an investment manager’s skills we also place much emphasis on the operational due diligence of the fund under analysis. The operational due diligence team has the right to veto a proposed investment if they identify operational risks.

After selecting an investment we continually monitor it to ensure that we have the best strategies for each asset class. For actively managed strategies this usually involves formal review meetings with the portfolio managers twice a year as well as regular desk based monitoring. Our view of what makes a great manager doesn’t change, so we tend to be long term investors in the funds we choose, but the universe of managers usually grows. This provides us with upgrade opportunities. An upgrade could be a manager with a better expected risk/reward profile, or it could be a manager that better complements other holdings, improving the balance and diversification within the portfolio. Our aim is always to be invested with the managers that provide the greatest potential for strong future performance, rather than the manager with the best past performance.

The ability to access cherry-picked, thoroughly researched, pre-eminent investment managers within a single product at institutional fees is a highly attractive proposition. This is what the Harmony Portfolios offer.