Vantage: Strategy for Excellence

Vantage Vigilance

The investment environment is in constant flux. The highest level of asset governance comes from vigilant attention: attention to manager performance, attention to exposure, attention to strategy, attention to asset allocation, and many more. Vantage’s vigilance aims to cover mulitple sources of risk, many of which are well hidden.

Real vs Perceived Risk

By 1989, both theory and empirical evidence supported the judicious inclusion of non-traditional strategies, and experience has borne out the decision. Investing in these areas benefits clients by providing access to uncorrelated risk-premia, more efficient use of the “risk budget,” and significantly reduced “dead weight” in the strategy. Our intense focus on meeting our clients’ risk/return objectives led us two decades ago to advocate the inclusion of non-traditional strategies where appropriate in our clients’ portfolios. These benefits are still on offer—at the price of deep due diligence and higher vigilance.

Investing in non-traditional strategies demands the recognition that they are usually complex and harder to own. Significant due diligence is required. Vantage has developed a comprehensive approach to risk detection and management which encompasses these strategies.

Four Critical Outcome Factors

Very few critical outcome factors are under the control of an investor; the ones which are must be confidently seized. Vantage believes there are four such factors make the difference when putting capital at risk. They are: diversification, discipline, skill, and courage. None of the four can stand alone; however, when each of them is pursued with passion, quality outcomes can result.

Diversification

Diversification is very close to a “free good.” It is underutilized—to the cost of many an investor. Vantage believes in quantifying and demonstrating diversification at the portfolio and asset level. The visual below depicts such an approach: a three dimensional projection of historical correlation and risk adjusted returns that can help bring to life the high degree of interconnectedness of traditional assets and the difficulties in finding truly diversifying assets and investments.

Discipline

Without discipline, gains from diversification can be lost. Rebalancing may sound easy, but discipline is required to take money from asset classes and managers that have done well and add it to those that haven’t yet shown obvious gains.

Skill

What tells us “when the risk is too high?” Skill. No one is born an excellent investor; skill is not innate but acquired. Experience, passion, and deliberate practice are the best teachers.

Courage

All of the above can be diminished without the courage to act. Courage comes from domain knowledge—skill and experience. It takes skill to identify a bubble, for instance, but courage is required to get out of harm’s way.