3 years on: PIM Strategic Conviction
Launched in 2015, PIM Strategic Conviction has now reached its third birthday. It’s aim, to solve the age old conundrum of whether active or passive investing is best. Now, with a 3 year track record in place, it’s time to recap on that journey and see how we are positioned looking ahead.
A brief introduction…
Parmenion has always offered Advisers a choice of active or a passive investment solutions. Both styles utilise the same underlying asset allocation and 10 Risk Grades, all mapped to our risk profiling tool, Edgecumbe, as well as Finametrica and DT.
Our next evolution was the Multi-Option solution. This allows Advisers to choose between active and passive investment styles at the asset class level. Whilst this additional flexibility offered a great way to bespoke a client’s portfolio, it did raise a key question: Which should I choose? Active or passive?
Our flagship solution, Conviction was the latest evolution in this story, solving this problem with a dynamic blend of both styles. Utilising our in-depth knowledge of the investment landscape, with a combination of quantitative measures, we review our exposure to each style on a monthly basis. This enables us to capture the best of both active and passive, across thirteen asset classes.
Cost v. benefit
At Parmenion we can see the attractions of both active and passive. We believe we have the skill to pick active managers who can deliver long term outperformance, as our track record shows. But we are also cognisant of cost. Therefore, we only want to pay for active management when we truly believe it is positioned to add value. The PIM Strategic Conviction solution allows us to do just that.
From an Adviser’s perspective, cost is central to any investment recommendation. This is of course a strong driver of inflows into our Passive funds. Performance is an unknown, cost is not. So why not keep a lid on cost and only target performance when the odds are in your favour?
The PIM team meet on a monthly basis to debate, scrutinise and tweak the split of active and passive funds within the Conviction solution. Each asset class in turn is dissected and analysed from a cost, performance and risk perspective. The chart below gives our current positioning (correct at the time of writing):
For further details on the thinking behind our recent changes please see the ‘portfolio changes’ section of our QIR document here.
Conviction in action
So, 3 years on, how has the solution fared? As with all our investment solutions, the litmus test is whether a client’s portfolio performs as it’s designed to perform. Meaning that for each increase in risk there should be a commensurate increase in return. When reviewing the performance chart below you can see this has clearly been achieved. A testament to a robust asset allocation and risk framework.
Compared to a static 50/50 active/passive portfolio, we’ve delivered higher portfolio returns in Conviction from Risk Grade 4 upward. A highly satisfying result for PIM as investment managers. This, whilst at the same time reducing volatility across all Risk Grades.
Looking forward, we continue to refine our process. Much like the Conviction solution, we don’t sit still. By continually testing and adapting our methodology, we aim to maintain the optimal mix of funds for clients from both a risk and return perspective, and with a keen eye on cost.
If you’d like Parmenion to handle the task of striking the balance between active and passive fund selection, and are keen to deliver the best of both styles to your clients, please contact your Regional Sales Representative or our client servicing team on 0117 204 7678.
“The above article is intended to be a topical commentary and should not be construed as financial advice from either the author or Parmenion Capital Partners LLP. If a client wishes to obtain financial advice as to whether an investment is suitable for their needs, they should consult an authorised Financial Adviser. Past performance is not an indicator of future returns.”
Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact your financial adviser.