In this article we have a look under the bonnet of our flagship RTS Investment Strategy.
The RTS Investment Strategy is the core part of most of our client’s portfolios and is a strategy guided by a hundred years of empirical data, decades of academic research by renowned economists and the practices of leading institutional investors.
The RTS Investment Strategy principles
At the heart of the RTS Investment Strategy are 8 principles:
#1 – Risk and return go hand in hand
Higher exposure to the right risk can lead to better returns but it is not guaranteed. Risk is a premium all investors pay for the expectation of a greater return.
#2 – The capital markets work
The price of stocks and shares generally reflects the expectations of everyone involved in the market. The markets are not perfect but they do a fairly good job at pricing in all known information into the price of a stock.
#3 – The structure of your portfolio will be the key driver of return
The most important factor in determining the risk you take and the returns you get will be the structure of your portfolio and what percentage you allocate to equities, bonds etc.
#4 – It’s very hard to beat the market
All the evidence shows that over the long term it’s extremely difficult for anyone including professional fund managers to beat the market.
#5 – Costs matter
The vast majority of professional fund managers fail to add value as they usually can’t generate enough excess return to cover their higher fees.
#6 – Investor behaviour is key to a positive long term outcome
Investors need to ensure they don’t let their emotions get the better of them and we help to maintain a disciplined approach especially in extreme market conditions.
#7 – Diversification is essential
Our portfolios hold the shares and bonds of many companies and governments in many countries around the world to spread risk.
#8 – Rebalancing your portfolio should be based on the evidence
Unnecessary rebalancing of your portfolio usually based on time can damage returns. Rebalancing should be based on market movements and risk objectives.
A closer look at the RTS Investment Strategy
At a high level we measure risk using a scale of 1 to 10 with 1 being very low risk and 10 being high risk.
For the RTS Investment Strategy we have built 10 portfolios, one for each risk level.
Essentially each level of risk will include a higher proportion of equities in the portfolio.
Whilst the RTS Investment Strategy captures the global market we also make a few tweaks with the aim of generating improved returns.
The evidence shows that over the long term a value based strategy outperforms a growth based strategy. Meaning it is better to invest in more well established companies that are under-priced rather than new companies with high potential to grow that are expensively priced.
The evidence also shows that over the long term smaller companies tend to outperform larger companies.
So we factor in these two strategies.
Each portfolio is benchmarked against inflation (Retail Price Index – RPI) meaning as you go up the risk scale the aim of the portfolio is to significantly outperform inflation.
Let’s have a look at one of the most popular portfolios the RTS Investment Strategy 60, which allocates 60% to equities and is for a risk level 6 investor (medium/Balanced risk).
Some key facts:
- 7 investment funds used.
- 12,880 stocks.
- 15,182 bonds.
- Top equity holding, Apple inc, forming 0.79% of the portfolio.
- Total weighted charge for the portfolio = 0.26%.
- Aiming to beat RPI + 2%.
Here is the track record over the last 7 years:
As well as the RTS Investment Strategy we also have two separate strategies the RTS Tracker range and the RTS ESG range.
Our key ethos is to construct our client portfolios based on extensive academic evidence of what drives returns in the capital markets.
Unlike many others in the financial industry, we don’t follow the flavour of the month. We don’t react to the day-to-day movement of stock prices. Instead, we rely on robust empirical evidence about how best to capture long-term returns.
The result is a range of low-cost, evidence-based, globally diversified portfolios designed to capture the capital market return over the long-term, while eliminating unnecessary costs, inefficiencies and anxiety for our clients.
If you would like more information on the RTS Investment Strategy and our other strategies then please get in touch. We would be happy to do an examination of your current portfolio and compare it to our own to see if you could be doing better with your investment returns.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.