Investment Philosophy | Outcome-Based Investment: Putting the Investor First

JOHANNESBURG (Capital Markets in Africa) – Outcome-based investing has become a trending topic in recent times, but what does it mean and why does Momentum Investments believe this to be a sustainable long-term investment strategy and not simply the latest craze? The approach has client-centric investing at its core. This requires a paradigm shift in the investment thought process, where the driving force now becomes the delivery of the desired goals rather than perusal of the investment landscape for the ‘next-best’ opportunity. The investment philosophy, or rather the belief system, puts the investor first. This is achieved by building purposefully driven investment solutions that offer high probabilities of achieving the investors’ essential and aspirational goals, while limiting downside risk. This philosophy has successfully been implemented by Momentum Investments. The temptation to time the market is also avoided. These investment solutions ensure a consistent investment experience over time by remaining flexible, adaptable and diversified.

Past returns are not indicative of future returns
Investors are not concerned about the terminal value of their asset base, but their focus is rather on the terminal ratio of their assets to liabilities, as this will determine the standard of living they can afford at retirement. In contrast, traditional investment strategies concentrate on providing the highest risk-adjusted return without considering individual investor milestones along the way. The emphasis is placed on the investment manager’s ongoing peer-based-return reviews. A top survey ranking is not necessarily indicative of positive return potential (the solution could simply be the best performer among a low-performing group).

The fleeting nature of survey-related return information as well as its non-suitability to a longer-term, sustainable investment plan is illustrated in table 1. Investment returns are therefore better gauged against an investment goal than against peers or benchmarks and should define the goal, as well as the preferred path to achieving that goal, as clearly as possible. Investors often tend not

to meet their objectives, as they often select investment managers based on favourable past returns. This creates a false sense of confidence that can prove costly for the investor over time, as can be clearly seen from table 1. Using a more diversified solution eliminates the guess

work associated with the choice of past winners that underperform in subsequent periods.

An extract from Africa’s Insurance Markets Uncovered. Please download by clicking: INTO AFRICA PUBLICATION: MAY 2017 EDITION.

Contributor’s Profile:
Joseph Pearson is the Senior Portfolio Manager of the Classic, Flexible and Enhanced Factor range portfolios at Momentum Investments. He began his career in 2003 as an economics lecturer and joined the private sector in 2007 as an operational risk specialist. His investment career started in 2008 as a quantitative multi-manager analyst with manager research responsibility. Since 2009 Joseph held various positions at Momentum Investments ranging from Head Portfolio construction, Co-portfolio manager of the Balanced and Top 40 unit trust portfolios as well as Head Investment Performance and Risk Insight. Joseph has a BCom in Quantitative Risk Management (Cum Laude), an MSc In Business Mathematics and Informatics (Cum Laude), an Executive MSc in Risk and Investment Management as well as a PhD In Economics.