There has almost never been a time when the investment landscape is as complex as it is today. Market valuations are high after a long and sustained bull market, private and national debt at unprecedented levels, and interest rates are rising again. Political attitudes are changing.
Whilst most investment managers and independent financial advisors would agree with this simple synopsis few do much about it. Most traditional investment managers have only one type of advice for clients and that is to “buy”. When stock markets are high, they recommend investors buy because markets are doing well. When markets have collapsed, they recommend investors buy because markets are low. This Hobson’s choice is rational – most investment managers are incentivised by assets under management. But for investors, this poses a challenge.
Is there an alternative? At WoodHill, we started a fund in 2014 that is different. To begin with, we would rather investors do not have to experience major declines. Investors often have uses for their capital that cannot wait until stock markets eventually recover, and also because avoiding major losses improves long-term returns dramatically. Over the last thirty years, if an investor in FTSE 100 had managed to avoid only 50% of major stock market drawdowns, capital returns would have nearly doubled.
To help avoid major losses, we use derivatives, only to mitigate risk. When the market moves to levels which we deem to be at risk of falling, we “hedge” the full value of our equity portfolio. When we place the hedge “on”, the entire value of the portfolio is effectively in cash (or neutral). And as the market returns to a level that we feel is more likely to rise, we remove the hedge, giving investors full exposure to the market. We do this periodically over periods sometimes measured in days, sometimes weeks. Since we launched the fund in 2014, we have been hedged about 70% of the time.
There are other ways we try to boost returns by reducing risk. Where we can, we avoid companies that have excessive amounts of debt (often fatal for a company during a recession) and we also aim to consistently invest in the best quality companies in their respective fields.
We started Woodhill to make a real difference to investors. From our knowledge, virtually no other fully regulated and low-fee UK unit trust uses a strategy remotely close to ours. As time has passed, we have become better at putting our theory into practice. Over the last two years we have produced a total return (capital growth with dividends reinvested) of over 11% with much lower volatility than the UK equity market.
With over 50 years of combined investment experience, we believe that we can and have been able to improve investment returns through a systematic process of reducing risk. Please get in touch with us at firstname.lastname@example.org or visit our website at www.woodhillam.co.uk
Michael Bedford CFA