The investment philosophy at Tower Hill Associates is built on evidence from academics at the leading edge of financial science. At its heart is the empirical study by Brinson, Hood and Beebower (see chart below) which concluded that over 90% of the variation in investment returns was determined by Strategic Asset Allocation (the high level mix between equities, bonds, property and cash) and not conventional wisdom Stock/Fund picking or Tactical Asset Allocation so often espoused as the most important by Investment professionals and the media.
It is for this reason that Tower Hill Associates focuses on Strategic Asset Allocation when constructing client portfolios taking account of the following core beliefs:
Consistently outperforming the financial markets is extremely difficult – economic uncertainties, random market changes and the success and failure of individual companies make it extremely difficult for professional investors to beat the market over the long term so low cost index tracker funds are usually better value for money.
Free markets are efficient – the financial markets adjust to every new piece of information and competition quickly drives prices to fair value. In our view, a stock’s current price is the best estimate of its true value. Attempting to forecast future events or time market movements is a futile endeavour that only burdens investors with higher costs and unnecessary risk.
Risk and return are inseparable – stocks and bonds that offer higher average returns relative to the market almost always carry higher risk. Understanding this relationship enables investors to strike a balance between their performance goals and the degree of uncertainty they can accept.
Diversification is crucial – it is through broad diversification across many asset classes, industries and geographical markets that higher expected returns can be achieved for a given level of risk.
Minimising cost is vital for long term investment success – the higher the investment charges, the lower the investment return which is why we keep portfolio building block charges to a minimum by using mainly low cost index tracker funds. We also use specialist institutional enhanced tracker funds to capture compensated risk factors with investment charges minimised through skilful trading and meticulous cost management.