At the heart of Our Approach are our investment principles
Isla Capital believes there are many investment approaches suitable for different objectives, circumstances, and risk tolerance. Each has its own advantages and disadvantages, and there are no “silver bullets” for financial markets. Successful investment outcomes are often driven by execution as much as investment insight. Nevertheless, there are investment principles and practices that are very relevant to long-term capital growth, and these are baked into Isla Capital’s DNA and its Investment Process.
Diversification is the best foundation for long-term capital growth. Our portfolios are highly diversified internally, and often uncorrelated to other external investments such as equity markets.
We use inhouse research to identify and monitor assets and investment strategies that are uncorrelated with markets and economic cycles.
Long-term performance is best achieved by compounding strong, stable returns. Financial markets are prone to steep drawdowns, or tail events, which often take much longer to recover from. Consequently, our strategies attempt to minimise extreme outcomes.
Diversification and not trying to “shoot the lights out” are good starting points.
Academic research indicates that strategic asset allocation is an important driver of long-term returns, often the primary driver. Top-down, or “macro” investing is therefore highly relevant for long-term capital growth and for generating absolute returns – positive returns whatever the outcome in mainstream financial markets.
Market prices may not reflect the macroeconomic or investment fundamentals that point to the “correct” price. At times markets are driven by animal spirits, and prices may drive fundamentals instead of the other way round. These market conditions offer opportunities to profit through trend following or reversion to value as economic forces come to the fore over the medium term.
Markets can be usefully predicted but like the weather, political events, or your partner’s mood, the timing and outcome is often surprising. Isla Capital seeks to minimise our dependence on marketing timing throughout, using techniques like diversification, rebalancing, medium or long-term positioning, option-type exposure, hedging, and averaging into and out of positions.
Individual investments or securities can out-outperform the asset class. These riskier opportunities are often best accessed via “option-like” positions that offer plenty of upside potential while risking only the upfront cost.
Risk management is intrinsic to our investment process. Portfolio design, diversification, and monitoring outcomes are the starting points of risk management, but active risk management is also key. We use a variety of measurements to monitor risk and can take actions to ensure risk remains at appropriate levels. This includes increasing portfolio insurance in response to an increase in global financial risk and geopolitical developments or hedging specific risks such as country or sector risk.
Isla Capital believes quantitative techniques are highly suited to our investment approach and an important tool in our investment toolbox. The expected long-term performance and risk of rules-based strategies can be assessed algorithmically, and there is greater scope for automation and cost efficiency. Quantitative analysis promotes objectivity, consistency, and repeatability, and can yield insights not visible to the human eye, for instance detecting patterns in big data.
The impact of costs on long-term returns is often underestimated and can significantly degrade performance. We therefore pay much more attention to cost efficiency than is typical in the industry, including trading and brokerage costs, and third-party fees.
Isla Capital provides advice to investors regarding institutional-grade, liquid portfolios. We offer two broad portfolio strategies:
Family Office and Endowment Portfolio
Based on the Endowment Model often used by Family Offices and medium sized Institutions these non-traditional portfolios target long-term returns, allocating more to alternative assets, and less to traditional asset classes like equities and bonds. Key features:
- Performance Objective: Long-term capital growth with capital preservation.
- Strategic asset allocation: Based on the Endowment Model
- Global diversification: By asset class, sector, country, currency and with focus on uncorrelated assets.
- Constrained Leverage: Exposure to equity markets using derivatives therefore supporting a greater allocation of cash to alternative assets like infrastructure, real estate, private equity, and volatility.
- Liquid: Redeemable to cash at short notice.
Hedge Fund Strategy
- Performance Objective: Enhanced long-term capital growth
- Diversified portfolio of global currencies.
- Uses leverage to more to a higher risk/return profile.
- Reduced correlation to equity markets and hedge funds.
- Rules-based strategy with consistent, long-term historical performance profile.
- Intuitive investment model with efficient, transparent trading.
- Liquid: Redeemable to cash at short notice.
All strategies can be customized, for instance to increase or decrease the risk/return profile.
We work with clients to engineer customized investment strategies to meet specific objectives, e.g., target level of return or risk, hedge a currency, guard against inflation, invest in a specific country or region, hedge equity downside risk, generate income.