Balentine employs an “Art and Science” approach to investment management. Within this approach, Science, a term that describes our highly objective investment decisions based on our scientific models, determines our strategic neutral position given today’s starting point. Our annual Capital Markets Forecasts are used to determine that strategic neutral position and the investment course we chart.
The second component of Science is to apply the tactical allocation models in our Market Risk and Safe Building Blocks, as we have done over the last ten years. We monitor over 150 different quantitative models that compare asset classes within these building blocks using measures of relative value (cheap or expensive) or momentum (whether they are doing relatively better or worse). Our Science based approach also incorporates some of the quantitative criteria we use in our decisions to hire, monitor and terminate the implementation vehicles we recommend.
In addition to Science, we use Art, the combination of objective fact and subjective intuition, based investment themes to further capture opportunities for our clients’ portfolios. As we apply our Art based investment themes, our investment strategy team asks two central questions:
- 1. What is the investment thesis for this opportunity?
- 2. What indicators are we watching to exit the allocation (either because the opportunity has been captured or it is not unfolding as we anticipated)?
Our Investment Strategy Team uses the answers to these questions to support investment decisions and identify exit indicators for our “art” based investment themes, as shown below.
Art-Based Assets in Balentine Strategies
To implement this Art and Science based approach, Balentine utilizes a “Building Block” approach to portfolio construction. Rather than viewing the total portfolio as a division of assets among primary asset classes such as stocks, bonds and cash, or by the characteristics of the securities underlying those asset classes (growth, value, domestic, international), we instead deploy assets into building blocks that are defined primarily by risk type.
While most investment professionals define risk as the volatility of market returns, there are many other components of risk that must also be considered. At Balentine, we monitor a range of risks associated with investment management and implementation including, as shown in table below.
The New Components of Risk
However, we believe that any consideration of risk must move beyond even this extended view to consider larger S.T.E.E.P. (social, technological, economic, environmental and political) based uncertainties around the world. Our Art-based investment approach examines these risks and then uses advanced scenario planning analysis to evaluate how a range of factors throughout the world could ultimately impact our client portfolios – allowing us to identify opportunities and protect against larger risks.
Given today’s difficult starting point, a forward thinking investment model is needed to bridge the gap between possible and required returns. By combining the best of both quantitative (science) and qualitative (art) methods with nimble tactical rebalancing, efficient implementation and active management, this holistic approach to investment management helps us better meet the needs of our clients.