Portfoliosense Update

We are pleased to provide an update regarding some exciting developments within our Portfoliosense® investment strategy which are due to be implemented over the coming weeks.

We have been working with our research partner, EBI Portfolios (Evidence Based Investment Portfolios), to evolve and consider new improved strategies to generate long term investment returns whilst staying true to our philosophy of evidence-based, factor driven investments.

The following provides a brief overview of the main changes being adopted within the Portfoliosense® investment strategy:

Environment, Social and Governance (ESG)

ESG investing is now firmly entering the mainstream as investors are now increasingly utilising their investments in a more responsible way to have a positive impact on environmental issues. This in turn is forcing companies to adapt their operations to address investors’ concerns, who essentially are the owners of these firms.

The following are some examples of the areas ESG looks to improve:

• Environmental: Air and Water pollution, Biodiversity and Deforestation, Emissions, Energy Efficiency
• Social: Gender and Diversity, Human Rights, Labour Standards
• Governance: Executive Compensation, Bribery and Corruption, Board Composition

EBI Portfolios have conducted a study using stock indices for various global regions compared to the same index with ESG screening added. This analysis shows that ESG adds to performance whilst reducing investment volatility. In addition to this, drawdowns (the decline from the peak value) were lessened, and the time it took a portfolio to rebound to previous highs was at least on par with that for the non-ESG portfolios, and in many cases better.

Based on the above, Portfoliosense® will be adopting ESG screening within the growth assets of its portfolios where suitable funds are available. The screening adopted within these funds will look to reduce exposure to those companies with poor ESG scores and increase exposure to those companies who have a high ESG score, which should bring beneficial risk adjusted returns over the long term.

It is worth mentioning that the investment strategy is prioritised over ESG. This means the goal of the portfolios is still to maximise returns for your given level of risk. The inclusion of ESG investing is a secondary objective, and is aimed at introducing responsible investing into our portfolios, such as to cut carbon emissions to meet the Paris Climate Agreement and to exclude certain sectors (such as weapons manufactures) where the investment strategy allows.
We believe that a failure to adopt EGS screening will result in lower long term investment returns.

Factor exposure

We have also been working to improve the factor exposure within Portfoliosense® with particular focus on the following two areas:

1) Increasing the factor exposure within the growth asset content
2) Incorporating three new factors; Minimum Volatility, Momentum and Quality

As with existing factors already adopted within Portfoliosense®, Value and Small, these new factors are backed by the same academic analysis.

The Minimum Volatility factor aims to improve the risk adjusted returns of a portfolio by highlighting stocks which have historically been less volatile over time in comparison to alternative stocks in their asset class. This approach will avoid the sharper ups and downs in the market caused by other stocks and aims for any returns forfeited to be outweighed by the losses avoided.

Minimum Volatility is like the suspension in your car, it works by attempting to smooth out the bumps in the road and make your journey more enjoyable and potentially marginally faster. This approach should mean the Minimum Volatility fund itself should not see the same degree of falls or rises in value in comparison to others within the portfolio.

When used with the other factors, it is a key component of our diversified factor strategy.

The inclusion of the Momentum factor further increases the factor diversification and tilts the portfolios towards companies which have positive price movement over certain time periods. Academic studies have shown that companies which have done well recently will continue to perform well.

The Quality factor is the recognition of the fact that profitable companies generate higher returns than unprofitable companies. Typically, profitability provides an indication of future profitability and companies with higher levels of profitability tend to attract greater investment which in turn generate greater returns.

The Quality factor will not be accessed by directly investing in a Quality factor fund, as several of the funds in Portfoliosense® portfolios incorporate Quality, giving the portfolios sufficient exposure to this factor.


The Property exposure within the growth assets is being removed from Portfoliosense® portfolios. Property has been included in our portfolios since 2010 due to the diversification benefits it is thought to bring when grouped with equities and bonds, which has historically worked well. However, recent research conducted by EBI has indicated that switching the Property exposure to factor exposure (specifically Minimum Volatility) will in fact create a more robust, risk adjusted portfolio. Therefore, the Property exposure will be removed, and the weighting reallocated to factor exposure.


These changes are an evolution of our Portfoliosense® investment strategy; striving to ensure the world will be left in a better place for future generations, while seeking to bring the beneficial risk adjusted returns over the long term.

For those investors who do not adopt the Vantage service, your Financial Planner will discuss these changes with you at your next review meeting, where they will provide additional information for your agreement before the changes are adopted within your portfolios.

Peter has worked in Financial Services for over 10 years, he started out at a national Private Banking institute where he reviewed and co-ordinated client investment portfolios and is the holder of the Investment Management Certificate. His journey saw him transfer these skills and knowledge into the personal financial planning aspect of the Financial Services world, where he is a Chartered Associate of the London Institute of Banking and Finance and works closely with our Financial Planners in analysing and forming strategies to meet all of your financial objectives.

Henwood court

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