The investment approach of ShelteR Investment Management is systematic, rigorous and transparent with a keen focus on stability and proper human oversight. Stability compounds and has historically been a very successful investment methodology. Where most managers and advisors focus solely on predicting returns, ShelteR focuses on limiting risks.

ShelteR offers a variety of actively managed investment solutions across different asset classes using investment strategies with main focus on risk reduction to become more stable portfolios with enhanced returns and risk characteristics.

Why does stability matter?

Uncertainty is a risk that investors do not want. Investments that generate stable returns are often overlooked in favour of investments with potential higher gains. This can result in more fluctuating returns as market conditions change continuously.

Adding stability to a portfolio can simply help to limit losses and provide steadier returns.

Stability can help you win more by losing less

Successful investing is not just about making the right investment decisions, but also targeting to avoid the wrong ones. Avoiding losses is an essential part of investing as big gains can easily be erased by small losses, whereas exponential gains are needed to recover from a loss. The graph below illustrates this mathematical relationship.

Adding stability to a portfolio can help reduce risk and avoid heavy losses.

Source: Rego Partners

Stability can add alpha to a portfolio

Stability can also have a positive effect on a portfolio. Empirical evidence from the low volatility anomaly suggests that low volatility assets often perform better on a risk-adjusted basic than high volatility assets. Stability adds alpha to a portfolio where reduced downside risk is an important route to generate alpha.

The graph below shows an empirical illustration of the positive effect stability can have on a portfolio. The green line shows the track record of an existing risk-efficient sustainable portfolio with reduced volatility, whereas the blue line shows the track record of a benchmark with a higher volatility.

This example shows that in a downturn market, the “low volatility” portfolio fell with 12% compared to the “higher volatility” portfolio which dropped by 31%. The upward trend afterwards shows that the higher volatility portfolio increased with +25% whereas the low volatility portfolio increased with only +18%.

Even though the higher volatility portfolio increased with a higher absolute percentage, the low volatility portfolio performed better at the end of the whole period. This is due to the fact that positive returns needed to offset losses, grow disproportionately and therefore the low volatility portfolio shows more stability.

Stability adds alpha to a portfolio where lowering downside risk is an important factor for the creation of this added-value.

Source: Rego Partners