The Fortis investment philosophy has its founding in medicine

Capitalism has had a positive impact on the world through wealth creation and the world’s economy continues to grow. Investors are able to share in that growth by ownership in companies (shares) or by lending to companies or governments (bonds). The stock market has been shown to give a return substantially above inflation over the longer term and investors continue to be rewarded for providing capital to those wealth creators.

Whilst it is not impossible to “beat the market”, it is very difficult to do so consistently over a prolonged period. This is primarily because when mispricing occurs, market participants will buy or sell, moving the price back to its natural level. By this logic, market beating returns are often just a result of an investor reacting quicker than everyone else. Over any period, some investors will beat the market, but the number of investors who do so will be part of a very small minority.

It is a fundamental law within finance that to achieve a certain level of return, you have to accept a certain level of risk. In other words, the potential financial loss you expose yourself to in investing and taking a risk, is also the reason you earn a return. However, risk is not uniform. Risk comes in forms that offer reward for volatility (good risk) and in forms that fail to do so (bad risk).

The theoretical reward an investor can receive when taking on risk, however, is not free of charge; risk can therefore also be perceived as a "premium". Our role is first to identify which risks offer consistently higher expected returns, and those which do not, and then provide exposure to the good risks in a structured, disciplined, and cost-effective way.

It’s an extremely hard task for an active manager to consistently beat the market and it’s even harder to predict which manager will manage to do so. Economic uncertainties, random market movements, and the rise and fall of individual companies are all part of financial markets’ natural activity and predicting when and to what extent those things will happen is a fool’s errand.

As is the case with virtually every game of chance, past events just aren’t a good predictor of what will happen in the future. The same is true for fund manager performance. Not only is manager outperformance inconsistent, but research has also shown manager outperformance to have been driven by luck, rather than merit.

We believe the most important factor determining the level of risk and variability of return in a portfolio is asset allocation. Evidence has consistently shown that asset allocation explains over 90% of portfolio returns, with some variation by market.

The value added from stock picking and market timing is questionable and tends to be negative.

Diversification, in its broadest sense, consists of allocating wealth widely across several assets.

Portfolios should be constructed in a manner to minimize risk and maximize expected return. Following modern portfolio theory, the combination of two individually risky assets, can be combined to produce a portfolio with less overall risk, without reducing the expected returns, assuming the two individual assets are not perfectly correlated.

Not only does diversification in terms of the stock help mitigate systemic risk, it has been shown that the diversification of geographic regions can also stabilise portfolios.

A lack of consistency in stock market performance by geography shows a general lack of predictability in markets and should be a lesson to investors who believe that they can predict performance.

All investing incurs costs. Some costs, such as expense ratios, are easily observed, while others are more difficult to measure, such as transaction costs. The question is not whether investors must bear some costs, but whether the costs are reasonable.

Expense ratios are strong predictors of performance. Consistently across asset classes, the lowest cost funds produce higher total returns than the more expensive funds, on average.

Costs reduce an investor’s net return, often to the extent that the additional services associated with the fees do not compensate for the loss in return.

The human brain is poor at making investment decisions - a subconscious battle is constantly being waged between the desire for reward and the fear of uncertainty and loss. This frequently creates anxiety and irrational decision making - research has consistently shown that this behaviour costs investors on average around 2% per year - in some studies even more - a huge amount when you consider equities tend to return around 5% above inflation.

We believe that the longer you stay invested, the greater the probability that your investment will generate a positive return. As the saying goes, ‘it is time in the market, not timing the market.’

This is achieved by designing a discplined, systematic investment approach and sticking to it - particularly during extreme market conditions when they inevitably occur.

All too often, investors let their emotions get the better of them with dire consequences for investment returns.