Investment Process & Philosophy

At Efficient Private Clients (EFPC) we believe that the correct asset allocation plays the greatest part in producing benchmark-beating returns. Although superior stock picking can be a useful tool in generating alpha, asset allocation is the greatest contributor to return.

We also maintain that superior investment performance can’t be judged in isolation, but should rather be measured on a risk-adjusted basis. This implies that earning benchmark-beating returns during good times are not substantial enough proof of a skilled and prudent investment manager. ‘It takes superior performance in challenging times to show that the bull-market gains were earned through skill and not by simply allowing excessive risks.

At EFPC we mainly use a top down investment approach. Once the broad macro-economic strategy has been formulated we use a combination of quantitative and qualitative models to arrive at the desired portfolio.

Diversification also plays a vital role in the portfolio construction process. By using a quantitative blending process, the volatility of portfolio returns can be reduced without sacrificing potential returns.

The Solution offered at Efficient Private Clients (EFPC) integrates our multi-level investment approach with due diligence at individual client level. The result is an investment methodology that produces consistent excellence and removes much of the risk associated with investment advice. Essentially, it allows us to offer an institutional-level investment solution to individual clients.

The multi-level investment process followed by EFPC can best be explained by the interaction between three different levels: Portfolio Research & Construction, Economic Research & Reviews, and Portfolio Management. These three levels are executed by combining the in-house investment and economic expertise of EFPC with that of Mentenova.

Mentenova received the prestigious “Investment Consultants of the Year” award in 2015, for their success in Portfolio Research & construction. Their clients include, among others: GEMS, Discovery, Sasol, Liberty, Hollard and Standard Bank. Mentenova consults pension funds that represent an excess of R130 billion, which represent the retirement savings of more than 1 million individuals.

The Multi-Level Investment process:

This process occurs by integrating the investment management and economic expertise of EFPC with the investment consultancy of Mentenova in a six step Portfolio Research & Construction process:

1. Country & Sector Allocation

During this step the "Economic Research & Reviews" of Efficient Private Clients (EFPC) is combined with the macro-economic modelling of MenteNova. By using EFPC’s in-house economic expertise, favoured countries and sectors are identified to create a broad understanding of the macro-economic environment.

This information forms the basis on which the Multi-Level Investment Process is formulated, but it also assists the investment team in Portfolio Management.

2. Sector Specific Share Assignment

After the sector favourites were identified in the previous step, the universe of available shares can be assigned to one of the following nine sectors:

•  Basic Materials
•  Consumer Goods
•  Consumer Services
•  Financials
•  Healthcare
•  Industrials
•  Property
•  Technology
•  Telecommunication

3. Maximum Share Allocation

By simplifying the universe of available shares down to the favoured sectors, the maximum number of shares that will eventually be purchased in each sector, can be estimated. This estimation is done based on the sector’s proven track record, and our stringent quality and liquidity requirements. As final measures, we consider the quantitative filters and qualitative overlays to rank shares before making our buy-decision.

4. Quantitative Filtering

Three broad quantitative measures are used to award points to shares within each sector. After points have been awarded an initial rank can be given to each share.

These quantitative measures include:

Earnings Momentum: Points are awarded for the number of consecutive years a company has achieved positive earnings growth. This measure is weighted by the number of years the company has existed.

Dividend Policy: During this step, points are assigned to each share depending on the company’s dividend-mandate, dividend policy, and pay-out history. This is done to identify companies with predictable and growing dividend streams.

Valuation: Points are awarded to each share based on the share’s current P/E, compared to its normalised P/E. These values are also compared to their sector-averages and the overall market P/E. This is done to identify undervalued securities or quality companies at reasonable valuations.

5. Qualitative Overlay

After an initial rank for each share is obtained by applying the Quantitate Filter, the Qualitative Overlay awards additional points based on a shares consensus, as well as a houseview rating.

6. Portfolio Construction

Finally, based on the points awarded to each share during the Quantitative and Qualitative overlays, whilst taking into consideration the “Country & Sector Allocation”, “Sector Specific Share Assignment”, and “Maximum Share Allocation”, the portfolio is constructed. A degree of discretion is however, also used before choosing the final shares included in each portfolio.