Solent is the brainchild of Roderick Collins and Professors Andrew Clare and Steve Thomas of the Cass Business School. The central proposition is that financial markets are unforecastable, using the macro-economics, subjective market analysis and human judgement advocated by many investment strategists. The solution to this conclusion is not passive investment, since passive leaves the investor exposed to all the volatility of the market which, as we have seen with the FTSE 100, can lead to a drawdown of 60%.
Solent has identified several rules-based approaches to investment, with no human judgemental intervention, which may be characterised as “clever passive”. The entire Solent methodology is “glass box” not “black box”, i.e. it is transparent and explained in detail in the peer reviewed papers to be found in the research tab.
A principal technique is trend following (basically a comparison of the current price of a market with its long term moving average). When the market is in an uptrend the asset should be held; when in a downtrend cash should be held. This method has been around for over a century and has many firm believers in the world of asset management.
A secondary technique is momentum, backing recent winners and avoiding recent losers. There is again a century of evidence across many asset classes that such a strategy can prove useful to investors. Risk parity may also be employed, basically varying conviction according to prevailing volatility. The approach is applicable to all asset classes whether combined or individually. For example, developed and emerging equities, bonds, currencies, commodities, real estate and infrastructure may all be included.
The Solent professors have also been at the forefront of “smart beta” research and the design and implementation of smart beta products and these can be useful components of the recommended portfolios.
Solent is not an asset management company but a designer of rules-based investment techniques, of which it rents the intellectual property for a royalty. For example, Solent has designed an equity-oriented multi-asset Sterling denominated methodology (which has a track record of over 6 years), a Sterling multi asset methodology and a US dollar based multi-asset methodology. It will work with asset managers to create rules based investment formulae to replace active strategies which are not delivering alpha or as an enhancement to passive strategies.
Solent is also ideally suited to work with family offices, which simply want to achieve the best risk adjusted returns – unlike some commercial asset management organisations which have a vested interest in promoting their alleged “crystal ball” forecasting skills. The design and analysis of smart beta products is a further Solent activity. Solent also advises on the implementation of its rules-based strategies, for example through ETF’s or total return swaps.
It is thus possible for the investor to access directly a Solent strategy, which the investor will then implement, or to work with one of the existing Solent customers, if they have a product or service which meets the investor’s requirements.