Growth is an ever-important aspect of life, and financial markets are no exception. Our interest regarding investments lies in growing them over time, thereby enabling capital appreciation. However, this growth should be at a reasonable rate for the investment proceeds to amount to something sustainable in future.
To be in a position to reap the rewards of capital appreciation, you have to first be able to spot a good investment portfolio proposition. There are various ways to achieve this. Such a portfolio should deliver top-quartile performance at a competitive cost by providing an investor with active exposure and no style bias.
They would continue to deliver a higher-than-average increase in sales. Those with a good value proposition would trade at levels lower than their actual worth .Is there a way for investors to gain better exposure to these stock characteristics in a less risky and systematic manner? To achieve capital appreciation, risk should be managed. One of the best ways to do this is through stock selection, which involves investing in a basket of securities whose returns are driven by different styles.
To understand the benefits of portfolio construction, let’s analyse a few examples from the table. If you were to invest all your money in BHP Group, you would have superior metrics across the board. But as you would be putting all your eggs in one basket, this would be a risky move and should be discouraged. If something suddenly went wrong with the company, you would lose all your money.
The third table shows some examples of the portfolio’s characteristics against the benchmark across a few fundamental metrics. Note that each of the main styles of quality, value and growth consists of a number of fundamental metrics, which form part of the scoring methodology. We can see that we end up with a fund that is better than the benchmark on all three style dimensions, which highlights the fund’s potential ability to deliver outperformance compared with the benchmark.