Fund of Funds Investment Process

The process  operates across a range of four Fund of Funds within the confines of an overall risk matrix in which we broadly establish either a 25%,  50%,  75%, or 100%  neutral equity position, balanced with exposure to cash and bonds, and potentially  alternative assets (but no “bricks and mortar” property) across funds benchmarked against the IA 0 – 35% Shares sector, the IA 20-60% Shares sector, the IA 40 – 85% Shares sector, and the IA Global sector and following which we then utilise our research process to create over and underweight exposures based on a wider economic and market analysis.

Investment Process Summary

The over-riding objective of the investment process is to construct, manage and maintain a suite of four risk-rated fund of funds within which each fund should perform predictably in accordance with the respective risk/reward profile allocated with the end result being a range of funds that provide progressively increasing equidistant outcomes of return and risk.

The investment process itself consists of a number of fundamental ‘layers’ that when combined, determines the initial and ongoing make up of each fund in terms of the asset allocation, asset class, geography, and sector via the funds selected.

Investment Process Core Principles

–              Asset Allocation

–              Fund Research and Selection

–              Construction and Management

–              Supervision and Controls

The investment process allows the creation of diversified investment funds with varying risk profiles. It is designed to ensure that each fund accesses the broad and varied expertise of our asset allocation knowledge, Investment Committee experience and specialist sector fund management techniques.

Asset Allocation

Asset allocation involves the distribution of capital to various asset classes (such as equities and bonds) and geographies. It is based on the principle that the values of different asset types react in different ways and at different times to changes in economic and market conditions.

In setting our asset allocation strategy for each fund, the team evaluates investment research and consensus views to make shorter-term (tactical) and longer-term (strategic) assessments of prevailing global economic and financial conditions. This assessment is qualified and implemented through the funds, each pertaining to a certain risk profile and consisting of allocations to various asset classes. Whilst asset allocation is a constant ongoing consideration, the Marlborough Investment Management Investment Committee formally meet monthly to review and where appropriate, adjust its strategy, and to record its thinking in these areas.

Fund Research and Selection

Our fund research and selection process utilises leading edge technology to create a series of filters with the objective of identifying funds with the characteristics we wish to target. Industry leading  software such asMorningstar, Bloomberg and others allow the research team to complete a quantitative analysis of the fund universe to establish mathematical metrics such as cumulative performance, discrete performance, risk adjusted returns, various volatility measures and cost. This process normally eliminates many of the funds screened to produce a short list. 

Following this a qualitative analysis is undertaken. This involves assessing the management firm itself, manager/management team of a particular fund, management style, manager’s tenure, resources, and process. The aim is to understand how historic returns and consistency have been achieved and if that pattern is sustainable and repeatable. 

The team also ensures through the collection of empirical data that we understand the underlying liquidity profile of each fund into which we propose to invest as well as questioning the administrative structure and the systems and controls that operate to ensure the security of assets and continuity of pricing.


Following the enactment of SRD II and the Stewardship Code MIM has considered its position in this respect and identified that within the strict reading of the regulation and the code that MIM is not in scope and does not therefore have to comply with these new requirements. However in our view consideration of environmental, social and governance (ESG) issues is also an integral part of our investment process because as long term investors, we believe that companies with sound governance and that act responsibly within their environment and society as a whole will outperform.   Marlborough is not seeking to adopt a “restrictive” or “sustainable” approach to the management of its Fund of Funds but rather we are seeking to ensure that ESG is integrated into the underlying processes of the funds into which we invest such that our investment team is aware of the ESG rating for our Fund  of fundsand that over time we are able to improve this rating through the selection of replacement assets which are themselves more highly rated.

In this respect we therefore operate a secondary qualitative due diligence process which seeks to establish that the funds into which we are considering an investment have an ESG policy that is aligned with our own, and further that they use their influence as shareholders to hold underlying investee companies to account, and to support them to improve in these areas. From the one-step removed position of a Fund of Funds manager we also seek to establish the circumstances in which the underlying fund manager would generally vote against company management and we collect a record of the voting that has taken place in aggregate by the fund manager over the previous year as well as examples, both positive and negative, of occasions in which the manager has sought to engage with investee company management other than in relation to voting. These records are retained as a key element of our individual fund due diligence record.

On completion of the fund research and selection process the investment team produce a buy list of recommended investments pertaining to the areas of specialism that are to be utilised within each fund/model. When combined, this list forms a central buy list consisting of a range of different asset classes. All buy list investments are reviewed regularly and should a fund fall below its respective benchmark over a 3 month, 6 month and 1 year period it will be actively replaced unless there are exceptional circumstances, supported by evidence.

Construction and Management

Having established the desired asset allocation for each of the funds and completed fund research and selection, the portfolio construction process can begin. The firm’s Investment Managers then create each portfolio in accordance with the objective and investment mandate for the specific funds. They select investments from the central buy list and ensure that each portfolio abides by the Investment Committee’s guidance. Following the initial construction phase, each portfolio is constantly monitored and adjusted, as necessary.

Supervision and Controls

As set out in the Terms of Reference, the Investment Committee oversees all aspects of the investment process. Approving asset allocation, implementation, performance reviews, assessing global economic and political factors and regulatory change are all part of the Committee’s remit. In addition, through regular monthly management information and data gathering, the Committee ensures that the Investment Managers abide with any constraints relating to the construction and performance of the model portfolios; these pertain to factors such as portfolio volatility or limitations to individual assets. The firm’s internal risk controls are in place to ensure that the funds are invested in line with any parameters and guidelines

Investment Process Steps

–              Establish equity / bond & other weightings

–              Overlay equity / bond & other weightings with consensus data

–              Back test to establish hypothetical results

–              Reverse engineer to achieve equidistant outcomes

–              Populate model portfolios

–              Continue to reverse engineer and adjust to achieve desired outcome

–              Regular Rebalancing

Establish Equity / Bond & Other Weightings

The Investment Associations (IA) sectors that initially dictate asset allocation are:

–              IA Mixed Investment 0-35% Equity – our neutral equity position is 25%

–              IA Mixed Investment 20-60% Equity  – our neutral equity position is 25%

–              IA Mixed Investment 40-85% Equity– our neutral equity position is 25%

–              IA Global 100% Equity– our neutral equity position is deemed to be 25%

Rather than being viewed as a constraint, the parameters of these sector averages/benchmarks provide a neutral starting point and are the first step of our investment process to mechanistically set the equity / bond & other weightings that we wish to apply to each fund in order to reflect the risk and potential reward for each.