Our investment beliefs

At the core of our investment philosophy is the application of a ‘genuinely long-term fundamentals-led investment approach employed to build and maintain well-diversified portfolios’.

We aim to provide portfolios that are resilient to shorter-term market shocks and fluctuations, allowing us to maintain stable holdings that are well placed to deliver against their long-term objectives.

We invest through market cycles – portfolios contain investments into high-quality companies with strong market positions and holdings in stable, highly rated government debt.

When holding equities our preference is to allow high quality businesses that make good returns to compound their value over time and patiently accrue that value to us as shareholders.

All our actively managed investments are subject to an integrated investigation and selection process and ongoing review, considering a wide range of both financial and non-financial factors which may impact long-term performance and stability.  We also actively engage as asset owners to influence behaviours of the companies and providers we invest with.

Our long-term approach gives our investment ideas time to work and limits unnecessary portfolio turnover and the associated costs. We also position our business as a sensible and collaborative provider of patient capital where our engagement focuses on an investments ability to generate sustainable long-term returns.

As long-term investors we believe that it is ‘time in the market’ not ‘timing the market’ that matters. We believe that customers holding a portfolio over the long-term and allowing returns to compound, rather than attempting to time their investments, will be the biggest factor in the overall return achieved. We align our approach to this view, providing comfort to invest under a wide range of market conditions and to maintain holdings through periods of volatility for as long as they remain suitable to achieve long-term goals.

To help enable this approach the NFU Mutual investment team have developed an investment process that is rigorously applied to select internal and externally managed assets that we feel are best placed to achieve optimal risk-adjusted outcomes.  Our investment beliefs are supported by academic literature and, through dedicated application, we are confident we can achieve good long-term investment outcomes for our customers.

Our beliefs

Diversification is key to delivering stable long-term returns

What this means:

• Different asset classes such as UK and international company shares (equities), government and corporate fixed income stocks (bonds) and cash, and the securities held within these classes (the individual assets, e.g. a specific company share or stock) will perform differently through time, with their values reacting differently to differing economic conditions and events.
• Diversifying across a range of asset classes, geographies, market sectors and individual securities increases the chances of delivering long-term growth and providing some protection against economic shocks. Diversification provides the best opportunity to deliver more stable long-term returns compared to a more concentrated portfolio.

Risk and Return are related but not always proportional

What this means:

• Taking risk is required to obtain reasonable returns with an aim of keeping pace with or beating inflation, however at times the expected return on an asset or group of assets does not adequately compensate for the level of risk taken. This is often related to an imbalance of supply and demand in investment markets. Portfolios should be constructed taking into account both the potential for return and the level of risk.
• We don’t believe that returns should be chased by taking excessive risk. Conversely too little risk in a portfolio will limit potential portfolio growth. We look to find the optimal level of risk and expected return (known as risk-adjusted return) for a given fund based on its appetite for risk. The level of risk is indicated by the NFU Mutual Risk Rating assigned to all our customer retail funds.

We believe in Active Management

What this means:

• We believe markets are generally efficient, most of the time.  As such, asset class valuations tend, in aggregate, to accurately reflect their fair value.  However, at an individual security level, inefficiencies can and do occur.  Active management involves taking overweight or underweight positions in individual securities compared to the proportion of the market they represent, with the aim of providing returns in excess of what a passive strategy (which invests in line with market weights) would provide.
• Active opportunities are available for long term investors:  short term volatility in markets created by economic and political instability alongside general market ‘noise’ can lead to a share trading below its long-term fair value.
• Where expertise and opportunity exists, we believe active security selection can provide a source of increased returns net of any additional management costs.

An integrated ESG approach

What this means:

• Environmental, Social and Governance (ESG) factors need to be taken into account and can have a significant impact on investment outcomes.
• Issues such as the social impact of investments, impact on climate change and the internal and external environment an investment operates within are all integrated parts of investment decision-making and are embedded within the process used to manage our investments.
• The exclusion of sectors or specific securities will impact returns, either positively or negatively, and reduces our ability to influence the behaviour of companies as their owners.  Our preferred approach in most cases is to positively influence the behaviour of companies we invest in rather than excluding them from our investment portfolios.
• Where we believe ESG factors impact potential for long-term performance, the investment process may lead to under or over-weighting of securities within actively managed portfolios where such flexibility exists.  These decisions aim to increase the stability and level of long-term returns.
• Formal exclusions or ESG related targets set for reasons other than performance expectations represent a moral belief rather than an investment decision.  The Society Board may instruct the Investment Function to exclude assets on ESG grounds or set ESG related targets, e.g. climate targets that the Investment Function must meet.

Asset Allocation is the most significant driver of return

What this means:

• The mix of asset classes (equities, bonds etc) and the weights allocated to these asset classes is the main driver of returns for mixed portfolio (multi-asset) investments in the medium to long-term.
• The primary way we aim to deliver risk-adjusted returns in our multi-asset funds is through setting the mix of asset classes based on our medium-term strategic view, known as Strategic Asset Allocation. Other shorter-term or more granular investment decisions can provide additional incremental benefit.

Shorter-term market inefficiencies can be exploited

What this means:

• Dynamic Asset Allocation is a process used to adjust our medium-term Strategic Allocations in multi-asset funds, reflecting investment views over shorter time horizons. This can add value by allowing us to take advantage of market events, inefficiencies or behaviours not captured in the medium-term strategic view.

Optimal returns can be delivered through a mix of our in-house investment managers and by using carefully selected external managers

What this means:

• We have strong capability in-house across UK asset classes and certain overseas developed equity and credit markets. Dedicated teams manage specific asset classes where they have considerable expertise at a competitive cost level.
• For certain overseas geographies and additional specialist asset classes where internal capability is limited, we seek to utilise best in class external managers if we believe their expertise can provide improved portfolio returns net of any additional cost.

Investment decisions must be subject to robust governance        

What this means:

• Because the investment decisions we take impact the performance of our customers, there are strong internal governance structures in place to ensure we manage our assets in a prudent manner, that there is a sound rationale for investment decisions and that these decisions are in the best interest of our customers.