Sentinel is remunerated by sharing in the returns it generates for its clients. We must therefore be able to produce positive returns in ALL markets regardless of market performance (that is, deliver returns even when markets are negative). To achieve this, Sentinel adopts what’s known as Active Management. This means that Sentinel adjusts portfolios by buying and selling holdings according to the prevailing market conditions.
There are many ways in which Sentinel’s Active Management is deployed:
Normally when you provide funds to a stockbroker or investment manager to place in the stockmarket, they invest the entire amount (or at least most of it) immediately and maintain a fully invested status. Sentinel is very different because when a client provides us with funds to invest, our objective is to produce returns from the market. This distinction is crucial because it means that if we cannot see how to make returns from the market, we won’t invest. Instead we will leave funds in cash or other low risk investments.
The effect of this manoeuvrability is that our clients effectively gain exposure to the stockmarket when conditions are conducive to growth, while being withdrawn from the market when conditions appear risky. It should be stressed that this is not an exact science, nor is it a case of ‘all in or all out’ – rather it is about trying to provide access to the stockmarket as most appropriate for the perceived conditions.
Unlike traditional investment portfolios which spread holdings across a broad spectrum of investments and sectors in the hope that diversification will even out returns, Sentinel adopts a more precise investment philosophy. Driven by the need to perform in all market conditions, Sentinel prefers to target specific investments where it believes the likelihood of investment success is high. This does not mean that the quality of investments or risk management is in any way compromised, Sentinel believes in targeting investments with a higher probability of success, rather than employing a scattergun approach and hoping for general performance.
Use of Derivatives
Risk management is paramount in Sentinel’s investment style and derivatives are a key tool for maintaining protection. One of the appealing attributes of using derivatives is they provide a known maximum amount of downside when investing. Just as you would insure your house or car, so too can you insure shares using derivatives. Derivatives also allow Sentinel to structure risk across an entire portfolio, thereby minimising downside while enabling upside. It should be noted that Sentinel are experts in the uses of derivatives and only deploys them conservatively for the purposes of risk management where suitable.