The WealthFair · Investment mechanics for advisory firms

Understand what the portfolio is built to do, and explain it when it matters

A financial markets session for advisers and investment committees, designed to support clearer discussion when markets are stressed, diversification disappoints or clients start asking about the latest fashionable investment.

Three client conversations where investment understanding matters most

Markets are stressed

A client sees their portfolio fall and asks what is happening inside it. The challenge is to explain what is driving the result, whether the portfolio is behaving as designed, and what has and has not changed.

Diversification disappoints

Assets that were expected to offset each other fall together. We look at why correlations are unstable and often rise in periods of stress, and how to explain diversification honestly, including its limits.

A fashionable investment arrives

A client asks why they are not invested in the latest theme or product. We look at how to assess what is driving the story, what risks may be overlooked, and how to explain the decision clearly either way.

What the session covers

The aim is not to change your portfolios. It is to give advisers the language and evidence to explain them with confidence.

When investor behaviour becomes the riskWhy FOMO, peer comparison and performance chasing can undermine otherwise sensible investment decisions.

Volatility is not riskWhat conventional risk measures tell us, what they do not, and why a smooth historical return series can still conceal significant risk.

Correlation: driving by looking in the rear-view mirrorWhy historical correlation can give false comfort, and why understanding the underlying return engines matters more.

The big basket of alternativesWhy alternatives are added to portfolios, which characteristics genuinely diversify risk, and when diversification may be more apparent than real.

Structured products: what's under the bonnet?Looking beyond the headline yield or protection to understand the options, assumptions and exposures actually creating the return.

Scenario

September–October 2020, when European equities started falling again

European investors had already endured a severe drawdown and many had moved substantial allocations to cash during the March panic. Those who stayed invested were still nervous as European equities weakened again later in the year.

At the time, private equity and private credit were being discussed as alternatives. We spent time explaining why their reported returns appeared much smoother than public markets and why that did not necessarily mean the underlying economic risk was lower.

About Patrick de Villiers

Over 30 years in financial markets, from an investment bank trading desk to co-founding a systematic hedge fund and leading the investment committee of a regulated multi-asset fund.

Chairman of the Investment Committee and Investment Advisor – Sodefi FundA Netherlands-regulated multi-asset fund for professional investors.
Co-founder and CEO – Neural Capital LimitedA systematic investment firm specialising in diversifying return streams. The firm was FCA-regulated and registered with the CFTC and NFA in the US.
Global Head of Currency Derivatives – Investec Bank PLCLed foreign exchange and derivatives teams across the UK, US and South Africa.