Solent is the brainchild of Roderick Collins and Professors Andrew Clare and Steve Thomas of the Cass Business School. The central proposition is that financial markets are unforecastable, using the macro-economics, subjective market analysis and human judgement advocated by many investment strategists. The solution to this conclusion is not a passive investment, since passive leaves, the investor exposed to all the volatility of the market which, as we have seen with the FTSE 100, can lead to a drawdown of 60%.
Solent has identified several rules-based approaches to investment, with no human judgmental intervention, which may be characterized as “clever passive”. The entire Solent methodology is “glass box” not “black box”, i.e. it is transparent and explained in detail in the peer-reviewed papers to be found in the research tab.
A principal technique is trend following (basically a comparison of the current price of a market with its long term moving average). When the market is in an uptrend the asset should be held; when in downtrend cash should be held. This method has been around for over a century and has many firm believers in the world of asset management.
A secondary technique is a momentum, backing recent winners and avoiding recent losers. There is again a century of evidence across many asset classes that such a strategy can prove useful to investors. Risk parity may also be employed, basically varying conviction according to prevailing volatility. The approach is applicable to all asset classes whether combined or individually. For example, developed and emerging equities, bonds, currencies, commodities, real estate and infrastructure may all be included.
The Solent professors have also been at the forefront of “smart beta” research and the design and implementation of smart beta products and these can be useful components of the recommended portfolios.
Solent is not an asset management company but a designer of rules-based investment techniques.
