Our Investment Beliefs

Our investment beliefs have been formed on the basis of experience and rigorous analysis and provide an important foundation for formulating the various investment strategies.

There are essentially 8 fundamental investment beliefs regarding the key aspects of investment risk and returns:

1. Strategic Asset Allocation

The focus on strategic asset allocation is a key element, reflecting that the decision between the allocation to asset classes (Australian and international shares, Australian and international fixed interest, alternative assets and property/infrastructure) plays a significant role in shaping risk and the final total return of your portfolio.

2. Risk and Diversification

Intelligent diversification of returns drivers provides the opportunity to reduce portfolio risks, based on the age-old wisdom of ‘not putting all one’s eggs in one basket’.

Diversification among assets (Australian and international shares, Australian and international fixed interest, property, infrastructure and alternative assets) is an essential instrument to create portfolios with a lower expected risk given the target total return.

Adding uncorrelated assets is proven in “normally” functioning markets. This ensures investments in your portfolio will uphold diversification advantages. However, in extreme distressed markets (e.g. GFC), the benefits of diversification may reduce as assets become more highly correlated. Note: Correlation is a measure of potential diversification.

3. Investment Horizon

Investment markets offer long term rewards for placing your capital at risk. In most cases ‘best of breed’ growth investments (e.g. Australian and international shares/managed funds) should generate a relatively strong long-term total return, even though it may suffer short term unrealised capital losses.

Also, a long-term investment horizon increases the likelihood of meeting your overall investment objectives.

4. Market Inefficiencies

In many cases the pricing of securities, markets and asset classes are not perfectly efficient or less than perfectly efficient. It may be possible for active management to find and buy these securities, markets and asset classes that don’t reflect their true worth (intrinsic value) and add value on a net return basis.

5. Risk and Return

There is a close relationship between risk and return of investments. Achieving returns above a risk-free rate requires accepting risk.

6. Cost Effective Solutions

We will seek the most cost-effective solution to achieve your portfolio’s objectives and implementing these principles collectively: we recognise the impact of costs on the strategy, but we are prepared to pay for active management when we believe that the costs incurred are likely to be justified by the benefits.

7. Investment Management Styles

There are two investment management styles: passive (index) and active. Passive aims to achieve performance equal to that of the relevant index and active management attempts to outperform relevant index by a certain amount or percentage over a certain period.

We believe, in some cases combining active management (to take advantage of inefficiencies in the pricing of markets) with passive management (take advantage of efficient pricing of individual securities in that market) may enhance the risk and net return of a strategy.

8. Investment Management Approaches

Australian and international share funds will vary in their investment style they invest in over time. The ‘style’ of a fund manager refers to the way they choose stocks from their investment universe. Fund managers generally may be classified either as value, growth or core based on their stock selection process. For example, value managers favour companies that they believe are undervalued relative to their current share price and may focus on measurements such as price to earnings ratio while growth managers favour companies with higher earnings prospects. We believe that a successful combination of these styles can smooth the volatility of a portfolio while attempting to maximise the net returns.

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