Investment Philosophy

Our Investment Philosophy

Our Investment Philosophy is that asset allocation is the most important factor in overall portfolio performance and that the global and individual country macroeconomic environment, (economic growth, money supply, growth, inflation, unemployment, interest rates, current account etc), determines the relative attractiveness of the various asset classes at any particular time.

Additionally…

Every investor has a maximum amount of risk he/she is willing to tolerate in order to generate returns above the cash in bank rate – a ‘risk budget’
We may want higher returns but we must be willing to pay the price i.e. risk
The role of the investor/manager is to maximise the return within that ‘risk budget’
Before any risky asset is added to a portfolio, its impact on the overall portfolio risk must be understood.

Asset Classes

Different types of investment exhibit different behaviours, react differently in varying market conditions and have their own levels of risk and potential returns. Leveraging off the knowledge of the AAM Advisory Investment Committee, your AAM Advisory financial adviser will be able to help you choose the correct mixture of the assets for your circumstances. To follow is a brief explanation of the basic asset classes.

Defensive Assets (focus on capital preservation and income)

Cash

Cash generally refers to investments in bank bills and similar securities which have a short investment timetable. They provide a stable, low risk income, in the form of regular interest payments. Risk and potential return:

Bonds / Fixed Interest

Here we refer to government bonds, corporate bonds, mortgages and hybrid securities which generally operate in the same way as loans. The income return is usually in the form of regular interest payments for an agreed period of time. Risk and potential return:

Growth Assets (focus on capital growth and income)

Property

Property securities are shares in property investments that are listed on share markets. Sectors include commercial, retail, hotel and industrial property. The shares could be in property development companies or real estate investment trusts REITs. Risk and potential return:

Commodities

Commodities can generally be classified as either hard (mined and pulled from underground) or soft (grown above ground). Hard commodities would include resources such as ore and coal and soft commodities generally refer to agriculturals like corn and wheat. Energy (oil/natural gas) and precious metals (gold/silver) are also sub categories of this class. Return comes in the form of capital growth through commodity price increases. Risk and potential return:

Equity

A share represents part ownership of a company. Shares are generally bought and sold on the stock exchange. Returns usually include capital growth (or loss) and income through dividends which may be franked (i.e. the company has already paid tax on the earnings). Risk and potential return:

Alternatives

The alternative asset class generally refers to hedge funds although it can also refer to alternative assets like art or antiques. The common characteristic applicable to hedge funds is the search for absolute returns in all market conditions. To achieve this, managers employ a wide variety of strategies like equity shorting, commodity futures trading, distressed securities and market arbitrage.

Active Asset Allocation

We actively advise on portfolios across a range of different investment styles. In each case we believe our role is not to avoid risk, but rather to manage risk appropriately, relative to the objectives of the portfolio. We avoid speculation and our processes ensure our portfolios are appropriately diversifed.

The Investor Profile

Your investment profile will be based on:

Base currency
Investment horizon
Required rate of return
Your tolerance for risk

Lump Sum Investment Portfolios

Example Asset Allocations

High Growth Portfolio

Has primarily equities or similar higher risk investments, weighted toward aggressive growth, small cap equity and emerging markets as well as global commodity markets. A high growth portfolio may be suitable for you if you:

Have high return expectations for your investments
Can tolerate higher degrees of fluctuation (sharp, short-term volatility in the value of your investments)
Are a more experienced investor and a risk taker
Desire returns that exceed inflation
Have 10 years or more before you will need to utilise the funds

Growth Portfolio

Has exposure to equities, property or similar higher risk investments focused on growth, while also offering alternative asset classes to diversify away some risk. A growth portfolio may be suitable for you if you:

Have moderately high return expectations for your investments
Can tolerate market downturns and volatility for the possibility of achieving greater long-term gains
Are an experienced equity investor
Have 5 years or more before you will need to utilise the funds

Balanced Portfolio

An intermediate risk and return portfolio that provides a blend of equities, property, alternatives and income-oriented investments. A balanced portfolio may be suitable for you if you:

Have moderate return expectations for your investments
Want some current income return on your investments
Are willing and able to accept a moderate level of risk and return
Are primarily a growth investor but want greater diversification
Are concerned about inflation
Have 3 or more years before you will need to utilise the funds

Cautious Portfolio

A cautious portfolio has only 20% invested in growth assets like equities and property. 80% is allocated to low risk alternatives, fixed interest/bond investments and cash. A cautious portfolio may be suitable for you if you: