Welcome. AIA Seminar, November 4, Speaker: Joel Palmer B.Bus, Dip FS (FP), C.Dec

Transcription

1 Welcome AIA Seminar, November 4, 2015 Speaker: Joel Palmer B.Bus, Dip FS (FP), C.Dec

2 Disclaimer Important information for Presentation Recipients The information contained in this presentation has been prepared for general use only and does not take into account your personal investment objectives, financial situation or particular needs. Before you make any decision about whether to invest in a financial product, you should obtain and consider the Product Disclosure Statement of the financial product. The information provided by Palmer Portfolios Pty Ltd or any of its affiliates has been done so in good faith and has been derived from sources believed to be accurate at the time of compilation. Changes in circumstances, including unlawful interference and unauthorised tampering, after the date of publication may impact on the accuracy of the information. Neither Joel Palmer or any member of the Palmer Portfolios Group accepts responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis of the information included. Past performance is not a reliable indicator of future performance. Neither Joel Palmer nor any member of the Palmer Portfolios Group guarantees the performance of the securities discussed, the repayment of capital or any particular rate of return. The performance of any investment depends on the performance of its underlying asset which can fall as well as rise and can result in both capital losses and gains. Consequently, due to market influences, no assurance can be given that all stated objectives will be achieved. Palmer Portfolios Group Pty Ltd. AFSL Number:

3 Multiple strategy ideas for a defensive growth portfolio 3

4 My story. Married & collected a baby bonus QUT Adviser Born, 1972 St Pats Journo Investor 4

5 Return (& Risk) Fees, taxes Asset allocation Investment selection Accounting? Admin/audit? Adviser? Brokerage? Govt levies? Taxes? Shares? Property? Cash? Bonds? Gold? Commodities? Currency? What to buy? Why? Dartboard or strategy? Is my strategy based on solid research? What do I believe? 5

6 Investor emotions 6

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8 Can you really stomach a big drawdown? -89% 8

9 Real equity returns % 7% 6% 5% 4% 3% 2% 1% 0% Source: Triumph of the Optimist: 101 years of Global Investment Returns 9

10 Not losing money ends up being far more important than making high returns 10

11 How to measure? Volatility? Drawdown? Standard deviation? Sharpe ratio? Alpha? Beta? R-Squared? 11

12 Risk Reduction strategies 12

13 Permanent Portfolio Risk Reduction strategies 13

14 1. Permanent portfolio Prosperity Deflation Equities Bonds Equities Recession Equities Cash Gold Inflation Devised by Harry Browne in Fail-Safe Investing 1970s Weightings re-balanced annually 14

15 Equities Equities Cash Bonds Gold Equities Equity-like return, reduced volatility Easy, cheap to implement 15

16 Equities Bonds Equities Cash Equities Gold Permanent Portfolio 100% stocks 100% bonds 9.6% 9.7% 7.7% Further info Original book Fail-Safe Investing, and Craig Rowland s The Permanent Portfolio (2012) (Craig Rowland) ETFs (US-listed) PRPFX, since 1983! 16

17 Permanent Portfolio Risk Momentum Reduction strategies 17

18 2. Momentum (Relative) momentum rising asset prices tend to rise further, and falling prices to keep falling Equities Strong empirical evidence One of the few proven anomalies Excess return 1% a month (stocks) (Absolute) momentum Compare the performance of one asset to a risk-free asset (i.e. cash) to make market timing decision 18

19 How to use momentum at a portfolio level? Equities Equities Dual Momentum strategy (Gary Antonacci) 1. Invest in shares 2. Switch to cash when 12mth rolling return is less than the cash return 3. Switch back to shares when share return back above cash return 4. Monthly rebalance 19

20 %Return Worst Year Max Drawdown Dual momentum 12.4% -1.7% -15.3% Stocks only 10.1% -36.7% -50.4% Balanced 9.5% -14.9% -26.0% Bonds 6.8% -7.6% -9.1% 20

21 Permanent Portfolio Risk Momentum Reduction strategies Value Averaging 21

22 3. Value averaging Equities... contribute cash to a portfolio when the market is down and sell down Equities shares (create cash) when the market is rising Based on the buy low, sell high philosophy Essentially relies on mean reversion (markets revert to long-term average) An improved version of Dollar Cost Averaging 22

23 How to use Value Averaging in a portfolio? Equities 1. Equities Identify target rate of return (let s say 8%) 2. If actual return is higher, sell down stocks to meet target line (14% return, sell down 6% stocks, add to cash) 3. If actual return lower, buy stocks using cash buffer 4. Rebalance/adjust regularly 23

24 Create cash in good times. Spend cash on stocks as markets fall 24

25 Permanent Portfolio Buy-write strategy Risk Momentum Reduction strategies Value Averaging 25

26 4. Buy-write strategy... a way to increase income on a portfolio by writing/selling options Equities (and collecting a premium) over your share holdings ASX has created the buy-write index Strategy should outperform in falling market and underperform in a rising market 26

27 How to use Buy-write in a portfolio? Equities 1. You hold 500 shares in Woolworths (WOW) at $20 2. You write a 3-month call option for WOW at an exercise price of $22 Equities -- You collect a small premium (say 40c x 500 shares, $200) -- The buyer has the right to purchase the underlying WOW shares if the price rises about $22 3. The original share holder loses out if the price rises above $22 4. The original share holder earns extra income on his/her portfolio as long as the option is not exercised (i.e. stays below $22) 27

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29 We could not isolate evidence that BWS consistently outperforms equity portfolios. We are not convinced of the superiority of the buy-write strategy for individual stocks traded on the Australian market 29

30 Buy-write Equities. Equities 1. Difficult to measure long-term benefits 2. Liquidity of options market may prevent challenges 3. Does little/nothing to reduce portfolio drawdowns 30

31 Permanent Portfolio Buy-write strategy Momentum Risk Reduction strategies Volatility triggers Value Averaging 31

32 5. Volatility triggers Equities... Markets are volatile, get out, or reduce holdings Equities ASX has created the VIX index (Code XVI) Used very effectively in Australia by State Street Global Advisers (SSGA) We will make more by losing less State Street run a balanced-style fund, where exposure to equities can vary from 70% to zero! When volatility hits crisis levels the fund de-risks 32

33 Sept 1, reduced equities exposure significantly Uses SPI contracts to hedge out equities, rather than sell underlying share holdings (retail investors could use BEAR ETF) Return for quarter was +1.97%, versus -8% for Australian share market Over 5 years, SSGA funds have produced excellent returns with lower risk and reduced drawdowns 33

34 Permanent Portfolio Buy-write strategy Momentum Risk Reduction strategies Volatility trigger Value Averaging Invest purely for income? 34

35 Equities 6. Invest for income Close your eyes (Turn off the TV, don t ready the newspaper, disconnect from the internet) Check your bank a/c for dividends (not your Commsec account/portfolio value) 35

36 Permanent Portfolio Buy-write strategy Momentum Risk Reduction strategies Volatility trigger Value Averaging Invest purely for income? 36

37 Not losing money just as (if not more) important than making money Not losing money keeps us in the game for the long-term! 37

38 What do we do? Invest in the same investments as our clients Use risk management tools to reduce drawdowns Invest actively in direct Australian shares -- Bias towards small/micro cap stocks -- Higher weighting to defensive-growth sectors (health, food, IT) -- Stock selection based on quantitative (measurable) indicators -- Invest direct wherever possible to lower costs/fees/taxes Believe strongly in investor education Fee-for-service (no commissions), our own AFSL (independent) 38

39 Tools ETFs.. GOLD, USD, BEAR, Global Equities etc Full list of ASX-listed ETFs in The Australian Financial Review (tables section) Books/Research Momentum ( Dual Momentum Gary Antonacci) Value Averaging ( Value Averaging Michael Edleson) Permanent Portfolio ( Fail-Safe Investing Harry Browne) Buy-Write ( The Efficiency of the Buy-Write Strategy: Evidence from Australia Journal of International Finance) Volatility triggers (Get on the SSGA mailing list?) Fund managers International shares Magellan Australian shares (big) Macquarie high-conviction fund Australian shares (small) Ausbil Microcap Fund Dynamic asset allocation (and active equities). State Street Global Advisers Other useful providers. ( super wrap better/cheaper for most SMSF investors) 39

40 Any questions? 40