While the traditional investment process seeks to avoid future forecasting by maintaining an exposure to each of the core asset types at all times, an alternative process does exist. It involves the assessment, using sophisticated computer software, of the trend of a particular asset.
How does our system work?
Our system uses economic fundamentals, statistical data combined with an enormous data base, and specifically designed software, to generate simple graphs that can tell you at a glance the implied trend of your investments= performance. It can be used to indicate a time during which an investment will underperform the benchmark (interest bearing cash investments) and therefore indicate a sale and reinvestment to cash.
Conversely, it can indicate that a buying opportunity is evolving through an asset seemingly increasing in value, so that cash can be better applied to owning that investment rather than accepting the cash rate.
The two main modules for assessing risk and return for each asset class and recommending portfolio asset weighting. A long term valuation module values assets against long term pricing fundamentals and a short term model that identifies short-medium term asset price movements by examining the short-term asset price history.
The long term module compares the current price of the asset with long term asset price averages. For bonds this is long term real interest rates. Equities use conventional valuation metrics such as price to earnings (P/E) ratio, price to book, equity risk premium and dividend yield. Property yields are compared to their long term averages against bond yields. Finally, cash is valued by predicting future Reserve Bank policy.
The weakness of a long term valuation model is that while there is a strong expectation that asset valuations will revert to long term valuation averages, in the short to medium term, significant market opportunities may appear in asset classes contrary to long term valuation signals. A powerful example of this has been the Dow Jones, which although overvalued on long term valuation fundamentals, has had substantial positive short and medium performance. Any fund manager that underweights this asset class because of long term valuation concerns would have seriously under-performed competitor managers.
The technical trading model addresses this problem by incorporating a short term valuation model which examines the behaviour of the asset price history over the short-medium term (typically 18 weeks). From the asset price history, the price momentum (moving average), the first derivative of the price momentum, conventional descriptive statistics (such as std. dev.) And technical analysis (charting) are combined in a constant linear regression model and this produces a positive or negative score.
Long Term Analysis Model - Benchmark to the 10 Year Bond
This score is then used to override the output of the long term valuation model. For example, the long term valuation is recommending an underweight stance on U.S. equities since this market is overvalued on long term fundamentals. However, the short term market timing signal model, by examining the asset price history, modifies this raw recommendation to a hold.
It is therefore quite different to traditional advice which sees portfolios maintained for the full investment cycle and subject to rebalancing, but not total disposal, of the particular asset class (eg traditional investment theory includes maintaining an exposure at all times to shares and property investments, even though the outlook may, in the short term, be negative).
Simply described our system seeks to allow you to see when your investments are rising and to maintain or buy more of them. At the same time our system may tell you that one of your investments is falling, and indicates when that sector of your portfolio could be brought to cash.
When any part of your portfolio is at rest you can be assured that it is earning the short term interest rate applicable at the time, and in this way our system guarantees that your monies are trending forward.
What this means for you...
Confidence - That your investments are not only with leading managers and diversified for security, but also that they are actively monitored for profits.
Reduced Relative Risk - You'll know of significant downturns that suggest a change.
Increased Profits - You'll know of significant upturns that offer buying opportunities.
Knowledge - of actual investment events.
Timely Communication - of actual events in your portfolio.
Reassurance - that your investments are being closely reviewed.