Investment Strategy

The personal needs and risk profile of the client are the key drivers of all investment decisions. Therefore, portfolios are constructed on an agreed risk profile.

World Assets considers an appropriate dynamic asset mix important.  Performance attribution studies show that asset allocation is the key source of returns, while stock picking adds only minor returns.  Using strategic asset allocation as a ‘set and forget’ strategy may not provide the best outcome ongoing, given down markets can persist for 2 or 4 years, or longer.  This is why World Assets provides various overlays of strategies including Tactical Asset Allocation and Value and Growth Investing in order to minimise down side risk and generate returns.

A flowchart of the investing process showing design and management of portfolios for World Assets clients can be viewed under the Investment Process tab.

Strategic Asset Allocation

Strategic asset allocation is a method that establishes and adheres to what is a ‘base policy mix’.  This is a proportional combination of assets based on expected rates of return for each asset class.  For example, if stocks have historically returned 10% per year and bonds have returned 5% per year, a mix of 50% stocks and 50% bonds would be expected to return 7.5% per year.  This initial process is designed according to a client’s risk profile.

Tactical Asset Allocation

Over the long run, a strategic asset allocation strategy may seem relatively rigid. Therefore, it may be beneficial to occasionally engage in short-term, tactical deviations from the mix to reduce portfolio risk. This flexibility adds a component of market timing to the portfolio, allowing participation in economic conditions that are more favourable for one asset class than for others.

Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is reset when desired short-term profits are achieved.  This strategy demands some discipline, as there is a need to recognize when short-term opportunities have run their course, and then rebalance the portfolio to the long-term asset position.

Value Investing

Value investing is the technique of selecting stocks that trade for less than their intrinsic value.

Share prices can vary significantly over the course of a year, but a business’s revenue, profit and cash flow rarely change anything like as much as its share price.  The reason for this is that the price of a company’s shares is only a reflection of what people are willing to pay for them at any given time. Sometimes, when prices are rising, investors can become greedy.  When prices fall, however, investors can become fearful and rush for the exits.  All this emotion can push the share price a long way from the intrinsic value of the underlying business.

World Assets aims to benefit clients by buying shares when they’re trading at significantly less than their intrinsic value.