“Our models identified negative momentum in markets earlier this year. Back in May our proprietary system gave the nod to completely exit all share market positions and move to 100% cash to protect investors’ capital.  We have therefore avoided the near 14% drop in the ASX200” said Tony Porter, Managing Director of Porter Capital.

“Overnight events, due to recession fears in the US and sovereign debt issues in Europe have supported this bold move, with further drops expected.”

Porter Capital developed the proprietary investment process as a mechanical and therefore unemotional, disciplined process.

“This analytical, objective system”, says Porter “is an advantage particularly during difficult investment cycles, as it moves to 100% cash to protect capital from a sustained market downturn.

As managers it provides us with clear directions to protect our investors’ capital when panic and confusion is clouding the judgement of some discretionary fund managers.

We developed the systematic process, Prime Momentum, with the aim of protecting investors from sustained losses due to a GFC type event” says Porter.

“Our objective is to protect investors’ capital in negative market conditions by identifying negative momentum in markets and moving the portfolio out of equities and into cash. When markets display positive momentum the Fund employs investor capital back into the market to capitalise on the positive trend in equities.”

It is an active strategy and is well suited to lower tax vehicles such as superannuation funds. The Fund works well as an alternative to, or compliment to Funds that have a mandate to be invested in markets, no matter what occurs.
The Prime Momentum Fund has returned +4.53% since its August 2010 inception versus the S&P/ASX 200 which has lost 9.7% over the same period.*

Since its initial discovery in 1985, the momentum effect has been documented and researched in many markets worldwide. Academic research has proven that strong initial momentum performance leads to outperformance over the medium to long term. Additionally, this research confirms that momentum based investing strategies can generate excess stock returns globally. Porter Capital research has discovered the existence of excess returns accruing to momentum based investment strategies in Australian stocks.

Porter added that currently their momentum markers are still negative, although they believe that markets are oversold in the short term and a consolidation of the recent sell off is probable.

“You need to be careful about trying to catch a falling knife in this market. Fear and panic reign. Our approach is to exercise discipline and patience until the supply and demand spectrum of the market turns to the positive, and probabilities are in our favour to make solid absolute returns in equities once again” says Porter.

* Past performance is not a reliable indicator of future performance. Returns are after management + administration fees and before performance fees since inception of product.

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