Bruce Loveday

Absolute return investing is a tried and tested investment approach that can help investors accumulate wealth whilst also avoiding some of the major downside risks in the market, although it is unfortunately not well understood by many investors, according to ARCO Investment Management.

Speaking at a lunch event in Sydney today, ARCO Chairman Bruce Loveday said far from being a new philosophy, absolute return investing has been used successfully by sophisticated and institutional investors for many years and is now growing in popularity among advisers and self-directed investors.

“ARCO’s track record over the past 10 years as an absolute return specialist illustrates the degree to which this type of strategy can help investors manage market risks in their portfolio and be a great complement to more traditional equity funds,” Mr Loveday said.

“The ARCO Absolute Return Trust has generated over 8% pa net of fees for investors since September 2008, during which time the largest drawdown experienced was 4.7%, compared to over 30% for the broader Australian equity market. Adding this type of downside protection can help investors and their advisers build better portfolio outcomes in terms of diversification and consistency of returns.”

ARCO co-founder and portfolio manager George Colman added that the ability of the absolute return manager to not be constrained by market benchmarks and to more actively manage risk settings for investors as markets change means it is better positioned to manage downside risks for clients.

“For example, some valuations in the financial sector in particular are stretched at the moment in our view, and with house prices under pressure plus the Royal Commission’s scrutiny on lending practices likely to put more pressure on credit growth, we are positioning our absolute return portfolio to take advantage of pricing retracement in some financial stocks,” he said.

“We’re also bearish on sectors that are overly dependent on local consumer spending and credit and bullish on stocks that have a clear and compelling ‘self-help’ story that will reward shareholders.”

In terms of its approach to stock selection, Mr Colman said ARCO focused on the relationship between a stock’s price and its ‘fair value range’. Companies that are priced at either a significant discount or premium to their fair value range are interesting to ARCO and provide an important prompt for the investment team to take a deeper look at the stock’s risk and return potential before deciding whether or not to invest.

“Given the risks that we see building in the local economy, we also have a current preference for companies with some exposure to overseas markets that are at a different stage of the economic cycle,” he said.

The post Absolute return investing helps investors manage rising market risks appeared first on AdviserVoice.

Loveday: The appointment of Loveday to Copia’s board strengthens its corporate governance, balance and independence. Loveday has been CEO of two funds management businesses and has held senior executive positions in banking, institutional stockbroking, asset consulting and investor relations. He served as chairman of Bennelong Funds Management Ltd from 2010 to 2014 and is a fellow of the Australian Institution of Company Directors.

Voskresensky, new CFO: Loveday’s appointment follows a busy start to 2018 with the appointment of Michael Voskresensky to chief financial officer. Voskresensky joined from Mutual Trust where he was general manager, finance.

Unit registry: Copia has also transitioned the unit registry of its managed funds to OneVue, Australia’s largest managed fund administration platform, after incumbent unit registry provider, NAB Asset Servicing, struck a deal with OneVue.

Vertium Asset Management: Copia’s newest fund (Vertium Equity Income Fund) has in the past few months been added to several platforms (BT Wrap, BT Panorama, Hub24 and FirstWrap) and last year also received a recommended rating from Lonsec. The fund is attracting significant retail and institutional interest, particularly in light of volatility returning to market in February 2018.

CEO Sam Baillieu said “Copia has the platform, structures and capabilities in place to scale up significantly and we’re committed to adding assets to our existing managers, as well as onboarding exciting new boutiques that complement our existing product offering.”

“The Australian investment management industry is due for a shake-up and managers with unique capabilities will play an important role in helping investors achieve their goals. Copia is well placed and resourced to partner strategically with existing and new investment managers,” said Baillieu.

The post Copia expands board, gears up for growth appeared first on AdviserVoice.

Mr Loveday is the former Chairman of Bennelong Funds Management Limited and Praemium Limited, and currently serves as Chairman of Burnham Capital, part of the private family office, Burnham Group.

The move by ARCO follows overtures by several private wealth and family office investors and their advisers, attracted to the strategy’s capital preservation and compounding return track record, but who sought daily liquidity and pricing for the strategy.

ARCO’s flagship absolute return strategy has been a strong performer. Since inception in September 2008, the strategy has delivered a net annual return of 8.3% per annum. It has also generated positive returns in 80% of months since its inception, compared with 53% for the ASX200.

ARCO believes its Absolute Return Fund will appeal in current market conditions. Financial markets currently face several escalating risks, and investors are actively reshaping their portfolios to better prepare against downside risk and to protect their capital.

“Ultra-low interest rates continue to underpin relatively expensive equity valuations, but this trade is now very long in the tooth. Offshore central banks seem keen to lift rates and tighten liquidity, which may well increase equity market volatility,” said George Colman, Co-Portfolio Manager and co-founder of ARCO.

“In Australia, there seems to be less immediate upward pressure on short rates, but we remain wary about the outlook for housing, and its broader implications for the economy and our equity market.

“Given these issues, in addition to a number of geo-political risks which have been largely ignored by equity markets to date, we shouldn’t be surprised that many sophisticated investors are increasing their portfolio allocation to alternative strategies such as absolute return funds that have proven effective in preserving capital in all market conditions,” said Mr Colman.

ARCO Absolute Return Fund

“The key objectives of the ARCO Absolute Return Fund are to deliver steady, compounding investor returns over time through stock alpha generation, with an overarching focus on capital preservation and with lower volatility compared to the broader equity market,” said ARCO Co-Portfolio Manager and co-founder Peter Whiting.

“We have a fundamental research approach to selecting stocks, constructing portfolios of stocks we believe are mispriced and don’t reflect their underlying value. We hedge the ‘long’ portfolio against market drops by selling short securities that we believe are priced well above their underlying values,” he said.

“The fund is designed to shield investors from downside equity risk when equity markets are flat to falling while building wealth over time.”

The strategy typically has a diversified portfolio of between 40 and 60 stocks (including both long and short positions).

The post ARCO responds to market demand with a new daily-liquid absolute return offer appeared first on AdviserVoice.