PCM Investment Portfolio Objectives:
- To generate attractive and consistent returns irrespective of the ups and downs the global economy might go through (i.e. targeting attractive positive returns over any two-year period).
- To preserve capital through resilient asset diversification and prudent investment management processes.
Managed to maximise total returns in a conservative manner for the Australian investor (also suitable for Superannuation or SMSF Portfolios).
- Latest Quarterly Client Briefing & Portfolio Performance Updates:
- Click Here (March 2018)
- Click Here (December 2017)
- Click Here (September 2017)
- Click Here (June 2017)
- Click Here (March 2017)
- Click Here (December 2016)
- Click Here (September 2016)
- Click Here (June 2016)
- Click Here (March 2016)
- Click Here (December 2015)
- Click Here (September 2015)
- Click Here (June 2015)
PCM's Investment Approach:
ATTRACTIVE INVESTMENT RETURNS are driven by aligning with the major tides of change in the world.
CAPITAL IS PRESERVED by mitigating against unexpected risks in a resilient and diversified manner.
We seek to ‘swim with the tide’ as much as possible by having a longer-term momentum/trend following framework incorporated into our investment management process - in a way that complements our valuation and capital flow analysis frameworks (more information below).
We adhere to the nineteenth century Rothschild maxim: "Always leave a profit to the other fellow." We are happy if we capture 70-80% of a major trend; if this is done consistently with a reasonable strike rate, strong returns will be achieved. It is generally the first and last 15% of any trend that is most expensive (i.e. trying to pick the tops and bottoms) and people who chase them invariably suffer in their haste.
At the same time as seeking to align our portfolios with ‘the major tides of change in the world’, we are also seeking to develop a resiliency to our portfolios that gives us confidence that capital should be preserved even if we are temporarily caught ‘wrong-footed’ in one of our more overweight investment positions.
The Portfolio results to date suggest that our Investment process is meeting the capital preservation mandate whilst generating respectable returns overall...
As you can see from the above chart, the PCM Portfolio strategy is uncorrelated, more than 50% less volatile than the Australian Share market and is able to produce attractive returns in a resilient manner.
Portfolio management is both an art and a science. Portfolio returns tend to take care of themselves when you are right and correctly positioned, however the ‘art’ of portfolio construction is to balance the portfolio such that drawdowns are minimised when you are wrong or caught incorrectly positioned.
Our ‘all-weather’ diversification amongst uncorrelated asset classes, in combination with a heavy emphasis towards longer-term momentum/trend following approaches both tend towards minimising drawdown risk and promoting an adaptive and responsive portfolio management framework that should tend towards maintaining a correct alignment to financial market conditions.
In a sense, our approach gives us an objective framework and time to watch patiently to determine in each market whether we are seeing a simple counter-trend move within a broader likely continuation of trend, or a potential new major change in trend
“I began to realise that the big money must necessarily be in the big swing. Whatever might seem to give a big swing its initial impulse, the fact is that its occurrence is not the result of manipulation by pools or artifice by financiers, but depends upon basic conditions. And no matter who opposes it, the sing must inevitably run as far and as fast and as long as the impelling forces determine.” ...Jesse Livermore, Reminiscences of a Stock Operator (1923)
When it comes to preserving capital, we posit that there are 7 primary risks facing an investor in liquid exchange-traded securities (such as are held in PCM Portfolios), click to expand image:
We assess RISK within each asset-class (cash, equities, bonds, precious metals, currency) according to three essential factors, (a) trend following principles, (b) asset class valuations, and (c) capital flows and liquidity dynamics.
- TREND (LONG TERM MOMENTUM) – we seek to swim with the tide rather than against it. We utilise a low-frequency (multi-year) systematic trend following methodology that can be objectively stated. This approach allows us to avoid being on the wrong side of broader market trends for too long. Also, with every overweight asset class exposure, we have a ‘line in the sand’ (or stop loss price) which if crossed will automatically cause us to start reducing our exposure. We do not aim to capture 100% of a multi-year trend (i.e. we are not interested in trying to pick tops or bottoms), but rather we have a methodology designed to target the ‘middle 70%’ of the move. [The idea is to follow longer-term momentum in asset classes and being very mindful of valuation extremes.]
We diversify across many different Asset Classes in a way that doesn’t require us to ‘predict’ what happens next in the world, rather we use our long-term trend-following methodology to simply ‘adapt’ (or flow) with whatever happens.
Quite simply, if the trend is up we will ‘overweight’ that asset class,
if the trend is down we will ‘underweight’ the asset class.
In this way we can be confident that we won’t be too out of line with what is happening in investment markets and from time to time we will also capture (or avoid) big moves that can help to generate higher than normal returns when they occur.
“Our grand business is not to see what lies dimly at a distance, but to do what lies clearly at hand.” …Thomas Carlyle (1795-1881)
- VALUATION (RISK PREMIA PRICING) – we do not believe in a ‘perfect’ valuation approach to an asset class, rather we seek to use a variety of historically robust methodologies in order to gauge valuation. We are also mindful of the fact that ‘value’ also is a relative concept and can often evolve in non-linear ways within the complex adaptive system that is ‘the world’.
- CAPITAL FLOWS – we seek to understand the nature of the capital and liquidity flows that are underpinning the dynamics of the asset class in question. We maintain a large array of both proprietary and non-proprietary models and frameworks in order to objectively measure and gauge liquidity and capital flow dynamics for each major asset class and currency in the world.
“Patience is power. Patience is not an absence of action; rather it is timing; it waits on the right time to act, for the right principles and in the right way.” …Fulton J. Sheen (1895-1969)
We believe it is safer to act on general (broad-level) information as opposed to specific information (which can be concealed or manipulated). We also observe that the primary determinants of a portfolio's success are more influenced by macro-economic factors and asset allocation decisions than specific bottom-up stock-picking decisions - especially in the context of a constantly evolving landscape.
See also: Understanding 'How We Think' Investment Presentation: Click Here
In addition to the above 7 Primary Risks, what else do we believe about Risk?
- The antidote to risk is knowledge (Warren Buffet)
- The greatest determinant of risk is found in the quality of the analysis and decision making processes leading up to the assumption of the risk exposure.
- Once we have assumed a risk exposure, we manage it in the context of three dimensions: price, time and information flows (that are either confirmatory or otherwise of our thesis and systems pertaining to the asset class/currency in question)
- That there is unnecessary risk (which must be identified and eliminated at all costs) and necessary risk (which must be assumed only on the basis of significant insight, awareness and calculation)
- That anyone charged with the stewardship of risk must operate with the highest levels of accountability (and transparency before that accountability).
- That risk expands with the efficiency we build into the system, and is diffused somewhat according to the resiliency we build into the system; we therefore aim to be at least two-parts resilient to every one part efficient, twice as quick to move towards resiliency as we are in moving towards efficiency. See here for further information about this principle.
- The greatest mistake in life is to try to avoid risk in its entirety; rather risk should be embraced but only in a highly calculated and diligent manner.
"There is no security on this earth; there is only opportunity." ...General Douglas Macarthur
Please Click Here for samples of our research.
If you would like further information, please Contact Us.
About Our Portfolios:
- GREAT INVESTMENT PERFORMANCE: 'Equity-like' absolute returns with a capital preservation mandate and significantly less volatility. Targets consistently positive returns over any rolling two year period, well above term deposit interest rates. Compare our results (& the diversification we have) with your current portfolio.
- GENUINELY ABSOLUTE RETURNS: zero correlation & zero beta to the equity market... a growing requirement for an ageing population.
- LESS RISK: Take less risk than a typical share market investment portfolio (or a 60/40 Stock & Bonds portfolio)...
- Significantly less volatility than the share market
- Greater asset-class diversification
- Returns generated whilst maintaining large cash holdings (30% allocation since inception)
- No leverage, no derivatives, no exotic (or inverse) ETFs, no opacity.
- LIQUID & SIMPLE: PCM’s Portfolios only using big, liquid, exchange traded investments (so it’s easy for you to convert some or all or your portfolio to cash in a timely manner if you wanted to).
- TRANSPARENT: Full access to your investments at all times... totally transparent portfolios held in your name, whereby you can login online to view your holdings and their latest valuations 24 hours a day. SMA direct-securities structure.
- DIRECT SECURITIES: PCM does not touch your money, but it is safeguarded by a platform with a responsible entity (ASIC regulated & licensed) and your investments are held transparently in your name by an independent Custodian (that is also regulated & licensed by ASIC). Direct securities also enables portability.
- INCENTIVE ALIGNED: PCM designed these portfolios first and foremost as an investment solution for our own family and friends. As a result, our own family and friends will be invested just like you will be, meaning that at PCM we really do ‘eat our own cooking’.
- MORE CONSISTENT RETURNS: Monthly returns are more consistently positive than conventionally constructed portfolios (such as a 60/40 Stock & Bonds portfolio)
- COMMON SENSE APPROACH: Simple Investment Methodology that is easy to explain to Advisors and Retail investors. Common-sense, Intuitive, Robust. This provides a nice change from the highly complicated and opaque investment management world.
- LOW COST ACTIVE MANAGEMENT: Active common-sense investment management decisions directed by PCM to help make sure your investment portfolio is well-positioned throughout the different stages in the cycle across various asset classes that may include: Shares, Bonds, Cash, Precious Metals, Commodities, Currencies, REITS and the like. The 2014 Ernst & Young Global Hedge Fund Survey found that the average expense ratio for absolute return hedge funds was 2.04% (excluding performance fees). PCM’s base fees for investment management vary from between 0.88% and 1.40% depending on the strategy selection (excluding platform costs that may be an additional 0.06% to 0.44% depending on account size).
- LOW TURNOVER: PCM’s portfolios are low-touch (with a portfolio turnover of less than 20% p.a. since inception) meaning that the wholesale transaction costs are kept to a minimum. PCM receives no remuneration from transactions.
- LIQUIDITY UNCONSTRAINED: The investment strategy underpinning the PCM Portfolios is as close to a ‘liquidity unconstrained’ strategy as you are likely to get, meaning that the effective FUM limits of the strategy are likely measured in the $trillions.
- INFLATION & CURRENCY RISK AWARE: Some protection against currency and inflation risks
- PLATFORM FLEXIBILITY: Although PCM has its preferred platform providers, we are willing to work with and execute through other platforms (subject to review/approval).
- EASY, AUTOMATED ADMIN: the platform-based SMA solution enables 24 hour online access with comprehensive reporting & review capabilities that will meet any taxation or client reporting requirement... your accountant will love you come tax time!
- SUPERANNUATION FRIENDLY: Whether you have as little as $25,000 in your personal superannuation account, or whether you have a substantial nest egg in a SMSF; PCM’s portfolios can be tailored to your circumstances. Alternatively, if you have money outside of super (like savings or a windfall from a property or business sale), PCM’s portfolios are highly useful to possibly help compound your savings at a higher risk-adjusted return than many other portfolio management services.
- INFORMATIVE: PCM are able to provide an abundant amount of investment research both in client-friendly formats and in communications more suited to a professional audience. The Investment Team are highly available for regular workshops and briefings.
If you would like further information, please Contact Us.