Investment Philosophy

Our investment philosophy is based around several key findings from investment literature.

1. Most of the movement in an individual stock price is explained by overall movements in the market, and to lesser extent the relative performance of the stock’s industry sector. After allowing for market and sector factors, individual company factors can accounts for less than 10 to 20 % of stock returns.
2. Careful market timing between asset classes is possible, and can produce better risk-adjusted returns over a medium-term investment period. Due to the human traits of fear and greed, markets often trend from extremes of under valuation to overvaluation over the economic cycle – meaning a combination of technical and fundamental analysis can be used to often avoid the worst of bear market downturns, and ramp up risk during bull markets.
3. At the sector and country/regional level, trends in relative performance tend to persist for several months to several years.
4. By contrast, repeated studies show that fund managers that remain fully invested in the market over the economic cycle and specialise in outperformance through a bottom-up focus on company specific fundamentals - find it hard to consistently beat the market.  Even if managers could sort the bad from goods stocks, the problem is that stock specific drivers of share prices are usually swamped by sector and market drivers over any given investment time frame. In other words, the share price of even great companies tends to do badly in bear markets and/or when its particular industry sector is out of favour.

With these findings in mind, PennyWise Investment’s diversifies away from company specific risk by focusing exclusively on country/regional and/or industry/sectors equity market ETFs and exchange traded commodities (ETCs). PennyWise will broaden coverage to fixed-income ETFs when they are eventually launched on the Australian market.

Our recommendations are based on a combination of both technical and fundamental analysis. For each asset class/investment sector we have developed proprietary trending and relative strength indicators to help identify the best performing areas for investment. We also keep a careful eye on valuations, to avoid being over exposed to areas which have become "too hot" or over valued.

What’s more, PennyWise Investment does not advocate “buy on hold” investing apart for the very risk adverse, time poor and/or long-term investors. Our portfolios are “total return” in nature, meaning we reserve the right to reduce risk exposure when market conditions warrant.

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