PAGES ... ready for launch!
In January The HDA investment team was treated to an intensive two day presentation by the investment team behind the Purple Adaptive Global Equity Strategy (PAGES). It’s not often that we are left speechless but, I have to tell you, these guys are good!
There are 22 individuals in the team and they are all specialists in their respective fields (finance, investments, management and technology). They are highly qualified with a liberal sprinkling of PHDs and MBAs. Most importantly they have nearly 300 years’ industry experience between them.
The depth, quality and intelligence of their research is mind‐bending. Even more impressive is their free‐ thinking approach which demonstrates a healthy disregard for Modern Portfolio Theory and a coherently argued belief that most investment managers have, quite simply, “got it all wrong”.
Most investment professionals will tell you that diversification between different asset classes is the key to efficient portfolio construction. In other words, a combination of equities, bonds, property and cash. They will also tell you that you should invest for the longer term and ride out the storms that batter your investments in the short term.
In stark opposition, the Purple team refersto this as Di‐worse‐ification (as opposed to diversification) and they point to the increasing correlation of equities and bonds, i.e. different asset classes exhibiting similar behaviour at the same time. It is happening now and it certainly happened in 2007/8 as the global financial crisis wiped gazillions of the value of global markets.
The mantra underlying the team’s investment approach is “Outperformance through downside risk management”. They do not believe that you should take risk unless you are being rewarded for taking that risk. Capital preservation is paramount; value trumps greed.
The team has developed highly sophisticated software to analyse enormous amounts of factual data. The analysis is part of their systematic, rules‐based risk management tool which calculates the appropriate level of exposure to stock markets on a daily basis. The tool considers:
Investor Sentiment (which impacts on asset valuations);
Technical Analysis (study of current price movements and analysis of historical data); and
Price Volatility (uncertainty expressed by the direction and magnitude of changes in value).
What this means in simple terms is that they will aim to avoid losses when markets are falling (or likely to fall) and achieve gains when markets are rising. Imagine most of the “ups” with very little of the “downs”. Genuine back‐testing of many years of data suggests that it is perfectly possible to achieve equity‐like returns at less than half of the risk normally associated with stock market investment.
Watch this space for monthly updates!
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