Investment Approach

HOW WE GO ABOUT INVESTING YOUR MONEY

• The philosophy behind our decisions
• How we choose investments
• Your investment options (conservative, balanced, growth)

THE PHILOSOPHY BEHIND OUR DECISIONS

Wealth Preservation is top priority
Our first priority is to preserve your savings. Growing your wealth is a second order priority.

We are diversified
This simply means having your money spread over a large number of investments, so that if any one should fail (it does happen), your retirement plans would not be jeopardised.
We practice diversification on several levels:

• Economies We spread investments across regions and countries.
• Sectors We spread investments across multiple sectors within economies.
• Shares Our guideline is that we don’t invest more than 5% of the portfolio in any one company. There will typically be 30 or more different companies or funds represented in the portfolios.
• Fixed interest The fixed interest portion of the portfolios will have no more than 7.5% in a single bond, and no more than 15% in a single issuer.
• Cash We hold a variety of currencies in cash portfolios, not just NZD.

We focus on global markets
The share portion of GMI portfolios will mostly consist of foreign shares. Our view is that the only responsible way to protect your share investments from the world’s economic, natural and political crises is to spread them widely.
We are also mindful that most kiwi investors are already highly exposed to the New Zealand economy through their house and their job.

We take a conservative approach
We pursue growth in the value of your savings only when we are satisfied that we are managing the downside risk. We are never 100% invested in share markets, and often we choose to hold substantially more cash than our benchmarks. When considering any investment, we always ask ourselves “What if we’re wrong?".

We are not constrained by benchmarks
This is the important caveat to the points above. Managers who will not deviate from their benchmark’s asset weighting slavishly follow the benchmark up and down. But for us, the benchmark is a measuring stick, not a straightjacket. We can be overweight or underweight in sectors, countries, or stocks as long as it fits into the big picture of beating the benchmark while not taking on excess risk. This lack of constraint means we won’t track the benchmark as neatly as other funds – we think this is an acceptable price to pay for potential higher long-term returns and lower risk.   

HOW WE CHOOSE INVESTMENTS

At GMI we actively manage portfolios. We are what’s called a discretionary manager, which means we will take an active view on the economic backdrop and the investment cycle and position client portfolios accordingly. What this means for your portfolio is that we will vary the amount you have invested in shares and we will vary the currency allocation. Our long-term track record suggests we add value in this respect. Here’s a snapshot of the steps we follow.

Asset allocation
We believe the biggest driver of growth in a properly diversified investment portfolio is asset allocation. This simply means, at any given time, what portion of the portfolio is invested in cash, fixed interest or shares. So our decision-making process places most emphasis on getting the asset allocation correct.

We take an active or dynamic approach
Although we agree on an investment mandate for each client, we reserve the right to vary asset allocations depending on our view of investment or economic cycles, and the relative pricing of cash, bonds and shares. In short we make tactical moves to preserve wealth or enhance returns when we feel that is prudent. We make these moves with due consideration for risk and proper diversification in the portfolios. Our discretion is limited to the conservative side of the portfolio mandate—we can only hold less of the portfolio in shares, not more, than agreed in the mandate.

Currency Allocation
We believe currency allocation has the next strongest influence on returns, with the ability to boost or corrode the impact of the asset class allocation.

We do not have explicit target weights for any currency. Just as the asset allocation will vary, so will the currencies held in the portfolio. Our currency allocation calls are based primarily on expected rates of return—both from currency movements and interest rates—balanced against the need to remain properly diversified and to manage risk.

Investment themes
After asset and currency allocation we identify investment themes (for example, emerging markets, technology, resources, etc.). Identifying investment themes is an ongoing process, and draws on the research of our investment analysts and economists.

Selecting Shares
We consider the following factors when deciding which shares or funds to include in the portfolios:

• Liquidity Could we sell the shares in a timely manner with limited impact on price?
  
• Transparency Do we understand the source of returns? If it’s a fund, do we know and understand the underlying assets?
• Cost-effectiveness Are management fees and transaction costs defendable?
• Valuations Do we think the shares are undervalued?

 Your investment options -- conservative, balanced, growth.