Home |Our Investment Philosophy
The main reason for choosing 21st Century Renaissance Unit Trusts for your investment portfolio is our distinctive investment philosophy.
Most managed funds invest in a set range of shares, bonds, cash and property. Their strategy is based on the premise that over time, all these investment markets will go up in value and when, for one reason or another, one market may go down, hopefully another will go up to compensate - the principle of diversification.
However, when studying investment cycles, it is noticeable that major sharemarkets tend to run in cycles of approximately 33 years. Adjusting for inflation, for roughly half of that period, markets are rising (a bull market) and for the other half of that time they are falling (a bear market). Therefore, it makes sense to have an over-exposure to sharemarkets during a bull phase and a significant under-exposure during a bear phase. In fact, if one had invested in the American sharemarket (roughly 50% of the total world equity market) near the peaks of 1906, 1929, and 1968, one would have had to wait 20 to 25 years - through long bear markets and then the recoveries - just to break even, just to get back to where one started. During those bear markets, the S&P 500 index lost between 74% and 94%, adjusted for inflation. (See "Irrational Exuberance", Professor Robert J. Shiller, www.econ.yale.edu/wshiller1).
Therefore, our strategy is to invest heavily in sharemarkets when they are in the bull phase, as during the years from 1982 to 2000, and to reduce our exposure significantly when in the bear phase, as with the phase that started in 2000.
Property markets are dependent on economic growth for the early stages of their growth cycles. In the later stages, they are dependent on a combination of a bubble mentality amongst investors and a switch from sharemarket investments to property in the early stages of a bear sharemarket. Consequently, the fastest growth in property markets tends to come after the sharemarket turns down and investors, seeing property still going up, switch their investment focus from shares to property. Property tends to go down in value when the economy weakens, causing the bubble to burst.
Therefore, our strategy is to invest in property when the economy of a country supports property growth and to avoid it when an economy weakens.
Analysis of long term cycles shows that commodities tend to grow in value when sharemarkets are in a bear phase, and to lose value when sharemarkets are in a bull phase. For instance, while the U.S. and many other world sharemarkets rose from 1982 to 2000, (the S&P 500 index gained 18% per annum during that 18 year bull market period) gold and other commodities continually lost value. Gold went from over $800 an ounce in 1982 to around $260 an ounce in 2001 (a 19 year bear market in commodities). As sharemarkets began a bear phase in 2000, gold began its rise in 2001 to over $560 by early 2006. Therefore, our strategy is to emphasise commodities during their bull markets, which generally coincide with bear sharemarkets, when we would reduce or avoid shares.
Cash and bonds respond to economic cycles as well. So in addition to using cash and bonds for safety and to reduce volatility in a unit trust's portfolio, they should be emphasized or de-emphasized, according to economic cycles.
Currencies also play an important role in producing good investment gains. Currencies tend to rise as economic growth causes central banks to raise interest rates and tend to fall as economies decline (leading to other countries having higher interest rates).
Therefore, another part of our strategy is to invest in countries with higher interest rates. Sometimes we can enhance gains by borrowing in a low interest rate currency and investing in a higher interest rate currency.
So, rather than stick to a formula - through ups and downs - of a certain percentage in each of shares, bonds, property and cash, our philosophy is to invest in assets which are in long-term bull markets (be they shares, commodities, property, bonds or interest rates) and to avoid assets that are in long-term bear markets.
We believe that this philosophy will ameliorate risk to investors while enhancing returns. We also believe that this puts us in a stronger position when compared to traditional fund management strategies, a position that will benefit investors in the 21st Century Renaissance Unit Trusts.
Performance Unit Trust: $0.6353
Gold & Metals Unit Trust: $0.6621
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26 January 2012, 00:18am