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Equity and Strategy

In our day-to-day analysis and practice we utilize both portfolio management strategies emphasizing asset allocation and fund management which allows us to often outperform the market by using fundamental bottom-up stock picking process.

An asset class rotation strategy-also called tactical asset allocation-means moving funds in and out of the stock market depending on the assessment of the stock market current valuation and prospective compared with that of alternative asset classes, for example Real Estate.

Sector rotation Strategy means changing the weights of the shares in the funds compared to that of the index of in the benchmark investment portfolio in order to outperform the latter.

In this case the shifts are made inside the market but from one economic sector or industry to another based on the manager’s perception of the business and/or economic cycle, current market trends, etc.   

On the other hand, there is an opportunity to outperform the benchmark by using some simple rules so many times singled out and emphasized by legendary investors and gurus such Benjamin Graham, Warren Buffet, David L. Dodd, Peter Lynch and many others in their famous books as Security Analysis, The Intelligent Investor and many others.

All of them emphasize the strength of fundamental stock picking which allows to spot and purchase some stocks (equities) at a substantial discount to the market price which is currently on offer.  

Another popular strategy is 130/30 strategy representing a recent trend and means short selling 30% of the fundamentally picked stocks constituting the given investment portfolio.

Obviously there are 130 proportion of stock deemed undervalued which are bought long and the 30 proportion of those sold short are deemed by the portfolio manager to be overvalued.

A contrarian investment strategy assumes that it is best to buy a stock when the market is at its lowest and other investors are frightened and selling and to sell the stock when other investors are euphoric and buying and the market is at its highs.

A price momentum strategy is the one which suggest completely opposite to that of the contrarian investment strategy i.e. believes that a hot stock will remain hot and therefore should be bought and a cold stock will also remain cold and therefore should be sold.

In our portfolio composition strategy and fund management we usually follow the contrarian investment strategy with the emphasis on the rules as follows:

Buying the misprices high yield shares: yield at a discount, which are sold:

at a discount relative to tangible asset value;

at a discount relative to both tangible and intangibles;

assets at a discount (brands, goodwill, knowhow);

growth stock, if any, with a low Price Earning/Growth ratio, i.e. Growth at a discount.