Fisher Investments Australia® offers investment management services to wholesale clients in Australia and outsources portfolio management to our parent company, Fisher Investments.
The global Fisher group of companies’ investment philosophy is backed by proprietary research and over four decades of experience managing money. Our investment philosophy is rooted in the firm belief that capitalism is the best possible economic structure in this imperfect world. Individuals acting of their own interest in search of profits are forces that ultimately better all. Markets are a manifestation of this—and a means to participate and financially benefit.
No one has ever gotten ahead by following the herd. We believe many of the old adages dominating Wall Street’s groupthink are actually false. Yet they’ve become generally accepted, and many of today’s investors and professionals haven’t challenged them. We challenge accepted wisdom by questioning and analysing it rigorously. Analysis trumps the “we all know” generalisations.
Like anything traded in a market economy, equity prices are driven by supply and demand. Demand factors reign in the near term. They can wiggle for any reason—sentiment, political factors or fundamentals. Longer term, though, supply factors dominate. Rising supply, in the form of initial public offerings (IPOs), secondary offerings and stock-for-stock mergers often produce headwinds for markets. But supply can shrink as well! Share buybacks and cash mergers reduce it—typically a bullish factor in our view.
We believe asset allocation—your portfolio’s mix of equities, fixed interest, cash or other securities—is the most impactful determinant of portfolio returns. Thus, an investor’s asset allocation should be based on their goals, objectives and time horizon. Yet many approach this critical decision incorrectly—resulting in a suboptimal portfolio for their situation. In our experience, many investors tend to base their asset allocation on how they feel and lack a defined process to guide their decision-making. This can lead to heat-chasing or investing too conservatively.
Whilst we don’t believe consistently timing daily, weekly or monthly market moves is possible, we do believe cyclical changes can be forecasted. Often, such changes are driven by events the vast majority of investors either overlook or interpret incorrectly—disconnects between fundamental reality and the investing public’s perception of reality. Successful forecasting requires assessing both. Equities are forward-looking, yet most investors’ feelings are heavily influenced by the recent past. Bull markets tend to begin during recessions—when people feel most bleak—and end during euphoric “booms.”
Different categories of securities outperform at different times. For example, smaller shares sometimes outperform larger (and vice versa), global and domestic trade off leadership, and dividend-paying equities sometimes outperform non-dividend paying. No style or class of security is permanently superior—leadership rotates irregularly. Outperformance trends typically last over a foreseeable timeframe, providing opportunities for investors to capitalise. Our view stands in contrast with other firms who argue the inherent superiority of a certain size, style or type of security. If that were true, wouldn’t all investors simply flock to the superior equities, driving prices higher than fundamentals warrant?
Finance theory holds that correctly constructed equity indexes will have very similar returns over long timeframes. But the journey to this destination differs—the narrower the index, the rockier the trip, whilst a broader approach helps smooth the journey. A global approach is more diversified than a country-specific one. Moreover, a global approach helps account for performance rotation. No region’s companies are inherently superior and leadership rotates frequently. We believe a global approach increases your opportunities to outperform and can mitigate country-specific risk factors, such as political or legislative risks.
Have you seen how fast equities move when earnings reports are released? Or when mergers are announced? It’s near instantaneous. Markets are incredibly efficient at pricing in widely known information. Getting an edge over the market requires seeing the world differently and more accurately than the crowd. If major financial media is reporting it, it’s already reflected in market prices by the time it reaches you—and everyone else.
This is all about checking your emotions and managing risk. No matter how much research we do, it’s possible we might be wrong, so we avoid making outsized bets with your assets. If a sector is 10% of your selected benchmark, allocating 50% to that sector is too much risk, in our view. Smaller overweights allow us to maintain exposure to all sectors and reduce the opportunity cost if markets surprise us.
If you would like to know more about how our investment philosophy could be applied to your portfolio, contact us today. We will be happy to review your investment portfolio, recommend a custom asset allocation and help you build a portfolio best suited to your needs.