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WHAT WE DO
Most of our time is spent preparing broad investment plans for
clients which often focus on achieving a high and increasing income,
implementing the plan, then managing the assets. Clients are
typically either retired or saving for retirement and wish to be
assured that the real value of their assets will be maintained while
at the same time achieving a competitive return without unnecessary
risk. Presently we are able to generate cash income yields of 6-7%
pa which compares well with bank rates of 4-4.5%. Because our
portfolios include a property and share dimension the 6-7% cash
income yield can be expected to grow further in the medium term.
Minimising risk, particularly the risk of losing money is an area
upon which we place particular emphasis - many of our clients are
toward the end of their working lives and thus will not have a
second chance to accumulate assets again. We concentrate on only
the highest quality assets in each asset class : the safest bonds,
the best buildings with the strongest tenants, the largest
companies. This strategy is the safest because these companies will
weather a downturn far better than second tier companies. And,
unlike many of our competitors, because our fees are low we don’t
have to take high risks with clients money to achieve a good, after
fee, return.
Our philosophy embraces the best aspects of the stockbroking and
financial planning industries in that it combines the benefits of
direct investments, low fees and tax effectiveness with a focus on
the achievement of specific income objectives, diversification and
risk minimisation.
Much of the demand for our services comes from individuals whose
first exposure to the investment industry has been via a financial
planner selling unit trusts. From a typical planner’s portfolio we
are able to, in most cases, reduce annual management and monitoring
fees by 50% or more, lower risk in the bond sector and significantly
improve the overall level of diversification in the portfolio. On a
portfolio diversified over bonds, property and shares via popular
unit trusts we can typically improve long term after tax, after fee
performance by 1% - 2% per annum. For portfolios within expensive
master trust structures such as those used by the larger financial
advisory groups the gains can be higher. Whilst our focus on fees
has substantial benefits to clients our major area of "added value"
is a strict adherence to benchmark asset allocations, the avoidance
of fashion and the purchase of assets at a discount to market
value. At the time of writing we were buying for clients a
portfolio of global equities in a listed managed fund at a 20%
discount to the market value of the portfolio and reasonably expect
this discount to narrow over time. In the meantime clients get a
20% higher level of income than they would by owning the same
portfolio via a conventional managed fund.
HOW IS OUR STRATEGY DIFFERENT?
PAM differs from most other financial advisors in NZ in that we:
 Do
not follow fashion. Blindly “going with the flow” is a recipe for
disaster as the many investors with worthless technology shares will
attest. We are under no pressure to “make sales”, or meet targets
and are prepared to underperform in the short term in order to
protect capital and ensure an attractive longer term return.
Recognise
that fees are one of the biggest determinants of returns over the
long run. Our low fees reflect this belief and we have searched the
globe for managed funds with low expense ratios. We invest our own
money in the products we recommend and pay the same fees that our
clients pay.
Closely
monitor the listed investment company universe with a view to buying
assets at a discount when sectors go out of favour and similarly
selling closed end funds when they go to unrealistic premiums. At
the time of writing we are selling a closed end fund at an 11%
premium to NAV having bought it at an average 15% discount to NAV.
We are reinvesting these funds in an exchange traded fund at NAV and
expect to buy back into the managed fund again at a discount within
5 years or so.
Use
realistic assumptions about future returns. In the five years ended
November 2000 the world stockmarket returned 24.2% pa, due mainly to
falling inflation. In the next 20 years, without the benefit of
falling inflation, equity returns should average 9-10% pa before
fees and tax. Fee structures of 3% pa and more are obviously
ridiculous in this context.
Are
genuinely independent and are fee based advisors, so our
recommendations to clients are completely free of any bias. The
products we use pay no commission and none pay any trailing fees.
We don’t flog “new issues” or junk bonds to clients just because
they pay high commission. We don’t have a “corporate” department
with loyalties to companies for whom we act. We don’t have any
institutional clients. If fund managers charge high fees or
generally act the goat we are not afraid to say so. We answer to
our clients only. We are genuinely independent.
Have
been helping people invest their money for more than 36 years. We
got first hand experience of the dangers of speculation and fashion
in 1987. One of the biggest assets we bring to an investment plan
is a knowledge of what constitutes a balanced portfolio and what
does not.
The
starting point for many financial plans is the level of investment
income required. Thus we have an intense focus on dividend income
and we know r = d + g ie: the return = dividend + the rate of profit
growth. We therefore focus our attention on markets and stock with
the highest sustainable and safe (d).
This usually involves buying funds at a discount to NAV which thus
results in a higher dividend to shareholders.
Advocate
a simple “buy, hold and periodically rebalance” strategy which can
be contrasted with the aggressive trading strategies that are
employed by many of our high profile (and high cost) competitors.
We do not aggressively trade our clients portfolio or our own – if
we did this could compromise their capital gains tax free status.
Use
investment trusts and index funds to achieve our clients’ equity and
property exposure. These products have the lowest fees available
and offer suitable levels of diversity
If you would like to contact
Brent or Graeme you can e-mail them on
info@cpam.co.nz or telephone
on 0800 802345. |
