The TriDelta Investment Process
In addition to the bottom up analysis of Fixed Income and Equity investments, our investment committee also conducts a detailed monthly review of macro factors that affect the global financial markets.
This top down analysis involves reviewing several types of fundamental, economic, technical and geo-political market data.
When looking at the fundamentals of each market or region we are essentially trying to see what value is currently being attributed by the market and what returns are expected. For the global equity markets we review the price to earnings ratios and other valuation measures to assess the value of each market relative to one another and historical ranges.
Country or region’s valuations are then compared and contrasted with historic and estimated earnings growth trends, any revisions and gross domestic product. This review provides insight on markets attractiveness – over, under or fairly valued and growth expectations relative to history.
Our analysis of the geo-political situation around the globe is another key element that influences portfolio decisions. Economic growth is typically associated with political climate and so too, market activity. A recent example is France where on May 6, 2012, François Hollande became the first Socialist to be elected president of France since 1995. This swift and somewhat surprising outcome has many economic ramifications, not least of which is that it will be seen as a challenge to the German-dominated policy of economic austerity in the euro zone, which is suffering from recession and record unemployment.
Technical factors are another indicator that our investment committee reviews. This analysis focuses on sentiment and trends. Sentiment indicators provide useful clues such as market bottoms in an oversold market. Interestingly many of these such as the ‘Bull/Bear’ indicator are contrary indicators and . When readings are at an extreme people are excessively optimistic or pessimistic and the markets are usually ready for a change in direction. These events usually happen once or twice a year and are usually the most opportunistic times to make strategic changes to a portfolio.
Analysis and review of current economic data is performed to determine a variety of aspects including where certain countries are in their economic cycle and cyclical opportunities. Numerous government statistics such as jobs data, consumer price index (CPI), capacity utilization, gross domestic product (GDP) and housing data help us determine the state and direction of the economy.
We review the shape of the yield curve and changes to credit spreads as part of our fixed income analysis. This in depth monthly review reveals shifting yields for various maturities, which enables us to gauge income expectations and the level of risk investors are willing take in order to generate extra yield. We look for the ‘sweet spot’ and adjust the portfolio accordingly although shifts are seldom monthly, but rather evolve over many months.
All of these indicators provide clues and collective wisdom that influences our investment decisions. Things such as sector allocation in equities to credit considerations in fixed income.
None of us have a crystal ball, but just as the saying, “the more I practice, the luckier I get” goes, so too do we find that the more research and application of collective experience, the better our performance.
TriDelta’s strict adherence to a disciplined approach and risk management shifts the odds into our client’s favor, which in turn provides the peace of mind we promise.
This article was written by Cameron Winser, VP of Equities, TriDelta Financial Partners. Click here to learn more about TriDelta Financial’s investment strategy or contact us with any questions about our financial planning services.