Our Investment Philosophy
The foundation on which Interinvest has built its investment management business can be traced to our roots in Zurich. Our philosophy encompasses a style of investing that can be found in most Swiss investment firms and is characterized by a strategy that is expected by all clients, private and institutional. In our ultimate goal of consistently increasing the purchasing power of our clients’ assets, our primary concern remains with the preservation of capital. This results in a risk-averse style one of whose chief benefits is to give an above-average comfort level to conservative investors. The true measure of our success has been the risk-adjusted value that has been added to our clients’ portfolios over time despite the volatility of the global markets.
Interinvest’s basic investment model utilizes a “top-down” approach. Through an analysis of current geopolitical events and their effects on
macroeconomic trends, we anticipate secular trends and how they affect the world’s financial markets.
We then selectively analyze specific countries and regions to ascertain their political climate, economic environment, monetary policy, financial market structure, corporate growth potential andcurrency outlook.
Based on our country and currency selection, we next determine asset allocation. Since the asset mix has the most significant effect on portfolio returns, we do not believe in always being fully invested. Cash will be raised at various times in order to preserve principal.
We focus on individual companies from a “bottom-up” perspective. Our screening process typically favors companies with little debt, undervalued assets on the balance sheet, high cash positions or cash-generating capabilities, sound management and market dominance. In the smaller emerging markets, dominant and well known companies will be selected because we believe they will profit from the major themes and key country dynamics. Portfolios are diversified so that no equity position at cost will account for more than 5 percent of the total portfolio.
Investment Process
Interinvest’s investment policy committee meets regularly to determine and review asset, currency, and country allocation as well as industry and individual security selection. Our universe includes the U.S., Canada, Mexico, the U.K., Benelux, Germany, Switzerland, France, Italy, Spain, Portugal, Scandinavia, Australia, New Zealand, Hong Kong, Singapore, Malaysia, Indonesia, the Philippines, Thailand, Japan, China, India, Argentina and Chile. Purchase and sale criteria include under- or over-valuation determination based on balance sheet and income statement analysis related to price and timing. Purchases and sales are executed by a central trading desk through domestic and international brokers. Our internal resources account for 50 percent of political, social and economic analysis, 30 percent of investment markets and 25 percent of security analysis. The remainder is obtained through outside research firms and computer screening programs.
Portfolio Management
At any investment management firm, the portfolio management process is ex-tremely important to long-term performance as well as to the personal relationship with each client. With this in mind, the construction of all portfolios is based on the client’s objectives, with special attention given to individual constraints and philosophical differences. The development of a portfolio in turn clearly reflects the investment goals of each client. Interinvest’s areas of expertise include: Global Equities, International Equities, International Fixed Income, Global and International Balanced Accounts, Precious Metals and Foreign Currencies. Continuous portfolio evaluation assures that clients are each being catered to in the manner they expect. Every client is served by an Interinvest portfolio manager who is available for questions concerning the portfolio as well as the current state of the global securities markets.
Equity Research Process
International Fixed Income Strategy
Interinvest’s primary objective in managing its international fixed income portfolio is to maximize the rates of return and generate additional income for our clients in a manner consistent with our overall investment philosophy, which is conservative and risk-averse. For the majority of our mandates, we emphasize the preservation of capital while looking at supranational, high quality corporate credit of investment grade according to ratings agencies, or government and government-sponsored issues. These instruments offer sources of fixed income through current income (coupon), capital appreciation, and currency appreciation.
Interinvest may also invest in non-investment grade, lower credit-quality issues which bring with them the possibility of higher returns with a concurrent higher degree of risk. In addition to risks listed above, such high-yield bonds carry credit risk associated with the borrowers ability to meet coupon payments and principal payments to lenders. While exposure to this side of the credit spectrum is not for the risk-adverse, we actively seek out value in corporate debt we believe the market is mispricing or a company that has assembled a feasible and realistic turnaround plan.
Our universe encompasses all major developed capital markets with security selection including but not restricted to supranational, government, and government-sponsored issues, along with corporate debt with a Standard and Poor’s equivalent rating of non-investment grade through AAA.
Risk
Sovereign risk
Sovereign risk is controlled by investing only in obligations of countries deemed to have high degree of political stability or a steadily improving political climate. Such issues are typically rated AA or better by Standard and Poor’s.
Credit risk
Credit risk is mitigated by investing in supranational, government, and government-sponsored debt. With respect to investing in corporate bonds, credit risk increases progressively down the credit-quality spectrum. Interinvest sometimes invests in non-investment grade high-yield bonds in companies which we believe, following total liability and cash flow analysis, can adequately satisfy their covenant requirements. However, non-investment grade bonds carry with them additional risk to the investor in case of default and they typically feature volatile mark-to-market gains and losses that may affect the overall value of the portfolio. Fixed income investors have the option of limiting their portfolio’s exposure to non-investment grade bonds. In the absence of written instructions, Interinvest will utilise its own discretion in building a fixed income portfolio commensurate with each individual investor’s return expectations and risk tolerance.
Interest Rate risk
Interest Rate risk is moderated by generally limiting the maturity of any security in the portfolio to five years or less. Maturity selection will occur at the point in the yield curve where the highest return can be realized with an acceptable degree of market volatility and duration. Furthermore, we seek to maintain portfolio duration of not more than 5-10 years, generally focusing on the lower end of that range.
Currency risk
Currency risk can be the single largest risk to which the portfolio is exposed. Since the cost of hedging generally brings returns to a negligible rate above the risk-free rate, it is neither practical nor economically attractive to run a fully hedged portfolio at all times. In deciding on the appropriate investments, Interinvest analyzes relative currency values to determine an optimal entry and exit point for the portfolio’s currency exposure. Forward sales may be used to preserve unrealized gains in currency or limit the effect of expected currency weakness in accounts that are large enough to make this strategy practical and effective.
International Fixed Income Process
The dynamics of international fixed income management are constantly changing. Our investment process begins with the development of a global macroeconomic forecast that includes an in-depth evaluation of each country’s monetary and fiscal policies in conjunction with its prospects for inflation and economic growth. From this, Interinvest projects the most likely trend in short-term and long-term interest rates, which involves the development of a global interest rate anticipation model. As the process is international in nature, consideration is not only given to interest rate risk, but also to currency risk and liquidity factors. Relative currency valuations are determined based on economic, interest rate differential and flow of funds analyses. Historically, Interinvest has invested in fixed income instruments denominated in, but not limited to, the following currencies: Canadian dollar, U.S. dollar, Japanese yen, the euro, Swedish krøner, Mexican peso, Australian and New Zealand dollars, Swiss franc, and British pound sterling.
Fixed Income Portfolio Construction
Interinvest’s “top-down” macroeconomic approach is complemented by an individual bond selection screening process. In the absence of specific liability matching constraints, decisions on maturity and duration are made with regard to the current and expected yield curve in each market, as indicated by our interest rate anticipation model. Individual bond positions are then established on the basis of credit quality, liquidity, and the existence of any pricing inefficiencies and anomalies that occur from time to time.
