Our Long-Term Investment Philosophy

As part of the GDA Group, GDA Financial Services (the provider of financial and related investment advice) utilises the investment expertise of GDA’s investment committee for the purposes of formulating and implementing our investment philosophy.

GDA has adopted an evidence-based approach to formulating the investment philosophy, which includes the following principles:

Investment Risk & Return

  • Investment returns consist of cash flows received from an investment, either as income or capital gains.
  • Investment risk is the likelihood of not achieving expected returns.
  • Investment returns and risk are related, but not proportionately, and can be reduced or mitigated by:
    1. Diversification across asset classes
    2. Diversification across assets within asset classes
    3. Diversification across specialist management styles
    4. Making shifts between asset classes to take advantage of relative valuations
  • Loss avoidance is one of the best ways of ensuring good long-term returns.

Investment Markets

  • Investment markets are efficient in the long term but are inefficient and volatile in the short to medium term and difficult to forecast.
  • Different asset markets or classes offer varying return and risk trade-offs.  Your allocation between these asset classes is the primary driver of long-term investment return.
  • Over the long term the price of financial assets tends to reflect the value of these assets, which in turn reflects the capacity of the assets to generate sufficient cash flows.
  • Strategic Asset Allocation (SAA) is primary driver of returns, as in the longer term asset class return mean-revert back to fair value.  In the long term of 10 years plus, 90% of investment returns are explained by the SAA.
  • Dynamic Asset Allocation (DAA) can be used to add value because prices can and do diverge from fair value in the shorter to medium term. This allows shifts in asset allocations in order to capture excess returns or avoid excessive risk of low returns.
  • Tactical Asset Allocation (TAA) adds little value, as short term economic, political, technological or cultural changes are not sustainably predictable.
  • Momentum investing is possible in the shorter term, because the behaviour of investors is not rational in the shorter term and they chase returns.

Investment Managers

  • Successful management of assets within each asset class requires the use of specialist resources and capability, which may need to be sourced externally.
  • With quantitative and qualitative analysis it is possible to identify the managers that which will outperform more often than not.

Where it is not possible to confidently identify a capable active manager it makes sense to use a low-cost market matching or passive investment strategy instead.

All investment management decisions and portfolio administration is conducted from our offices in Hobart, Tasmania, and Melbourne, Victoria, while we work with specialist researchers and consultants nationally.