he Rushton All Seasons Fund (“Fund”) is very liquid and highly diversified across thousands of positions globally, combining both active and passive investments and various asset classes in an optimal way so as to generate consistent returns with low to moderate levels of risk throughout the full economic cycle. Due to the extremely high levels of diversification, across countries, asset classes, and individual positions, the Fund can be used as a complete portfolio solution, or as an important and lowly correlated portfolio diversifier, adding considerable value to most investment portfolios.
Why Rushton All Seasons?
Whilst it is common knowledge which asset classes work well under specific economic conditions (e.g. shares and property perform well when economic growth rises above expectations and gold and bonds perform well when economic growth falls below expectations), what no one knows is when economic conditions will change and how long any set of conditions will last. Investors need to be mindful of what they do know and what they don’t know.
The prevailing economic conditions are often referred to as the current economic climate, which is a good analogy. We refer to the seasons of this economic climate, which are primarily determined by four specific economic events, as follows:
Spring – when economic growth rises relative to expectations
Summer – when inflation rises relative to expectations
Autumn – when inflation falls relative to expectations
Winter – when economic growth falls relative to expectations
Understanding the economic climate
The only problem we face when analysing the economic climate, is that, unlike the weather, the economic seasons don’t always follow in the same order, or last the same amount of time. Further, a particular economic environment can also be characterised by two seasons at once, just as natural seasons have transition periods. Rest assured that no one can consistently predict the order or duration of the economic seasons, so whilst we know which asset classes perform well in each season, we don’t know what season tomorrow will bring, and by the time the season changes, the damage may have already been done – for example, Black Monday, when in October 1987, the Australian share market fell 25% in one day.
By balancing risk equally across the four economic seasons, we can generate much more stable returns, whilst minimising the portfolio’s susceptibility to negative events that are characteristic of any one season. Severe portfolio losses result from having an investment portfolio which is out of sync with the prevailing economic season and we prevent this by being balanced across all seasons.
The underlying logic of the All Seasons approach is to balance asset classes, which are simply sources of risk and return, such that the underperformance of a particular asset class in a particular environment will be naturally offset by the outperformance of another asset class, which we know is inherently biased to outperform in that environment. This doesn’t mean that we make a zero return in every environment – in fact, our strategy is designed to produce a consistent positive return in each economic season by harvesting the unique “source of return” that derives from each asset class.
A typical Balanced Fund compared to the Rushton All Seasons strategy
As we can see from the asset allocation of the typical Balanced Fund, it is heavily weighted towards Spring and Autumn, so it will perform well under these conditions. In Summer, it will not perform very well, and in Winter, it will suffer dramatically. When looking at history, this becomes very obvious, as most balanced industry super funds suffered considerable losses in the Winter conditions that prevailed during the GFC from late 2007 into 2009. On the other hand, the All Seasons strategy, which targets equal risk and return through each economic season, showed positive returns through this same period.
The key point here is that we know all of the economic seasons will keep coming around – just not when and for how long. For example, based on long-term US data (since 1929), the share market has fallen an average of over 35% every 3.5 years, so it makes sense to prepare for the inevitable, rather than constantly worry about it.
The fund aims to consistently deliver positive returns of 7% or more above inflation, with low to moderate levels of volatility through the full range of economic conditions. Some of the key benefits of investing in the Rushton All Seasons Fund are:
Just as important as it is to create optimal asset allocation within a portfolio, so is it to maintain this optimal allocation at all times. You may go to great lengths to get your sources of risk and return combined in the optimal way, but each and every day they will steadily drift away from the optimal allocation, as some assets perform better than others. This is why it is imperative to continually monitor and rebalance the portfolio to ensure the optimal allocation is maintained. The Rushton All Seasons portfolio is diversified across several thousand liquid positions all over the globe and rebalanced monthly, as this has proven to be the most cost-effective frequency to rebalance, based on the cost of adjusting the asset allocation, compared to the benefits of doing so.
An even split between active and passive sources of return
The All Seasons portfolio is split evenly between passive and active sources of return, both in terms of the amount of capital that is allocated, and in the amount of risk that is allocated. Combining Active and Passive sources of return makes a lot of sense from a long-term risk management perspective, due to the low or negative correlations in the two different sources of return, and the economic drivers of them. Full details are provided in the Information Memorandum. Click here for a copy.
The strategy has the ability to perform well in both good and bad times
The investment strategy has the ability to perform well in both good and bad times, meaning that performance of the Fund is not based on favourable economic conditions, or rising asset prices. This is different to most other investments, including growth assets such as shares and property, which, by definition, largely rely on growth, i.e. continually rising asset prices, and consequently, these investments usually perform poorly when asset prices are stagnant, or falling. As most investors have few investments in their portfolio that have the ability to perform well in bad times, they tend to suffer sizeable losses when economic conditions deteriorate, and could therefore benefit by including an investment that has the ability to perform well under these adverse conditions. How this works is explained in detail in the Information Memorandum. Click here for a copy.
We only invest in the largest and most heavily traded Instruments, providing a high level of liquidity. Monthly withdrawals are available. For full details, please refer to the Information Memorandum. Click here for a copy.
Highly diversified investment
It is often said that ‘diversification is the only free lunch in finance’ and effective diversification is central to our approach to investment management. Firstly, our strategy is based on multiple asset classes and investment themes, that each generate profits at different times, and under a range of economic conditions. Further, the strategy is spread over several thousand positions in multiple countries across the globe. This high level of diversification assists in smoothing overall performance, as it is our objective to maintain stability and consistency through all economic conditions. A full explanation is provided in the Information Memorandum. Click here for a copy.
Low correlation to the returns from shares and other traditional asset classes
The most effectively managed investment portfolios combine a range of very good investments that are lowly correlated to each other, which provides true diversification benefits, and adds considerable value to the overall investment portfolio. It is even more important to ensure that these low correlations are sustainable over time – even under the worst possible economic conditions, i.e. when asset prices are falling, and the diversification benefits are needed the most. By combining lowly correlated investments that each produce an acceptable risk-adjusted return over time, it is possible to enhance investment performance without increasing overall risk. See the Information Memorandum for further details. Click here for a copy.
Carefully managed volatility
With a high level of diversification and carefully selected asset classes, annualised standard deviation for the Rushton All Seasons Fund is targeted at around 4%. We aim to maintain volatility at these low to moderate levels, and to produce a good return for the level of volatility accepted. In other words, we aim to generate a high risk-adjusted return. Request the Information Memorandum for full details. Click here for a copy.
Extensive risk management guidelines
We believe that if an investment strategy is grounded in sound academic theory, combined with a practical knowledge of market dynamics, it should continue to provide strong returns over the medium to long term, provided the various risks inherent in the process are managed well.
Our risk management procedures ensure that only those risks which we consider to be conducive to positive long-term performance are accepted, and those that don’t, are either eliminated, if at all possible, or if not, are carefully controlled. Risk management is not simply about addressing common risks either, as risks that occur rarely (tail risks), are also carefully identified and managed to the fullest extent possible.
Note: There are a number of risks associated with investing in the Fund, including Manager risk. The success of the Fund is dependent on the ability of the Manager to identify investment opportunities that achieve the Fund’s investment objective. We recommend you review all the risks discussed in the Information Memorandum, in consultation with your professional adviser.
Unless the Manager determines otherwise, each applicant must be a “wholesale client” as defined under the Corporations Act 2001 (Cth) (Corporations Act). If you apply for less than $500,000 of Units in the Fund, you will be required to provide evidence that you are a wholesale client. This may include providing a current certificate by a qualified accountant confirming that the applicant is a wholesale client.