Investment objective

The objective of the Third Link Growth Fund is to provide an investment in Australian listed shares, with the aim of outperforming the S&P/ASX 300 Accumulation Index after fees over rolling 5 year periods.



Investor time horizon

Because of the normal volatility of growth assets such as shares, we are of the view that an investment in the Fund is not suitable for investors with a time horizon of less than five years.



Asset allocation ranges

The broad investment ranges are:

90% – 100% Australian listed shares/securities (which can also include Australian unlisted shares/securities which are soon to list)
0% – 10% Cash or cash-equivalent investments


How investments will be held

It is expected that the majority of the Fund’s assets will be invested in other managed investment funds run by third party investment managers (limited to a maximum of 25 per cent of the overall Fund value invested in any one managed investment fund). The process of choosing each investment manager is based on their investment style and process, the expertise of the investment team, past performance (through different market cycles), correlation issues and a range of other factors. This process is based on Chris Cuffe’s extensive industry knowledge, considerable contacts and many years of experience in the investment management industry. To help with the selection process of fund managers, Chris may seek input from various advisers.

In the absence of changes in key personnel, management methodology or asset allocation, the Fund is likely to remain invested with a particular manager/fund for the medium to long term. Please click here for information on the various managers/funds that Third Link Growth Fund is currently invested with.

To better understand the type of share-based managed investment funds that the Fund will invest in, following is a list of different styles, and the Fund’s investment preference.

 

Investment style Third Link Growth Fund investment preference
Relative versus absolute return – the objective of most funds is to outperform an index or benchmark over the long term (with the index usually representing the market within which it invests) regardless of whether that index is making a return or a loss. Others follow a more absolute return style, with their focus on whether they make a profit or a loss. Both styles would be considered, though Third Link is not drawn to managers who seek to remain closely aligned to an index.
Active versus index managers – active funds seek superior returns to an index whereas index funds make no attempt to produce superior absolute or relative returns. Active, as markets are often not efficient and skilled managers can outperform indices.
The role of cash – most managed funds have a ‘fully invested’ ethos where they aim to have close to 100 per cent of their money invested in the market. Consequently they hold relatively little cash. However, some funds are prepared to hold cash if they can’t find attractive investments. Both styles would be considered. Third Link may take into account the cash holdings within underlying funds in determining the Fund’s weightings to cash.
Long only or short – some funds will short a stock or a market, seeking to generate profits from a fall in the asset’s value. Others will never short, which is described as being ‘long only’. Both would be considered, though extra scrutiny is applied where shorting is used as this requires separate skills to long only investing.
Value versus growth – ‘value’ investors generally seek to buy stocks that are cheaply priced using particular valuation tools, whereas ‘growth’ investors are more interested in owning companies expected to be growing rapidly irrespective of whether they are cheap or not. The Fund will have a slight bias to ‘value’, but recognising many shares can have both ‘growth’ and ‘value’ attributes. While appreciating the merits of ‘value’ investing, attempting to predict with precision the timing of when particular value will be realised is not possible.
Momentum investing – focusing on the recent past, momentum investors buy stocks on the basis of their inertia, caring only about the direction of recent price movements to determine a trend. Generally, Third Link will select managers who are not momentum investors. Managers who are momentum investors would only be considered if momentum was only one of the factors that the manager takes into account, not the sole factor in their strategy.
Top down versus bottom up – bottom up managers focus primarily on the selection of individual stocks whereas top down managers tend to consider some overriding set of factors affecting a market or the economy before considering any specific investments. Generally, Third Link will select bottom up managers, though there may be rare cases where a top down manager would be selected.
Large cap versus small cap – some funds invest only in large companies whereas some seek out small companies. Others are indifferent to size. No particular bias, but recognising the need for adequate liquidity.
Portfolio concentration – some funds diversify widely by holding shares in many companies, while others concentrate their investment into only a small number of stocks. Generally prefer more concentrated portfolios as they provide more possibility for active returns.
Quality filters – some funds limit their universe to stocks which they deem to be of good quality with their belief to never buy a poor quality company, irrespective of its price. Others acknowledge that a poor quality company is worth less than a high quality one, but believe that a fair price can be calculated for each. Prefer shares to be in companies considered to be good quality, as this helps underwrite a base value and reduce the risk of permanent loss of capital.

 

A portion of the Fund may also be invested directly rather than through other managed investment funds. Such investments may include:

  • materially undervalued listed investment companies (though liquidity will be a relevant consideration);
  • securities which complement the portfolio but which are not available through an acceptable managed investment fund structure;
  • securities that are judged to be better held directly to minimise fees, without compromising expected risk/return outcomes;
  • individual securities that appear materially undervalued and are judged to have sustainable, robust profits and cash flows (limited to 2% of the overall Fund value at the time of purchase for each individual security and 15% in aggregate of the overall Fund value); and
  • cash or cash-equivalent investments that are judged to be better held directly for administrative or other reasons.


Other investment considerations

Within the above framework, the investment strategy will be implemented having regard to the following:

  • the desire for the majority of investments to provide a consistent and robust income stream;
  • Third Link’s belief that investment markets are not perfectly efficient and that skilled ‘active’ investment management can exploit such inefficiencies;
  • derivatives may be used by the Fund to more efficiently gain or reduce exposure to a market or security (compared to holding physical securities) or to protect the Fund investments from possible adverse events but will not be used speculatively; and
  • There is no current intention for the Fund to borrow (either via bank loans or derivatives-based leverage in the Fund) except for short term arrangements for settling purchases of assets or meeting withdrawals.