IEI-ANCHOR in line with PENCOM guidelines and its internal investment management policy has designed an investment strategy that makes use of both active (Trend following) and passive (Buy and hold) Investment strategies. The active investment strategy is to enable her achieve or surpass the industry rate of returns while the passive strategy is to minimize the inherent risk in these investments.
The adoption of the two strategies is to spread the investments in such a way as to ensure the minimization of potential losses and the maximization of return which goes a long way in enhancing the value of our accounting unit.
We have an Equity valuation model that takes cognizance of the future performance of a company as a basis of deriving value for its stock .The following two major factors are considered in arriving at an intrinsic value of stocks:
Qualitative factors: Economic, Industry and Company (business prospects, management)
Quantitative factors: Financial statements analysis
Whenever the intrinsic value is less than the market price, the security is considered to be over valued and should not be bought and vice-versa.
The active strategy is used more in the Equity, Bond and Mutual Fund asset classes while the passive strategy is used in Money market asset class.
INVESTMENT SELECTION CRITERIA
Investment windows are selected based on the following priority criteria.
i. Safety-This refers to the risk of potential loss of principal, interest, or a combination of both. The objective is to select only those investments that guarantee preservation of capital in the overall portfolio and mitigation of credit and market risk.
ii. Yield-This is the potential earnings an investment can generate and is usually referred to as rate of return. The IEI-Anchor objective is to attain at least 2% above the real rate of return.
iii. Liquidity- This refers to the marketability of an instrument. Instruments that can easily be liquidated or whose liquidation period is certain, fall within this criteria.
The exit strategy is very key in our investment decision making as it enables IEI-Anchor maximize return and reduce inherent risk. A proper exit time determines when to sell a security so that we do not sell a performing stock or hold on to some securities when the underlying fundamentals have changed. These situations can lead to loss and missed profit opportunities. As a policy we exit an investment under the following conditions:
i.If the investment fails to meet the original condition for buying them.
ii.To enable us cut down our losses.
i. Failure to meet original condition
For us to invest in a security, we make use of both technical and fundamental analytical methods to ensure that the security meets certain criteria. Once the security fails to maintain the original criteria for selection, we exit it. If we buy a security based on our belief in the CEO of the company, and he resigns, then it's time we sell it; if we bought the security because it was cheap, we exit as soon as it becomes expensive.
ii Cutting losses
When a stock that we invest in declines by 20%, we exit and cut our loss.