NAVIGATOR

USING THE PERPETUAL PORTFOLIO FRAMEWORK TO NAVIGATE ALL MARKET ENVIRONMENTS

May be Suitable For

  • Investors seeking true asset allocation diversification that offers capital appreciation and protection through all market environments: inflation to deflation, growth to crash.

  • Investors who believe that the Traditional 60/40 portfolio leaves them exposed over the market cycle.

  • Investors who are worried about the potential for large market sell offs or take comfort from having an approach focused on reducing portfolio drawdowns.

  • Investors who believe in accumulating wealth over the long run.

Strategy Facts
Investing Style Active
Allocation Type Diversification by Market Regime Baskets
Approach Perpetual Portfolio Framework
No. of Risk Profiles 4
Risk Profile Calibration Risk/Defensive Asset Split
Holdings Universe UCITS V Fund & ETF Universe
Currencies Available EUR/GBP/USD
Minimum Investment 100,000
Ongoing Charge Figure 0.85%
Diversification By Market Regime
Preferred Assets by Market Regime

The Navigator managed portfolio strategies are rooted in an approach to investing we call the ‘Perpetual Portfolio’ asset allocation. The Perpetual approach seeks to diversify an investment portfolio by allocating to strategies, which we refer to as investment baskets, and asset classes that historically perform best in a given market regime. Each basket thrives in a particular market environment, but can also support returns in less optimal conditions. Weightings between the investment baskets are optimized so that the allocation is equally weighted to each quadrant: inflation to deflation, growth to decline. In being prepared for all market conditions, the perpetual portfolio allocation can navigate all market environments: improving market resilience, reducing large drawdowns and maximizing risk-adjusted returns.

Navigator Investment Baskets

1.Secular Growth Assets

(e.g. equities)

 Outperform during periods of robust economic growth and thrive in low interest rate environments.
2.Interest-Rate Linked Assets

(e.g. government/corporate bonds)

 Outperform during deflationary periods and thrive in falling interest rate environments.
3.Trend/Momentum Strategies

(e.g. Commodity Trend Advisor [CTA] Strategies)

 Capitalize on trends higher in asset prices during inflationary periods and lower during deflationary periods.
4.Fiat Alternative Assets

(e.g. precious metals)

 Can act as protection during periods of decline and protect the portfolio from excessive monetary/fiscal policy.
5.Defined Return Strategies

(e.g. structured income)

 Delivering defined returns whilst minimizing capital at risk except in the harshest of environments. Outperform in quiet or range-bound regimes.
6.Physical Commodities

(e.g. oil, grains)

 Outperform during inflationary regimes and thrive when demand outstrips supply.
7.Volatility

(e.g. portfolio insurance)

 Outperform during periods of decline and benefit from a sudden/unexpected change in market dynamics.
8.Cash Equivalents

(e.g. central bank overnight lending rates)

 Outperform during risk-off periods and can enhance long term returns through dollar cost averaging.
RESILIENCE IN MARKET REGIME DIVERSIFICATION

Diversification by market regime allows Navigator to circumvent the full market cycle. Holding on to returns and preventing large drawdowns is paramount to building wealth over the long term. Below shows the 5 worst drawdown periods for Traditional 60/40 against Navigator's Perpetual Profile*.


Start date Drawdown date End date Traditional 60/40 Return Time under water (Months) Navigator Perpetual Profile Return (Start Date - Drawdown Date) Navigator Perpetual Profile Return (Start Date - End Date)
Nov-07 Feb-09 Mar-11 -36.40% 39 -11.34% 17.69%
Apr-00 Sep-02 Oct-04 -26.16% 46 5.73% 28.54%
Mar-73 Sep-74 May-78 -24.56% 26 2.84% 14.91%
Jan-22 Sep-22 TBC** -23.13% 19 -2.42% 6.85%
Jan-90 Sep-90 Mar-93 -13.45% 13 -1.23% 1.17%

*Navigator's Perpetual Profile is the index allocated perpetual framework performance simulated back to 1971. For more information on the profiles construction please contact your ARIA representative. Simulated or actual past performance is not a reliable indicator of future performance and should not be the sole factor of consideration when selecting a product or strategy.

**The ‘End date’ of Traditional 60/40 drawdown cannot be included as the portfolio (as at 31.07.2023) has not yet fully recovered from the drawdown that began in January 2022.


Date Source: ARIA, Altsoft, Bloomberg.
Data as at: 31/07/2023.

THE PERPETUAL APPROACH: A Modernisation OF THE PERMANENT PORTFOLIO

We consistently research the means to improve upon our investing approach. One of the pieces of research we had historically come across, and sought to improve upon, was originally designed in the 1970’s by (at that point), a little known finance professional in the US called Harry Browne.


Harry Browne had a different starting point than many other investors in that he sought to define four economic scenarios (The Four Quadrants): Inflation, Deflation, Growth and Decline. He comprised an allocation that had equally weighted exposure to each quadrant:

- For Growth environments: a 25% allocation to Equities.
- For Deflationary environments: a 25% allocation to Bonds
- For Decline environments: a 25% allocation to Cash
- For Inflationary environments: a 25% allocation to Gold.




Coined 'The Permanent Portfolio', his work has stood the test of time. In our work, we determine an equally weighted allocation to Global Equities, Global Bonds, Cash and Gold would have returned 7.40% annually between 1971-2022. Its annualized volatility would have been 7.05% and maximum drawdown over the period of 16.80%.


The financial world has come a long way since the 1980s. The introduction of electronic exchanges, derivatives, volatility, algorithmic trading, the list goes on. It makes for a very different investing landscape than the 1980s and had Harry Browne undertaken his work today, he would likely have utilized the tools now at his disposal. Navigator's belief firmly rests in Harry Browne’s initial work. An asset allocation should be prepared for all economic environments, it shouldn’t need consistent market timing and by reducing portfolio drawdowns, long term returns, and wealth generation can be greatly enhanced. Navigator aims to modernize and enhance Harry Browne's initial work bringing into the 2023 investment landscape.

THE FOUR QUADRANT APPROACH

The four quadrant approach refers to the recurring stages that financial markets and economies go through over time. It is our belief that any recorded period of economic history can be broadly described by one of these four economic circumstances: Inflation, deflation, growth, and decline. The duration and characteristics of each regime can vary significantly from one market cycle to another, and their behaviors are impacted by various factors, including fiscal and monetary policies, geopolitical events and market psychology. The key to long term wealth generation is to have a portfolio allocation that is able to navigate all four quadrants and is prepared for potentially influencing factor effects. We have found that traditional approaches are very well suited to two of these environments but not the other two leaving them exposed over large parts of the market cycle. This exposure increases the likelihood of traditional investors experiencing extended periods of wealth destruction.


REDUCING THE IMPACT OF WEALTH DESTRUCTION PERIODS


Date Source: ARIA, Altsoft, Bloomberg.
Data as at: 31/07/2023.

IMPROVING DEFENSE: DIVERSIFICATION IN DOWNSIDE PROTECTION

Traditional assets such as bonds do well in decline, yet Gold, Trend/Momentum and volatility strategies can do well in decline and inflation. The Navigator Strategies offer a more robust defensive lineup.


WHY CONSIDER NAVIGATOR AS YOUR STRATEGY FOR FINANCIAL FREEDOM

• Over the past 20 years, financial markets have been driven by expanding monetary policy, falling interest rates and little to no inflation. With inflation now firmly above trend and interest rates rising around the globe, headwinds are beginning to form for traditional allocations. 2022 was in the top 5 drawdowns for traditional 60/40 ever and peak to trough it still hasn't recovered.


• A belief the wealth is created over the long-term. Whilst conditions may change your portfolio needs to be built to navigate the full market cycle 3/4 times over.


• Navigator provides an approach that has outperformed traditional 60/40 on a risk adjusted return basis between 1971-2022. A backtest that includes some of the most favorable conditions for stock market returns (1980-1999; 2010-2019).


• Being prepared for all conditions gives investors the peace of mind. Investors shouldn't have to accept losing over a third of their wealth because 'market conditions' didn't suit.


• Navigator can increase diversification of a larger traditional portfolio, helping to reduce drawdowns and improve market cycle navigation.

IMPROVING YOUR RISK ASJUSTED RETURNS


Date Source: ARIA, Altsoft, Bloomberg.
Data as at: 31/07/2023.


Date Source: ARIA, Altsoft, Bloomberg.
Data as at: 31/07/2023.

IMPORTANT DISCLOSURES & RISK WARNING The value of investments can fall, and you may get back less than you invested. Past performance is not a guide to future performance. Any specific investments mentioned are for illustrative purposes only and are not intended as investment advice. The data shown above is the backtested index allocation data for the target Perpetual Portfolio allocation. The backtest runs from 1971 to 2022 and data is taken/created from Bloomberg, ARIA and Altsoft. Where index performance was not available for an allocation, proxy performance may have been used which may come from other sources or research data. Investor return in different currency share classes may vary substantially due to changes in currency exchange rate movements. Past Performance of any kind, actual or simulated, is not a reliable indicator of future performance and should not be the sole factor of consideration when selecting a product or strategy. Investments in equities, commodities and precious metals are subject to market risk. Changes in exchange rates may have an adverse effect on the value price or income of the product. Please note there may be additional third-party fees applicable based on the way you access the strategy (financial adviser fees for example) which are not factored into the return data. Asset allocation information is shown for illustrative purposes only and may not be correct at the time of reading the document. The Perpetual Portfolio may use higher leverage and financial derivative instruments as part of the investment process. This information does not constitute an offer or solicitation and it is not contractually binding and shall not be construed as an offer of sale of any fund managed or advised by ARIA Capital Management. Any investment should be based on the full details contained in the Perpetual Portfolio documentation which may be downloaded from the ARIA Capital Management website. Information given in this website has been obtained from, or based upon, sources believed by us to be reliable and accurate although ARIA Capital Management does not accept liability for the accuracy of the contents.

RELATED CONTENT

Read more about defined return investing

In Gold We Trust
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Commodities Unchained
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Navigating Bond Volatility
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Diversification by Market Regime
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LITERATURE DOWNLOADS
Navigator Defensive Profile
(50% Risk Assets)
Navigator Moderate Profile
(60% Risk Assets)
Navigator Perpetual Profile
(70% Risk Assets)
Navigator Aggressive Profile
(80% Risk Assets)

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