Invast Launched Market Portfolios In 2013 Based On Investment Horizon

Invast Insights
Week Commencing September 2, 2013

www.invast.com.au | 1800 468 278
Much of the stress that people feel doesn't come from having too much to do.
It comes from not finishing what they've started - David Allen (Author).
1.0 Launch of our model portfolios
Most companies in the Australian market have just reported their earnings.
It's usually the best time to review your portfolio - spending a few hours to go
through the quality of earnings and the outlook statement from companies
themselves. Invast is launching its model portfolios which will be updated on
a monthly basis, usually at the beginning of the month. The model portfolios
are aimed to give you an idea and framework around managing your
investments – they are general in natural and do not take into consideration
your personal circumstances so please keep that in mind.

The portfolios are not benchmarked to any particular index, they are run with
an absolute return basis in mind. They will also evolve to include global
foreign exchange and index positions and so picking one stock index to
benchmark against is pointless. Common benchmarking to the ASX200 is
pointless since:
• The index is just a measure based on market capitalisation and doesn't
really mean much other than a mathematical calculation.
• Most individual investors do not have to be invested 100% of the time,
unlike fund managers and so the opportunity cost of investing is being in
cash.

1.1 Portfolios based on investment horizon
Without knowing personal circumstances, our general portfolios are set up to
reflect time horizon. If you are 20 years old and looking at growing your
wealth your portfolio should very different to somebody aged 64 and about
to enter into retirement. Most stock tipping sheets and research services will
tell you which stock to buy but they won't tell you how much and for how
long you need to hold that investment. Even the ones that provide model
portfolios, there isn't enough emphasis on time horizon. Is a balanced
portfolio suitable for the 20 year old just as much as the 64 year old?
In a perfect world we would balance time horizon with risk tolerance etc but
then the value of the portfolios will become too complicated.The portfolios
we update on a monthly basis will just drill down on what we think - on a
general basis - each age category should be looking at (buying/selling) from
time to time. For those 20 year olds that feel like growing up quickly, they
have the choice of adopting a shorter time frame approach and conversely for
the baby boomers looking at going into retirement, they can opt to be young
forever.

1.2 The three portfolios explained
We think most investors are in one of three stages - wealth creation phase,
wealth preservation phase and then drawdown phase. A fully franked
dividend is much more important later on in life when income from salary
becomes difficult than it is for somebody who has a life and work expectancy
of more than 40 years. Again, this is a general statement only and individual
circumstances will change. In our portfolios, each category tries to capture:
Wealth creation - Higher tolerance for risk, more exposure to forex and
commodity positions, greater appetite for growth and emerging
opportunities. Taking large losses is tolerable although focus is on very tight
risk mitigation methods like stop losses. Return target above 10% pa. Portfolio
commences with $50,000.

Wealth preservation - We have made the money and looking at smart ways to
invest it. Quality is key, income is important but not as important as certainty.
We have some tolerance for the riskier things in life but not too much as
retirement is the next phase of our life. Return target between 5-10% pa.
Portfolio commences with $50,000.
Drawdown phase - We have created our wealth, preserved it well and now
need to find ways to generate a reliable income because we are no longer
work and need to make sure we have enough money to pay the bills as they
fall due. Return target around 5% excluding franking credits pa. Portfolio
commences with $50,000.
1.3 Why start with $50,000?
Each portfolio commences with $50,000 which we think is close to the
average amount most people will start off with investing. We hope to grow

capital raisings and make a lot of money out of them, they will usually focus
researching stocks which they can generate future business from.
• Most analysts are equally too lazy to spend time on small companies
which are barely making money and could blow up, so a red line is often
drawn at the top 200 stocks whereby many smaller opportunities get
neglected, particularly during a challenging market as has been the case
since the GFC.
• Many fund managers who invest in smaller companies have limitations
around the size of company they invest in. This is because they often
have large sums of money and if they are trying to buy into a small
company, the limited amount of shares on issue will complicate them
going in and out of the stock. This is called liquidity. Luckily, ordinary
shareholders managing their own wealth don't really have this problem
and so an opportunity opens up.

this to much more over time. If you have more or less than this amount you
can just adjust according to your own preferences. The portfolios are not rigid,
rather they are just a guide of trading opportunities which we think satisfy
each type of investor.They will grow and change over time.
With the derivative exposures in the Wealth Creation Portfolios, we allocate
the whole amount of exposure to the size of the portfolio. For example when
taking a position in gold, we recognise the face value of the exposure and not
just the margin requirement. We feel this is more appropriate so clients know
exactly what they are getting themselves into. Some traders may want to
adjust for this methodology, which is fine.
1.4 Webinar around building a portfolio
Before we actually introduce our portfolios it's worth noting that Invast is
holding an exclusive client only webinar on 17 September 2013 around the

whole process of building a portfolio. The webinar will be hosted by Chief
Market Analyst Peter Esho. Peter starts by looking at strategy, portfolio
allocation and then sheds his secrets in finding the best opportunities to
deliver successful results. He also walks through the methodology in putting
together the three portfolios mentioned above. To find out more and to view
our full range of webinars, go to invast.com.au/resources/webinars

* Prices as of 28 August 2013

We mentioned Empired, Tandou and Adslot as three key hidden gem
opportunities in our report last week and so we add them to this portfolio.
Hopefully with profit we can start to buy some others in the future. Keep in
mind that these stocks are not liquid at times and so the price above and your
actual entry point might be different. We adjust the gold and S&P500
exposures to the Australian dollar since the shares we add in the portfolio are
in the same currency.

1.6 Wealth Preservation Portfolio September Update

The STW gives exposure to the ASX200 and the IJP to the top 300 Japanese
companies in terms of size. With two single instruments, we build exposure to
almost 500 companies. We then add some Westfield, Woolworths and
Woodside shares - all companies that are paying around 4% in dividends but
have solid and stable outlooks with enough diversity in their own businesses
to offset sudden moves. The aim is to preserve money while generating a 5-
10% annual return in this portfolio so we feel that this is an adequate mix.
Simple and easy.

1.7 Drawdown phase portfolio September update

This portfolio is very focused towards income. We add some corporate bond
exposure through Tabcorp and Goodman corporate bonds. Both are backed
by solid businesses - Tabcorp by a relatively stable gaming and wagering
business and Goodman by its vast portfolio of properties. We then seek some
franked dividends and can't go past Telstra which has fallen slightly since its
result. Woolworths is in a similar class and then we add some AMP for
leverage to a business turnaround and income growth. The portfolio has an
average, grossed up (adjusted for franking) yield of around 6.95% for 2014.
This is by no means guaranteed but based on the current income projections
made by the consensus of brokers in the market.
2.0 What does Syria mean for your investment portfolio?
We don't really like talking about politics but sometimes large world events
do have an impact on the way markets behave and so we app roach them

with that in mind. They say politics and religion are two topics you should
never discuss at a dinner party - perhaps also two topics which investment
analysts should stay away from too.
But we live in a globalised, news hungry world, markets are sensitive and any
ounce of volatility can have a huge multiplier effect. Plus the market has been
contemplating military action on the Al Assad regime in Syria now for over a
week and the common headline reads "Market down xx points due to Syria
worries".
This week we hope to put some myths aside and help you realise what is
actually going on in Syria, which might occur and how this will impact
markets. War is always a horrible reality, so we are not condoning military
action here nor are we justifying the loss of life. We are just trying to view the
Syrian conflict in terms of geopolitics, the impact on investment markets and
your trading situation.

If you don't have an interest in this topic you can skip through to the last
section - the impact on markets and your investment strategy. But keep in
mind we spent time to talk through our thinking so that you know how we
got to the end result.
2.1 War has been ongoing for two years now
First of all, unless you have been living under a rock or just not interested in
foreign politics, you would have probably known that the Syrian uprising
against the Al Assad regime has been going on for a while now. The uprising
officially commenced in mid March 2011 following on from the removal of
other Arab governments, including Egypt's former president Hosni Mubarak.
Syria itself though has been fighting on several fronts against its neighbors
for decades. It was a relatively stable but active player in the Iraq war -
shuffling through the revolving door of Arab politics. The situation was hardly
normal prior to the uprising and so today's civil war has been brewing for
decades.

We need to keep in mind that the current situation around Syria is more an
issue of Iran's interests verse those of the West. Syria provides Iran with a wide
enough sphere of influence stretching from Afghanistan and into the
Mediterranean. The issues in Syria are not necessarily about that country itself,
rather a proxy war among various regional powers. This is important to note
because any military action in Syria can have consequences elsewhere.
A discussion into Middle Eastern politics can take days without any end and
so we don't intend to entertain that here. Our point is that Syria is an
important arm of Iran's regional expansion, but probably a proxy that it can
afford to lose - having recently consolidated its gains in Iraq and still
maintaining a solid base in Lebanon through Hezbollah.
2.2 The most likely military response
Even the best forecasting analysts like Stratfor - which predicted the Georgian
and Iraq wars - have been silent in terms of predicting what will happen in
Syria. We don't know either, but what we do know is that a ground war is too
messy and expensive.

The objective of the West is to stop Iran's sphere of influence from expanding
and by crippling the Al Assad regime this has largely been achieved. The job is
half done even though the country falls further into turmoil. The red line was
crossed when chemical weapons were disposed (yet to be determined by
who) causing hundred of deaths beamed right around the world. Even
though strategically the West has achieved its primary purpose of stopping
Iran, it must now respond to the global audience. This comes at a time when
the Al Assad regime was finally getting the upper hand in its fight against
armed rebels after two years of fierce fighting.
We think any military intervention will take the form similar to that of Libya.
Obama's approach is one of building a consensus and then partnering with
European allies to carry out the operational command. This will probably see
an international consensus being built through the UN security council and
then a gradual build up of operational capabilities through NATO. This means
time in building the appropriate legal measures.

The strikes will aim to achieve two things:
1. Cut off the Syrian regime's ability to launch operations across a wide
geographical area. Strikes will most likely target military assets, roads and
bridges to limit troop deployment, airports and military air basis to stop air
attacks and media assets controlled by the Al Assad regime. These types of
strikes and targets are similar to the strategy in Libya.
2. With Al Assad's army crippled, the regime will again be under pressure
internally. The West will have time to play its politics here and hope for a
transition in power with limited bloodshed. This is wishful thinking but again
it means more time around the actual implementation of change in Syria.

point in time was producing around ten times as much oil as Syria does now
and the route of attack - the Persian Gulf - is the main corridor for the
transportation of oil from the major players in the region.

That's what really matters. In contrast to Syria - Iran, Saudi Arabia, Kuwait and
the United Arab Emirates combined in 2012 produced around 25% of global
oil. These four countries combined do have a major impact on the oil price.
More importantly, the main route of transporting this oil is through the
Persian Gulf - the same waterway which was built up with US aircraft carriers
in 2003. Even if the West launches military air and navy strikes against Syria,
the Persian Gulf is unlikely to be impacted by any major build up in military
presence. So the major highway of sensitivity in the Middle East for
transporting oil has nothing to do with attacking Syria.
When the West targeted Libya, it was producing around five times as much oil
as Syria does presently. Even with Libya's oil production grinding to a halt due
to post-war disruption and sabotage, the country still managed to produce
almost 50% more oil than Syria last year.

Which brings us to our most important point - what happens in Syria doesn't
matter as much as what happens in the aftermath between Iran and Saudi
Arabia. Iran has already seen a 16% decline in its oil production last year due
mainly to sanctions imposed on it by the West. It has almost no chance of
retaining its proxy through the Al Assad regime and needs to continue selling
as much oil as possible to bankroll its own domestic problems.
2.4 What does this mean for investment markets?
Our view is that a strike on the Al Assad regime, as horrible as it might be in
terms of a human impact, will make little geopolitical and economic change
to the status quo established over the past several years. Oil supply is just one
part of the equation and while the market for oil might spike if an actual
strike is launched, there are several other offsetting factors that need to be
taken into consideration.

The United States is still the single largest consumer of oil globally, soaking up
around 18.6 million barrels of oil a day or around 20% of total global
consumption. US consumption of oil through has fallen by 11% according to
the BP Statistics since 2007. China - despite all its growth and huge population
capacity - is still only consuming around 10.2 million barrels. What happens
with US demand is more important for us to how oil trades than if a strike on
Syria was to occur - all other things being equal.
Keep this in mind when trading oil and energy markets. Below are some
tables should both production and consumption trends in oil, highlighting
the statistical importance of everything we mentioned above. Again it is
important to not buy into the headlines before reading through the facts.
There is still a remote chance that no military action takes place in Syria and
somehow, things are sorted out.

2.5 How do I get the BP annual statistics
There is a huge treasure trove of information at the BP website. The correct
link to use is here (http://goo.gl/YCtbAl) but if you can't open that up in your
browser just type in "BP statistical review" into Google and that should take
you straight there.
3.0 Invast's initial impression on the Qantas results (published 29.08.13)
Qantas about to take off? The underlying profit before tax of $192m looks
reasonable on face value but does exclude some fairly large one off items like
impairment on planes and redundancy payouts. There is no doubt that the
operating environment has been difficult for Qantas but it seems as though
the diversified group has held up relatively well in light of all the
circumstances. The market will also be pleased with the underlying
performance in the domestic business.

Qantas has been struggling with the international arm for a while now and
the big concern in the market was the eventual impact on the domestic
business from a more competitive Virgin. Underlying earnings for domestic of
$365m is significantly down on last year's $463m but perhaps not as down as
some may have expected. International losses have almost halved so the
trend is positive there also. The only division to have posted underlying
earnings growth though of any substance is the frequent flyer business.
Bottom line:
It has been a challenging year for Joyce and the crew at Qantas but the ability
to contain costs and take some bold steps in the international division is
starting to show some positive signs. This is not a fantastic report card,
earnings are falling but the divisions that matter most and contain the most
risk seem to be showing some positive signs of stabilisation. Jetstar's result is
disappointing but when given in the context of Virgin is still miles ahead.
Qantas shares at around $1.20-1.30 are being priced for more big losses and
we just feel that this is too bearish.

Guidance isn't the most optimistic, but it isn't as bleak as the share-price
would suggest either. Based on that, we think there is upside potential to the
shares coming from a rock bottom base.
4.0 Invast's initial impression on the Woolworths results (published 28.08.13)
The market will be looking for information we don't already know in these
Woolworths sets of numbers - new information, not necessarily commentary
on the old news. We already know about price deflation, problems in Masters
and the broader spending patterns in the food and liquor division which
matters most. With all that in mind, earnings per share are 4.8% higher which
is in line with the revised guidance issued in July. The dividend is also in line
with market estimates, perhaps slightly above some but again no real surprise
here either.

What the market is really looking at is the 2014 guidance and investment
intentions of the group going forward. Woolworth expects profit growth from
continuing operations to be 4-7% higher which is a slightly higher rate of
growth this year and again in line with what the market is broadly expecting.
The most important takeout from this result for us the rate of new investment
has not blown out, which means Woolworths is not exactly over-spending or
over-investing to get these results.
Bottom line:
Basically there is nothing really new here but sometimes boring is good. The
income focused investors will be licking their lips at the healthy dividend
payment. In terms of the broader picture, the food and liquor price war isn't
about to go away anytime soon but what we see going into 2014 is a less
desperate Woolworths - one which seems comfortable with its store roll-out
plans and happy with around 5% growth in its earnings. Woolworths spent

less money than planned on new stores and roll-outs and the amount of
investment put aside for next year is also likely to fall. Overall, a very good set
of numbers but perhaps lacking the upward surprise some may have hoped
for.
5.0 Building a trading plan from scratch
How do you go about building a trading plan? What do you need to consider,
and what type of trader should you be? The last question is a logical place to
start – deciding the type of trader you want to be, and understanding why.
Scalper (very short term)
• tend to stay within boundaries of 1 minutes to 15 minutes time frame -
Intraday trader (short term)
• tend to range from 5 minutes to 1 hour time frame

Swing trader (medium term)
• will consider analysis done from 1 hour and above - Position trader (long
term)
• will consider analysis done from 1 hour and above
As you can see, the time frame when analysing the market helps determine
the type of trader you are, and as such the type of plan you need. It is
generally accepted that the shorter the timeframe, the lower the risk/gain per
trade.With more market noise, a higher level of discipline is needed.
Trader type will dictate risk tolerance, as shorter-term traders tend to prefer
lower risk as part of their plan to compensate for the frequency of trades
initiated during the day. Swing and position traders normally have a position
with wider stops and targets to compensate for the lack of entries they get
from their analysis.

It is tempting to try and make a value judgment about different trader types –
but the truth of the matter is that there really isn’t a better or a worse type of
trader. Each has its own strengths and weaknesses, and matches different
individuals.
There is a misconception that one can choose to be a particular type of trader
- but this is a myth. A trader naturally develops a preference due to personal
circumstances (e.g. only able to trade morning/ night for a few hours), their
purpose for trading (e.g. hedging, extra income stream) and their preference
for trading over a certain time frame and how the market reacts to it.
5.2 Type of analysis
The other key element when building your trading plan is understanding, and
then choosing, the way in which the analysis is done. As we talked about last
week, there are two types of analysis – fundamental and technical.

Each of these in turn has its own sub-classes. The two sub-classes under
technical analysis are price-based analysis and indicator-based analysis.
5.2a Price-based analysis
Price analysis mainly relies on predicting the correct support and resistance
that is likely seen and considered to be important by other traders worldwide.
The logic behind technical analysis as a self-fulfilling prophecy probably
comes from price analysis. Traders who use analysis that is based on price
tend to believe that the market has priced both sentiments and fundamental
information into price. There is no lag involved but, at the same time, market
noises are not filtered out.
The following studies fall under the category of price analysis:
• Chart patterns

• Candlestick patterns
• Fibonacci levels
• Gann analysis
• Elliot wave theory
• Ichimoku kinko hyo
• Harmonic patterns
• Pivots
Price-based analysis – Pros
Price analysis is simplistic, which is a good thing in technical analysis. It is also
easier to determine where price is in relation to the underlying trend. One of
the main advantages in price analysis is the precise levels to work with; for
example, Fibonacci ratios provide future price levels where the market is likely
to find support/ resistance; trendlines can provide a range for the market to
help place an entry or exit order. Price based analysis is normally suited to
swing traders and position traders; it's set and forget type of trading.

Price-based analysis – Cons
The downside to price analysis is the lack of entry into the market. Often, at
times when the market starts trending, traders will have to wait for a
correction to happen before obtaining an entry. Depending on the type of
strategy used, price analysis entries are mostly not optimal with a higher risk
compared to indicator based analysis.
While the concept is simple, it's actually harder and takes longer to become
proficient in understanding price movements. Every tradable instrument has
its own set of characteristics, meaning it's not as simple as applying the
strategy systematically across the range of instruments.
5.2b Indicator-based analysis
Beginner traders are commonly introduced to indicator-based analysis first.

There's a great deal of reference material online and in publications about
trading indicators.
Here is the list of some commonly used indicators in technical analysis:
• Moving average
• Bollinger bands
• MACD
• RSI
• CCI
• Stochastics
• Williams %R
These indicators serve as a way to measure momentum and volatility in the
market and some, such as moving averages, are used to provide entry/exit
signals as well as support and resistance in the market.

Indicator-based analysis – Pros
Advantages to using indicator-based analysis include the ability to filter out
market noise, earlier entries compared to price analysis, and a lot of
opportunities on a more constricted time frame. For these reasons, indicator-
based analysis is often suited to intraday traders.
Indicator-based analysis – Cons
On the other hand, the ability to pinpoint an exit level is compromised -
because such exact judgment requires constant monitoring for changes in the
indicator.
The lagging nature of these indicators has the advantage of filtering out
market noise but at the same time it could mean you end up experiencing a
delay in detecting market changes; this, in turn, may delay your ability to act
and react to market changes.

5.3 Understanding yourself
The final piece of the puzzle, and one that is often neglected purely because it
seems a “soft skill” so to speak, is analysing your own trading style and
knowing yourself. Analysing your own trading style and preferences is crucial
in building a successful trading plan. You should never force yourself to adapt
to a strategy that makes you feel uncomfortable – and if you are
uncomfortable with a strategy, it's probably not suited to your trading style
and your personality.
Many people may think that they know their trading style; however, if you
want to make sure that you truly understand your style, try experimenting
with different trading types.
If you get the opportunity, try both forms of analysis before deciding on
specialising in one. Most successful traders look at both price based and
indicator based analysis as a whole, becoming a hybrid in terms of analysing
the market. Not an easy task but it's possible.

Beginner traders are better off sticking to one type of analysis until they are
proficient and have enough experience before experimenting with others.
6.0 Trading journal
Keeping a trading journal to record all your trades is highly recommended,
not only to be more disciplined and accountable for your own trading; but the
hidden merits behind keeping said journals.
A journal is simply a record of your trades, your logic, your intention, your
goals, your methods. In one word it’s “YOU”. There will be no more excuses –
you will know what happened, how, and when it happened. It will reveal
information in regards to your trading pattern that you didn't realise earlier.
• Keeping a trading journal will help you pinpoint when you could have
done better.

• Every tradable instrument has a specific time when activity picks up.
• It will help you to identify the instrument that your trading strategy works
best with.
• It will help you to identify simple trading mistakes that are sometimes
overlooked/ underestimated.
The information that can be achieved from your journal is a valuable tool to
help build and improve your trading strategies and skills. Below is a sample of
what a trading journal typically has, keep in mind that the template below is
purely as reference with key information traders need to track their trading
progress. Feel free to add extra information should you need to.

Trading Journal

7.0 Market liquidity schedule
Even though the global markets is available to trade 24 hours a day, liquidity
in the market is still constrained by regions and trading sessions. As a trader
we require liquidity and volatility, this is especially true for intraday traders
that rely on large swings in the market that happens intraday.
To give an illustration, EUR/USD typically moves within 40-60 pips during the
Asian session but the range widens as the European and American traders
joins the foray. An intraday traders will find the movement during the Asian
session lethargic with not a lot of opportunity to work with. As such the best
time to trader the EUR/USD would be during the European session and
American session.

Liquidity is directly correlated to the number of market participants, so two
markets overlapping will provide a better liquidity than a single market. The
highest trading activity for EUR/USD occurs when the European session
overlaps with the Asian session and again when the European session
overlaps with the American session.
Attached on the next page is a schedule to illustrate liquidity in the market
across the day.

8.0 Disclaimer
Please note that you are receiving this report complimentary from Invast
Financial Services Pty Ltd (AFSL 438283). Invast staff members may from time
to time purchase securities which are included in this or future reports. The
authors of this report may or may not holding a position in securities
mentioned.
Please note that the information contained in this report and Invast's website
is of a general nature only, and does not take into account your personal
circumstances, financial situation or needs. You are strongly recommended to
seek professional advice before opening an account with us. Trading in FX and
derivatives can be risky and you may incur a loss that is far greater than the
amount you invested. Please read our Risk Disclosure, Financial Services
Guide, Product Disclosure Statement, FX & CFD Terms & Conditions.
If you wish to unsubscribe from any future correspondence from Invast
Financial Services Pty Ltd please email Unsubscribe to info@invast.com.au
*Distributed with the permission of Invast.com.au

Invast Launched Market Portfolios In 2013 Based On Investment Horizon

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Invast Launched Market Portfolios In 2013 Based On Investment Horizon