ARCO Investment Management

Our history

ARCO Investment Management (formerly Optimal Fund Management Australia) was formed by George Colman and Peter Whiting in 2008. The company aimed to deliver investment strategies to clients seeking a return on their investment in absolute terms, without experiencing regular periods of capital loss in order to achieve it.  In 2017, the company name was changed to ARCO, derived from the Latin word meaning ‘arch’ which we believe better represents our long-term commitment to supporting the absolute return objectives of our clients, along with an over-arching focus on their capital preservation.

Since 2008

2008

July 2008: Optimal Fund Management Australia granted its Australian Financial Services Licence.

September 2008: Optimal Australia Absolute Trust launched. (Long/short  Australian equities strategy).

2012

George Colman and Peter Whiting confirm full and joint ownership of Optimal Fund Management Australia (initially formed in partnership with Optimal Fund Management Asia).

2016

July 2016: Optimal Benchmark Independent Fund launched (long-only  Australian equities strategy) following considerable market feedback and seeded by one of Australia’s largest superannuation funds.

2017

June 2017, confirmed a strategic relationship with the Burnham Group, (a long-standing family office and private investment company), which included a minority equity interest in the firm, plus a significant investment in the  long/short strategy.

July 2016. Rebranded from Optimal to ARCO Investment Management.

November 2016: Launched the ARCO Absolute Return Fund.

Our principles

ARCO Investment Management’s investment team has an aggregate experience in the Australian equities market spanning over 90 years. It is from this considerable experience that the team have developed the following principles which guide them in delivering consistently competitive absolute returns to clients.

Fundamental research

The equity valuation of many companies has a calculable, 'fair value' range. Stock prices frequently over-shoot and under-shoot this range, creating an opportunity to achieve attractive, risk-adjusted returns for when prices revert to their fair value range.

Active rebalancing

Companies change slowly. Stock prices change very rapidly. Stock exposures should be actively rebalanced accordingly.

Risk management

Investors benefit from downside protection in their equity exposure. This is an outcome of both quality stock selection and constant portfolio vigilance within strict risk controls.

We believe that a meaningful and constant combination of these principles is critical in delivering consistent and repeatable performance to investors over time.

Our process

ARCO Investment Management has a fundamental research approach to stock selection for clients, constructing and actively managing portfolios of listed equity securities that we believe are priced at levels that do not adequately reflect their underlying value.

We are fundamentally driven investors, and believe that alpha-generation is hard work, requiring a deep insight into industry sectors and underlying companies, a willingness to assume out-of-consensus risk based on that work, and a flexible mind-set.

We view the equity market in Australia as highly efficient. As such, we believe that most high-liquidity, large-capitalisation stocks have an identifiable ‘fair value’ range, based on their comparative advantage to peers, growth rate, capital structure and allied fundamental considerations.

Our process is to combine intensive fundamental research with active consideration of non-fundamental factors, and is particularly interested in stock price variances from our calculated fair value range, whether below our fair value range for a stock or above it. We make it our business to find out why such variances are occurring, at both the fundamental (e.g. earnings, industry, or peer valuation dynamics) and market (typically liquidity or sponsorship changes) levels

Delivering investors positive, risk-adjusted returns that compound higher over time along with an over-arching focus on capital preservation requires constant fundamental analysis and a clear and disciplined risk management framework.

Across our investment strategies, ARCO employs and strictly adheres to clear risk parameters that consider among other things, the following:

  • Only those stocks that fall into our investable universe, (and not to be distracted by those that do not)
  • Stock concentration limits – to ensure that investors are not over-exposed to any one particular stock within the fund
  • Hard stop-loss (sell) limits that ensure we exit or reduce stock positions that have lost value at a point that will erode overall portfolio returns
  • Active rebalancing of stock positions as its price moves higher/lower relative to our fair value range for the stock

The ARCO Absolute Return Fund and Optimal Australia Absolute Trust may also use Index Futures contracts (derivatives) to hedge market risk, if ARCO consider it appropriate, to protect investors from the possibility of stock price declines.

Further, the fund’s level of net equity risk exposure (defined as long market value less short market value) is governed by its assessment of market and macroeconomic risks, and systemic shock factors. Under its Trust Deed, the fund has the capacity to have 60% of net assets invested net long or net short, if ARCO believes that market conditions warrant such a strategy. In practice, since inception, the fund has ranged from net asset exposure of between -20% to +30%, with an average of +7%.

The Benchmark Independent Fund may increase the cash weighting in the portfolio to no more than 20% of the Net Asset Value, if the Portfolio Managers consider it appropriate, to protect investors from the possibility of stock price declines.

Further details regarding the risk management approach used by ARCO to deliver on its investment objectives for investors can be reviewed in the offer documentation for ARCO’s investment strategies.