When do transactions take place in my portfolio?
There are four main reasons why a transaction would take place in your portfolio, three of these are driven by actions from us as an investment team and the fourth is by you as an investor:
The portfolios reach the 10% limit and need to be rebalanced. We break down the asset classes into two categories, growth assets and defensive assets. Each portfolio has a set limit for growth and defensive.
In a bull market growth assets (Australian and international shares) increase as a percentage of the portfolio and defensive assets decrease. Let's say the hard limit is 70% growth and 30% defensive. In this bull market the growth assets will be allowed to increase to 80% of the portfolio before we need to rebalance. This will naturally see the portfolios taking profit.
In a correction or bear market, the growth assets will decrease in weight and defensive assets increase. This will lead to a rebalancing and adding of defensive assets to growth. This will see portfolios naturally taking advantage of declining markets.The investment team, through their research adjust the strategy of the portfolio in line with their changing view on market conditions. This is not market timing, but altering the asset allocation to achieve the portfolios target return within the mandate.
An ETF or investment vehicle that gives the portfolios a better expression of the asset class is identified and a switch is made.
You add or withdraw funds from your account. At all times we will ensure your account tracks the model portfolio you have chosen. This means your account will hold the same amount of ETFs as the model. This also includes cash amounts.
When you add or withdraw cash from your account your cash balance will deviate from the model. If your cash is 5% above or below the model weight we will make transactions to bring your account in line with the model.
When you add funds, if that deposit on its own is not enough to increase your balance beyond the 5% the cash will remain in the cash component and build up with future contributions and dividends. When it exceeds the 5% it will trigger purchases. This is all done to ensure we do not over transact on your account and cause additional brokerage.
How do you transact when I switch between models? E.g. Switching from Jupiter to Saturn?
The beauty of having a professionally managed account, over a pooled investment like a traditional managed fund, is you have full ownership of what is in your account and to rebalance we can sell the exact amount of units we need to rather than selling everything and buying everything again.
This is incredibly beneficial when switching between model portfolios.
If your circumstances have changed and you want to go up or down in risk profile you simply do this online by clicking on Modify Allocations and selecting the new portfolio.
The following day our team will buy and sell the exact amount of units we need to rebalance your account to the new model. You will notice the majority of the ETFs we invest in are held across all models, what differs is the weight they are held at.
When you decide to move up or down a model we will simply buy and sell the ETF units we require to bring you in line with the new model.
Can I add cash and switch models and ensure the new cash is used for the purchases limiting the sells?
You can add cash to your account and switch models at the same time.
To do this you would:
Go to Modify Allocations
Enter an amount in the add additional funds field
Enter 100% as the new allocation in the model you want to switch to
Review and click "apply changes"
Please note, this may not result in no sell transactions taking place. It will depend on your cash balance and the changes required to bring you in line with the new model. For example, if moving from Jupiter up to Saturn, we will be selling down the defensive assets as there are none in the Saturn portfolio.