It's important to us that these articles are transparent & answer your questions. Please help improve us by selecting a rating at the bottom of the article
It's incredibly important to us you understand and are comfortable with our investment process. It's been our experience that investors who understand the process and how the portfolios are managed go on to get the most out of their portfolio and are comfortable when times get tough. Let's get into it.
What do the portfolios invest in?
You should expect to see the bulk of your investments held in a hand-picked selection of exchange traded funds (ETFs).
ETFs make up the core of what we do and we spend a lot of time researching the ETFs on the Australian market to answer the question, "is this ETF the best way for us to get exposure to this asset class?"
ETFs sit right in the sweet spot of what we believe a Core Portfolio should be:
Proven (i.e. based on objective empirical evidence over decades, not weeks or months);
Low-cost (for maximum compounding, since fees are a big reason most investors do poorly);
Low turnover (for tax reasons, every time you buy or sell there will be a tax bill to pay — which significantly drags on your investing returns), and
Easy to understand (if you cannot sleep-at-night with your portfolio, whether it’s managed by us or you, it won’t be sustainable over the long run)
There may be a time when it is fortuitous to use active ETFs in the portfolios or individual stocks. These will only be used if they add diversification and are the best way to get exposure to a specific asset class or theme and are inline with the mandate of the portfolio.
How are the ETFs, active ETFs and individual stocks chosen?
The analysts have a 100 point qualitative and quantitative scoring system through which they evaluate all potential investments, be it passive ETFs, active ETFs, LICs, REITs or individual stocks.
This process is used to evaluate the investment alongside other like-for-like alternatives to identify the best expression of the asset class or theme we want exposure to.
For a deeper dive on the process click here to read our full investment philosophy.
How often are the portfolios reviewed?
Our research is continuous. Everyday the investment team monitor the portfolios and monitor other possible investments. There are new ETFs coming on to the market regularly, we must ensure the exposure we have to each asset class remains the best expression of the exposure we seek.
The investment committee formally meet once per quarter to ensure compliance with the mandate of each portfolio.
When will the portfolios be rebalanced?
The portfolios are designed to be long-term investments. We aim to minimise transactions to keep transaction costs and capital gains consequences to a minimum.
Saying that, there will come times when a rebalance in required. We constantly monitor the portfolios and alternative investment options to ensure our portfolios are invested in the best assets to reach the targeted returns and keep within the mandates.
The three times a portfolio will be rebalanced by the investment team:
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.
When I add funds will I need to wait for a rebalance before they are invested?
No, any funds you add (or remove) will see your account rebalanced to keep it in line with the model portfolio you are tracking.