Diversified Portfolios - Intelligent Investor Equity Income - 31 January 2017

Intelligent Investor Equity Income January Report

COMMENTARY


PORTFOLIO COMMENTARY

January provided a rough start to 2017 for the Intelligent Investor Equity Income Portfolio, with a profit warning from Virtus Health on the last day of the month knocking it and competitor Monash IVF down by around 20%.

Frustratingly, we had already started selling Monash – to provide funds to buy Flight Centre and to reduce our weighting to IVF – but the order was only partially completed when the profit warning came. You avoid floods not by predicting rain but by building arks, and when the waters rose ours sadly still had a few leaks.

Individual shocks are why you diversify, though, and the portfolio’s losses for January were limited to 1.7%, although that was 0.9% behind the loss of 0.8% for the All Ordinaries Index. So far this financial year, the portfolio has gained 10.2%, just ahead of the 9.1% return of the All Ords.

Since it opened for direct investment in July 2015 it has returned 13.7%, compared to 7.0% for the All Ords; and since it began life as a model portfolio in 2001, it has returned an annualized 13.4% compared to 7.9% for the All Ords.

Carsales.com was another weak performer in January, losing 8% after announcing that well regarded chief executive Greg Roebuck (who co-founded the company in 1997) will be retiring in March. The good news is that he will be replaced by a strong internal appointment: Cameron McIntyre, who joined the company as chief financial officer in 2007 and became chief operating officer in 2014.

On the plus side of the ledger, Origin Energy and BHP Billiton gained 10%and 6%, respectively, as commodity prices continued their rally. Computershare added another 3.5% as markets factored in higher long-term interest rates following Donald Trump’s election as US President.

During the month we sold the portfolio’s holding of about 3% in Monash IVF and replaced it with Flight Centre. We also took the opportunity to sell our holding of just under 2% in Origin Energy, which has suspended its dividend and rallied 40% since November.

GROWTH OF $10,000


Income Reinvested




PEFORMANCE SUMMARY TO 31 JANUARY 2017





Source: Praemium, RBA. Returns are after fees and before expenses. Returns are shown as annualised if the period is over 1 year. * Since Inception (SI) date is 1 July 2015.


PERFORMANCE TO 31 JANUARY 20171 MONTH3 MONTH6 MONTH1 yearSI* (P.A.)
Intelligent Investor Equity Income Portfolio -1.73% 2.76% 2.63% 17.36% 13.65%
ASX All Ordinaries Accumulation Index -0.77% 5.92% 2.65% 17.09% 6.95%
Excess to Benchmark -0.97% -3.15% -0.02% 0.27% 6.70%


Important Information

While every care has been taken in preparation of this document, InvestSMART Financial Services Limited (ABN 70 089 038 531, AFSL 226435) (“InvestSMART”) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and see professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. This document has been prepared for InvestSMART by InvestSense Pty Ltd ABN 31 601 876 528, Authorised Representative of Sentry Asset Management Pty Ltd AFSL 408 800. Financial commentary contained within this report is provided by InvestSense Pty Ltd. The information contained in this document is not intended to be a definitive statement on the subject matter nor an endorsement that this model portfolio is appropriate for you and should not be relied upon in making a decision to invest in this product. The information in this report is general information only and does not take into account your individual objectives, financial situation, needs or circumstances. No representations or warranties express or implied, are made as to the accuracy or completeness of the information, opinions and conclusions contained in this report. In preparing this report, InvestSMART and InvestSense Pty Ltd has relied upon and assumed, without independent verification, the accuracy and completeness of all information available to us. To the maximum extent permitted by law, neither InvestSMART, InvestSense Pty Ltd or their directors, employees or agents accept any liability for any loss arising in relation to this report. The suitability of the investment product to your needs depends on your individual circumstances and objectives and should be discussed with your Adviser. Potential investors must read the PDS, Approved Product List and FSG along with any accompanying materials. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income, but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Past performance of financial products is not a reliable indicator of future performance. InvestSense Pty Ltd does not assure nor guarantee the performance of any financial products offered. Information, opinions, historical performance, calculations or assessments of performance of financial products or markets rely on assumptions about tax, reinvestment, market performance, liquidity and other factors that will be important and may fluctuate over time. InvestSense Pty Ltd, InvestSMART Financial Services Limited, its associates and their respective directors and other staff each declare that they may, from time to time, hold interests in Securities that are contained in this investment product.

The aim of this selection is to provide a steady, reliable dividend income from companies with minimal risk of bankruptcy. Investors get exposure to active management of a concentrated portfolio of well-researched Australian equities with a sustainable high yield.

The investment approach is buying and holding shares with market prices at material discounts to their estimated value and high sustainable yields. Investments will be sold if they move to a material premium to their estimated value, or the dividend yield is expected to fall.

Find out how this portfolio may fit within your investment strategy. Contact us at support@investsmart.com.au or 1300 880 260 to speak to one of our product specialists.

Overview

Style: A portfolio of high dividend paying direct Australian equities and cash.
Benchmark: All Ordinaries Accumulation Index plus +1% per annum over rolling 3 year periods
Objective: To produce an annual income return of 5% (excluding franking credits)
Risk Rating: High
Suggested Timeframe: 3 years +
Income Potential: Medium
Growth Potential: High
Investment Fee (inc. GST): 0.65% - 0.97%
(depending on amount invested)
Estimated Expense Recovery $30 - $60 per investor per year
Minimum Investment: $5,000.00
Estimated income per annum 4.32 %
Asset Class Allocation
Australian Equities 92.74%
Cash 7.11%

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Investment Fees

Investment AmountFees*
Up to $250,000 0.97% p.a.
$250,001 - $500,000 0.85% p.a.
$500,001 - $1,000,000 0.75% p.a.
$1,000,001 - $2,000,000 0.70% p.a.
More than $2,000,000 0.65% p.a.

* The Investment Fees are tiered - for example an Account balance of $500,000 would be charged 0.97% for the first $250,000 and 0.85% for the next $250,000.


Transactional & Operating Costs

  • Brokerage Fee - approximately 0.05% plus GST
  • Settlement Fee - $0.33 per securities transaction
  • Recoverable Expense Fee - $30 - $60

Frequently Asked Questions

What is a Separately Managed Account?
A Separately Managed Account (SMA) is an investment account managed to a model portfolio that is controlled by a portfolio manager. In our case that is our investment team. They decide what stocks, ETF's or funds that go into the model portfolio and at what weighting. The team then manage this daily by adjusting the portfolio as circumstances change to achieve the best risk-adjusted returns for our clients.

The model portfolios use percentage weightings so our clients achieve the same percentage returns across the board no matter the dollar value invested.

Unlike a managed fund an SMA is not a pooled investment, where everyone’s funds is in the same bucket. You have your own account and you are the beneficial owner of the stocks held in that account.

The SMA structure is better than a managed fund for several reasons:

  • Tax effective: You only pay tax on gains & income you received, not on those created by someone else
  • Inflows & outflows: Your investment will not be impacted by the decisions of other model portfolio investors. An example of this is when a pooled investment like a managed fund receives redemption requests at the bottom of the market and is a forced seller at the worst time.
  • Flexibility with income/distributions: Choose to receive the dividends directly into an account of your choice or set up a regular payment or request payments on an adhoc basis.
  • Redemption: Instead of getting cash back, you can receive the shares or ETF's

What is the difference between the Intelligent Investor Model portfolios & the InvestSMART Diversified portfolios?
The Intelligent Investor Model portfolios invest in Australian listed equities from our buy or hold recommendations on Intelligent Investor. They aim to outperform the All Ordinaries Accumulation Index.

The InvestSMART Diversified portfolios use exchange traded funds (ETFs) to provide investors with broad exposure across a range of asset classes and regions to achieve a specific return taking the least amount of risk possible.

 

Can I invest in more than one model?
Yes. You can invest in as many or as few of the portfolios as you like. You can allocate a specific weight to each model and choose to have it rebalanced on a regular basis or have the percentages floating as the models change in value.

 

How long does it take for my cash to be invested? Do you buy the portfolio holdings over time?
The day after your funds have settled your portfolio will be rebalanced. This means all the necessary shares will be purchased to bring the portfolio in line with your chosen model/models.

 

I want to invest gradually (dollar cost average) can I do this?
Yes, but you will need to do it manually. To do this you will need to set up the account with your initial investment and add further funds to it over time.

 

Can I switch the model I am invested in?
Yes. All you need to do is complete a form and tell us how you want to allocate your funds.

 

Do I own the shares?
Yes. Investors have full beneficial ownership of the shares in their portfolio. Those shares are held by a third-party custodian. This arrangement gives investors protection against InvestSMART while maintaining the full benefits of direct share ownership including franking credits and the ability to transfer shares out if you wish to take shares with you if you choose to leave rather than liquidating the entire portfolio.

 

Who is the custodian?
HSBC

 

How can I receive income?
You can receive dividends or make withdrawals for income in a number of ways. You can receive the dividends paid from your holdings directly as they come. You can set up a regular payment or you can request payments as you require. Or you can have a combination of any of the above. Please allow up to four days to change a regular payment plan.

 

If I need to withdraw funds how long will it take?
This depends on cash available in your account. If shares need to be sold down you will need to allow time for settlement (transaction day plus two days). After this the requested amount will be transferred to your nominated bank account. Depending who you bank with you will need to allow a further one to two business days.

 

Can I set up a regular contribution plan?
Yes, when setting up an investment or at any point during your investment you are able to set up a direct debit regular contribution plan for a minimum of $100 per month. This can be altered at any point.

 

When is my regular contribution deducted from my bank account?
On approximately the 15th of each month.

 

How can I add to my portfolio?
You can make a direct debit contribution by completing a form. You can also make a contribution via BPay. If you invest in more than one model portfolio your contribution will be allocated across the model portfolios according to your initial instructions. You can alter this when making the contribution by completing a form.

 

Do I receive franking credits?
Yes. When you submit your tax return you will receive your franking credits.

 

Do I receive a tax statement?
Yes. You will receive a comprehensive tax statement.

 

Why does my portfolio not have exactly the same weightings as the model?
You may notice your portfolio will not hold the stocks to the exact same weight as the model. Holdings may be marginally out for example a stock may be 4.2% rather than 4.6%. This is due to the practicality of buying stock. We cannot buy a fraction of a stock and depending on the dollar size of your portfolio this could lead to it not being 100% on the model. Our minimum transaction size can cause the portfolio to not run exactly to the model as well.

 

What is the minimum transaction size?
For accounts under $75,000 the minimum trade size is 0.20% of your portfolio value. For accounts over $75,000 the minimum trade size is $150.

 

Can I use a margin loan?
Yes. We will work with any margin lender who approves a loan to invest in our investment scheme. Check with your lender.

 

What are the requirements for non Australian Permanent Residents?
Investors must have an Australian residential address, bank account and tax file number. You do not have to be Permanent Residents, you may qualify on a Temporary Work Visa with the above requirements. If you leave Australia, you can keep your investments active as long as you keep your Australian bank account active.

 

What are the fees?
Management fees start at 0.97%pa of the balance of your portfolio and decrease as you invest more. There is also an expense recovery fee of approximately $30 - $60 per year.

 

Do you charge performance fees?
No.

 

Do you charge exit fees or establishment fees?
No

 

Do you charge brokerage?
Yes. There is a fee of $0.33 per transaction plus a fee of 0.05% + GST of the transaction value.

Useful Forms


Anti-Money Laundering (AML) Verification Forms

FormDescriptionDownload
AML Identity Verification Form
Individual and Joint
Use this form if you are an Individual or Joint Investor and your Identity has not yet been verified Download this form
AML Identity Verification Form
Company
Use this form if you are a Company/Corporate Investor Download this form
AML Identity Verification Form
Trust (Individual Trustee)
Use this form if you are a SMSF or Trust Investor with Individual Trustees Download this form
AML Identity Verification Form
Trust (Company Trustee)
Use this form if you are a SMSF or Trust Investor with a Company/Corporate Trustee Download this form
AML Certified Documents Guide This form outlines the requirements of how and who can certify documents Download this form


Contributions via Direct Debit

FormDescriptionDownload
One Off DD Cash Contribution Use this form to make a One Off Direct Debit Contribution Download this form
One Off DD Cash Contribution with Model Selection Use this form to make a One Off Direct Debit Contribution into a particular Model (minimum $5,000) Download this form
Regular Contribution Plan Request Use this form to establish or amend a Regular Contribution Plan (minimum $100 per month) Download this form


Withdrawal Requests

FormDescriptionDownload
Partial Withdrawal Request Use this form to make a Partial Cash Withdrawal from your SMA Download this form
Full Withdrawal Request (Account Closure) Use this form to Close your SMA and make a Full Withdrawal Download this form


Change of Model Allocation

FormDescriptionDownload
Model Allocation Changes Request Use this form to change your Model Allocation Download this form