Diversified Portfolios - Intelligent Investor Growth - 31 December 2016

Intelligent Investor Growth Portfolio December Report



Like Brexit, the victory by President-elect Donald Trump was a surprise. Unlike Brexit, however, markets quickly took a positive view and have continued to rise ever since. Investors are betting that Trump’s planned infrastructure spending and tax cuts will combine to pump up economic growth and eventually drive interest rates higher. And when the US Federal Reserve raised interest rates by 0.25% in December, it suggested that a further three rate rises could follow in 2017, reinforcing investors’ increasing interest rate expectations.

Our Growth Portfolio gained 9.7% for the six months to 31 December, slightly behind the 9.9% return of the All Ordinaries Index. Since it began accepting real money for investment in July last year it has returned an annualised 15.0% compared to 7.9% for the All Ords; and since inception as a model portfolio in 2001, it has returned 10.6%compared to 8.0% for the All Ords.

The portfolio’s top performer over the first half of 2017 was South32, which rose 78�ter an excellent underlying 2016 result. Rising commodity prices and further cost cuts have helped it rise materially above the $2.13 price it listed at 18 months ago after being spun off from BHP Billiton.

Nanosonics was the next top performer, rising 42% after announcing its first annual profit. Sales for the first quarter of 2017 also improved and there are now more than 9,700 of the company’s flagship trophon disinfection devices in use in North America, up more than 1,000 on the previous quarter. This growing ‘installed base’ is important as the company’s ‘razor and blade’ model means it makes its real money in the ongoing supply of disinfectant cartridges to its customers.

Computershare has so far been one of the biggest beneficiaries of the Trump surprise, rising 38% on hopes that the President-elect’s policies might eventually drive up interest rates. Computershare earns a substantial portion of its profits from the interest on client cash balances – at least when rates aren’t close to zero.

Another good performer was Ansell, which also rose 38% after its 2016 result suggested an improving outlook and management announced it was considering the sale of the condom division.

BHP Billiton rounded out the top give gainers, rising 36% as commodity prices improved and, with them, investors’ perceptions of mining and energy companies.

By contrast, iCar Asia declined 71%, making it the biggest fall in the period. Most of the damage was done early in the 2017 financial year upon the release of disappointing second quarter cash flow figures that pushed expected breakeven beyond 2018 and which was followed by a capital raising.

OFX Group (formerly OzForex) was the next biggest loser, falling 26% after reporting a 21% fall in underlying profit in its interim result. Low volatility in the Australian dollar compared to the US dollar has affected the number of new clients signing up while the fall in sterling since the Brexit referendum reduced the value of sterling-based transactions.

Even before Trump’s victory, infrastructure stocks and listed property trusts declined as investors feared higher interest rates in coming years. Along with the government announcing that the company would have to front more of the cost of developing a second Sydney airport at Badgerys Creek than originally expected, this contributed to a 13% fall in Sydney Airport shares.

Financial software company GBST and assisted reproduction provider Virtus Health rounded out the top five losers, falling 8% and 7%, respectively.

On 1 September, the portfolio sold 1.0% of its holding in Trade Me because, at 8.5%, it had moved well beyond its maximum recommended weighting of 6.0%.

The proceeds were used to increase the weighting of Amaysim (at $2.04) by the same amount after it reported a good 2016 result.In late October, the portfolio sold its entire 3.5% weighting in ResMed (at $8.40), using part of the proceeds to increase the Crown Resorts holding by 1.5% to 2.9% at$10.70. The opportunity arose after some of Crown’s staff were arrested in China.

In order to maintain the portfolio’s resources exposure but reduce the skew towards South32, the portfolio reduced its holding in South32 by 1.4% to 4.5% (at $2.58), investing the proceeds in BHP Billiton to increase its weighting to 4.6% (at $24.23).

In late December, the portfolio also used some of its cash to add a 2.9% weighting in TPG Telecom, at $6.52. Like its competitors, TPG Telecom has suffered significant share price declines as investors fret over the impact on margins as the NBN ramps up


GROWTH OF $10,000

Income Reinvested


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

Intelligent Investor Growth Portfolio 2.52% -2.87% 9.69% 13.59% 14.95%
ASX All Ordinaries Accumulation Index 4.17% 4.41% 9.94% 11.65% 7.91%
Excess to Benchmark -1.66% -7.28% 0.25% 1.94% 7.05%

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 object of the Growth Portfolio is to achieve capital appreciation and dividend returns, above and beyond the performance of the All Ordinaries 'Accumulation Index'.

Investors get exposure to active management of a concentrated portfolio of well-researched Australian equities. The investment approach is buying and holding shares with market prices at material discounts to their estimated value. Investments will be sold if they move to a material premium to their estimated value.

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.


Style: A portfolio of Australian listed equities and cash
Benchmark: All Ordinaries Accumulation Index
Objective: To outperform the All Ordinaries Accumulation Index by +1% per annum over rolling 3 year periods
Risk Rating: High
Suggested Timeframe: 3 years +
Income Potential: Low
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 3.45 %
Asset Class Allocation
Australian Equities 96.13%
Cash 3.77%


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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?


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?


Do you charge exit fees or establishment fees?


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

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
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AML Identity Verification Form
Trust (Individual Trustee)
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AML Identity Verification Form
Trust (Company Trustee)
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AML Certified Documents Guide This form outlines the requirements of how and who can certify documents Download this form

Contributions via Direct Debit

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

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

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