Eureka Correspondence

WAM vs WAX, top 100 stocks and the most important graph.


Can you please tell me why you chose WAX in your LIC model portfolio in lieu of WAM. I have had WAM for several years now and am curious as to what is the difference between the two of them. Is there a difference in asset selection or style?


Mitchell Sneddon's response: Thanks for your letter. Good question and yes there is a difference in style between the two. WAM's investment style is a combination of bottom up fundamental stock picking and market participation (or trading for lack of a better term) when they see opportunity which judging by the portfolio turn over is more short term. 

The investment approach WAX employs is just the bottom up fundamental research driven approach which is why they called it WAM Research. You may have noticed Wilson Asset Management have a third LIC as well with the code WAA. This is WAM Active which is just the trading approach. 

I don't doubt the team's ability to make returns from either approach but the fundamental approach sits better with me and my approach to the market. I also favour the longer term investment approach and the ability to hold cash in these volatile markets. I think these markets will give WAX the opportunity to buy a number of strong growth companies as they look through the current volatility. 

For more on this, see my original article: Geoff Wilson’s mid-cap play (August 3).

Top 100 stocks

With the advent of your model portfolios, there seems to be very little other reporting on stocks not covered by the portfolio - including ASX 100 leaders.

I cannot see me renewing past Jan 2016 as there is very little of interest. The old format was better incl Gerard Minack.


Managing editor James Kirby's response: Thanks for your correspondence. Just to explain we have lifted our coverage of small caps and we have hired analysts to actually research these companies. The idea is to ensure our subscribers get better returns than the broader market.

This strategy has been very successful - you probably know small caps are returning much better than 'big cap' stocks over the last year and this will probably continue.

We do cover the big stocks - the banks, BHP, Telstra etc all the time, it is just that now they are only part of a wider mix.

Gerard Minack does not write for a bank any longer so there is nothing from him to republish in ER, but Alan Kohler regularly features him in his weekend emails.

The most important graph

The graph of Alan's workers/dependents is very interesting (see: The most important graph you'll see all year, November 6) but for a real consideration of potential-for-disaster should include productivity per worker (which would include employment ratio of the working age group). By 2035 (last year on the graph) we might expect high levels of robotics in Germany and Japan, with implications for employment ratios and productivity per employed. So the ratio of dependents to employed may grow much larger than the simple age classification used, but could still keep the economy improving rather than falling into a chasm. Be interesting to see how we expect robotics to change the picture, especially for Australia (where the only use of robotics might be for financial advice).


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