Investment Road Test: Westpac BlueChip 20

PORTFOLIO POINT: For investors that find the stockmarket all too difficult, Westpac’s BlueChip 20 product offers easy access, with reasonable fees.

Australian shares have outperformed all other asset classes over the past 30 years. We can’t be sure that will continue in the future, but accumulating a quality portfolio of Australian shares will still be a key part of retirement planning.

For investors keen to avoid the vagaries and costs of traditional managed funds, direct investing is the answer. But the intricacies of stock picking and management, plus the cost of getting started, mean that most DIY investing starts relatively late in life. This deprives investors of the benefits of compounding growth and the lower overall volatility that longer-term investing delivers.

Enter the Westpac BlueChip 20 account, which buys the top 20 stocks on the ASX and holds them in a simple separately managed account (SMA), which can be added to in monthly increments. It is a “buy-and-hold” portfolio where investors can start with as little as $2500 and add by monthly ongoing contributions of $250 or more. The Westpac BlueChip 20 uses the BlackRock SMA platform to hold stocks and can be accessed using a margin lending account provided by BT Funds Management. For more details, click here.

Unlike high turnover, actively managed funds, the Westpac BlueChip 20 account uses the “passive” investment style. Data shows that the median Australian managed share fund failed to meet its investment benchmark in 10 of the last 15 years. Passive investing in broad market indices gives the same level of performance as many actively managed funds, but with the benefit of lower costs as well as a superior tax outcome: passive investing avoids triggering CGT, which can be a pernicious wealth eroder over the longer term.

The Westpac BlueChip 20 is ideal for start-up investors who wish to buy into the ASX top 20 stocks, and have all dividends reinvested into the account. It can be funded by accessing a BT Margin Lending account, which will lend a maximum of 100% of the investor’s contribution. Fees are very reasonable given the flexibility of the account: 0.825% pa for running the account and 0.6% for the BlackRock SMA administration system. Brokerage of 0.05% is a massive saving for small share trades.

The BlackRock SMA is at the heart of the Westpac BlueChip 20, which means that each investor’s portfolio is represented as a holding under their own name. By avoiding the pooling that normal managed funds experience, the SMA doesn’t need to worry about liquidity across the entire investor base. This is the core of the problem with traditional managed funds, causing as it does the need for those funds to buy and sell stocks based on what the broad market index does – irrespective of the fundamental value of those stocks.

Tax is simplified in the SMA; because each investor has the full beneficial interest in their stocks, they don’t pay CGT when other investors exit the fund and they also don’t pay CGT when and if they move their portfolio to another account or broker.

The score: 4 stars
1 Ease of understanding/transparency
1 Fees
0.5 Performance/durability/volatility/relevance of underlying asset
1 Regulatory profile/risks
0.5 Innovation

Dr Tony Rumble is the founder of the ASX listed products course LPAC Online, a provider of investment training to financial services professionals.