The NFL draft is on now. Learn how to make your portfolio dominate like the New England Patriots
Whether you are managing a sports team or an investment portfolio, having a consistently outperforming core plus actively managing complimentary performers around it, is what leads to long term success.
As Australian football codes are getting deeper into their season, in the US the NFL draft takes place this week. Last year’s Super Bowl winners, the New England Patriots, are known for their canny draft and team selection strategies and their domination.
There are two differences between the Patriots structure and everybody else’s:
- they found the greatest core of all time, one that everybody else overlooked; and
- they actively managed the rest of the team around it.
The core player in an NFL team is the quarterback. Tom Brady has been the quarterback for the Patriots since 2001 and in that time they have built a winning record that no other team comes close to, with six Super Bowl appearances leading to four championships.
In the 2000 draft Brady was the 199th player chosen. Every team passed on him multiple times before the Patriots took him.
Van Eck Global’s Tom Brady for an Australian equities investment portfolio is Market Vectors Australia Equal Weight ETF (ASX code: MVW). The smart yet simple mechanics of equally weighting stocks produces a well balanced index that consistently outperforms other index construction methods. MVW tracks the performance of the index by buying the same components in the same proportion as the index.
While some coaches have chased fads and trends, Patriots coach Bill Belichek identified Brady as a consistent outperformer, well balanced and smart and then built teams around him to compliment this core.
A quarterback cannot win on their own. Miami Dolphins’ great Dan Marino never won a super bowl. Part of the Patriots success since 2001 has been actively managing stingy defences and diversified attacking options. Coach Belichek has cut players no matter the loyalty once their performance dips or they start costing too much. By sticking with a consistent core and a rotating roster of complimentary high performing players, acquired at the right cost, the Patriots have outperformed over the long term.
The same approach is a commonly used strategy used by successful investors, known as ‘core and satellite.’ It relies on identifying a consistently outperforming core and rotating specific sector or stock selections to compliment the core as markets move. It requires an active management approach to the satellite rotation. ETFs can provide solutions for both the core and satellite selections.
MVW was the best performing ASX-listed broad-based Australian equities ETF for the 12 months ending 31 March 2015 returning 16.60%, outperforming the S&P/ASX 200 Accumulation Index by 2.35%[i]. It is designed to be a core holding for investors seeking exposure to Australian equities. The index MVW tracks has outperformed the S&P/ASX 200 Accumulation Index with lower volatility over the long term. It is consistent, balanced and smart.
[i] Source: Factset, using ASX classification scheme of ETPs http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Frequently Asked Questions about this Article…
The 'core and satellite' investment strategy involves identifying a consistently outperforming core investment and actively managing a rotating selection of complementary investments around it. This approach helps in achieving long-term success by balancing stability with growth opportunities.
The New England Patriots' strategy of building a strong core, like their quarterback Tom Brady, and actively managing complementary players around it is similar to the 'core and satellite' investment strategy. This involves having a stable core investment and rotating other investments to enhance performance.
The Market Vectors Australia Equal Weight ETF (MVW) is compared to Tom Brady because it serves as a consistently outperforming core investment in an Australian equities portfolio, much like Brady's role as a reliable core player for the Patriots.
The MVW is a good core investment because it equally weights stocks, creating a well-balanced index that consistently outperforms other index construction methods. It has shown strong performance with lower volatility over the long term.
For the 12 months ending 31 March 2015, the MVW returned 16.60%, outperforming the S&P/ASX 200 Accumulation Index by 2.35%. This demonstrates its effectiveness as a core holding in an investment portfolio.
ETFs can be used for both the core and satellite selections in the 'core and satellite' investment strategy. They provide a flexible and cost-effective way to gain exposure to various market segments and adjust the portfolio as needed.
Active management is crucial in the 'core and satellite' strategy because it allows investors to rotate specific sector or stock selections to complement the core investment as market conditions change, optimizing the portfolio's performance.
Everyday investors can learn the importance of having a strong core investment and actively managing complementary investments around it. This approach, similar to the Patriots' team-building strategy, can lead to long-term success and consistent outperformance.
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