What now for Eureka's portfolios?

What to do now that we have transitioned to the Intelligent Investor Equity Income and Growth portfolios.

Summary: Our LIC model portfolio will continue to run, while the Growth First and Income First model portfolios have been transitioned into the Intelligent Equity Income and Growth portfolios. This decision has been made in light of the long term (15-year) outperformance of these two models. 

Key take out: You can now view the two Intelligent Investor portfolios on the right-hand side panel of the Eureka home page. 

Key beneficiaries: General investors. Category: Investment strategy. 

What now for Eureka’s portfolios?

Now that the Eureka Growth First and Income First portfolios have been discontinued, what should you do now?

You’ve been following the Eureka share recommendations and managing your portfolio to replicate the Eureka Income First or Eureka Growth First portfolios (or both). Then, you read that all research will now be provided by Intelligent Investor and that the Eureka Income First and Growth First portfolios will be discontinued. They will be replaced by the Intelligent Investor Equity Income and Growth portfolios. You also read that we’re ceasing coverage on 10 stocks as a result.

The news has understandably disappointed and confused some Eureka members. The first thing for us to do is apologise; the second is to explain the decision and why we think, long term, it should lead to better returns to your portfolios. Before doing that, a little reassurance: we are not leaving you in the lurch.

Key points

  • Listed Investment Company portfolio to continue
  • Expanded team of 10 analysts covering top 150 stocks
  • Weekly Value Investing series

Firstly, the Listed Investment Company portfolio will continue. This is very popular with members, as is Mitchell Sneddon who runs it. He’ll continue to manage the portfolio and Eureka’s coverage of listed investment companies, which will be expanded along with our analysis of ETFs.

What about those stocks that remain in Eureka’s portfolios, companies like Tox Free Solutions, Qube Holdings, Automotive Holdings and Steadfast? As John Addis noted recently, with the expanded team of 10 analysts enabling us to cover a larger number of stocks, we’ll no longer be automatically adding each new Buy idea to the relevant portfolio.

This means that all stocks – yes, all – that still feature in the now-discontinued Eureka portfolios will continue to be covered on an ongoing basis. First in line is Credit Corp, which we’ll write up in the next week or so while all these stocks will be reviewed after they report their next results. This is in addition to all Intelligent Investor research on the 150 stocks covered plus the 17 Buy ideas currently on our Buy list.

To the big issue

To the big issue: Why are we replacing the Eureka Growth and Income portfolios with those from Intelligent Investor?

The primary reason is performance. The Intelligent Investor Equity Income and Growth portfolios – available on the Eureka website here and here – have been operational since 2001. Over the 15 years to June 30 2016, they’ve returned 13.3% p.a. and 10.2% p.a. respectively. That compares very favourably with the 7.6% p.a. returned by the All Ordinaries Accumulation Index over the period.

There aren’t many analysts with a 15-year track record of outperformance. But that’s what Intelligent Investor has. We felt the experience and expertise behind these returns, established over many years, gives Eureka members a better chance of meeting your income and retirement needs.

The second component is how that performance has been delivered. Most brokers, traders and analysts tend to only look a year ahead when analysing a stock. At Intelligent Investor we take the long view, first analysing the quality of a business – including its management, financials, products or service, competitive advantages, industry structure and so on – and then demanding a margin of safety before buying in. This is why we ceased coverage on the 10 stocks. We believe these recommendations were inconsistent with this approach.

This is not say the value approach is perfect. Mistakes in investing are inevitable. Over the long term, however, successful recommendations tend to outnumber the poor ones and you can read an audited report of all our recommendations from May 2001 to June 2015 here. Our 459 buy recommendations made over this period returned 14.1% per year on average, 3.5% per year higher than the return of the All Ordinaries Accumulation Index (adjusted for franking).

Speaking of poor recommendations, Dick Smith has been mentioned in the many emails and letters we’ve received. Whilst mistakes are inevitable, we try to reduce their impact by giving every Buy recommendation a maximum recommended portfolio weighting.

Based on our view of the quality of the business and its margin of safety, our maximum recommended portfolio weighting could range from 10% for NAB to 2% for iCar Asia and even 1% for some "Speculative Buy" ideas. This is another way to manage risk, and a useful addition to the new portfolios.

Lastly, unlike the Eureka Report portfolios, the Intelligent Investor portfolios are investable through separately managed accounts (SMAs). While many members are happy to trade themselves based on our recommendations, making these portfolios investable gives other members the option of investing without the hassle of having to buy and sell stocks to mirror the Intelligent Investor portfolios. If you’d like to know more about these SMAs please click here.

We do recognise that these changes will take some getting used to. But we hope they’re offset by your access to an expanded team of 10 analysts and their coverage of 150 additional stocks, plus the 17 additional Buy ideas on our Buy list, from a team with a proven, long term track record.

We’d love to hear your comments or questions so please leave feedback on the website here, call us on 1800 458 656 or email us at subscriptions@eurekareport.com.au.

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