Moderate Portfolio: Asset allocation

Our Conservative Portfolio kicked things off. Now it’s time to shift up a gear.

Key Points

  • Strategy broadly consistent with our Conservative Portfolio
  • Higher allocation to Australian and international shares
  • Some additional investments in the international shares category

We’re adopting the same approach with our Moderate Portfolio as we did in Exchange Traded Funds (ETFs) and we've stuck with RaboDirect for all the term deposits to keep administration simple (despite other institutions offering slightly higher rates).

In the international class we'll look to deploy into actively managed funds down the track, but for now it stays in cash.

Shares (Australian)

For Australian shares we’ve again replicated the Conservative Portfolio’s strategy and gone with the two ETFs for 18% of our 25% allocation. These are the SPDR S&P/ASX 200 Fund (ASX code: STW) and the Vanguard Australian Shares Index ETF (ASX code: VAS). Remember, if you have an existing diversified Australian share portfolio, you can substitute your own picks for these ETFs.

We’ll add a few other direct share selections in future to add a bit more diversity and value and we’ll also be happy to take a little more risk in our Moderate Portfolio selections.

For instance we might consider an actively managed small companies fund, a small boutique fund or some of Intelligent Investor Share Advisor’s Buy recommendations.

Shares (International)

Despite recent falls, the Australian dollar remains historically high, so we’re leaving our international shares exposure unhedged. This could offer some relief if Australian shares and interest rates suffer for country-specific reasons.

We’ve plumped for the SPDR S&P World ex-Australia Fund (ASX code: WXOZ), to make sure we’re in the market. We’ve also added stakes in two listed investment companies (LICs): Templeton Global Growth (ASX code: TGG) and Platinum Capital Limited (ASX code: PMC). We discussed both in An eye on international LICs.

They’ve had a strong run lately but still trade at a discount to their net asset values and, importantly, are actively managed by fund managers with a value investing philosophy. For those reasons, they remain attractive.

Property and Infrastructure

In the property class we’ve increased our exposure to Sydney Airport compared to the Conservative Portfolio but limited our exposure to the property ETF, S&P ASX 200 Listed Property Fund (ASX Code: SLF), due to its lack of diversification.

In coming articles, we’ll be seeking actively managed funds (both domestic and international) to fill out this allocation and continue to keep an eye out for the opportunity to buy ASX listed securities as they arise.

Final result

Table 1 shows the final position of our Moderate Portfolio on day one.

Asset Class/Investment Target allocation (%) Current allocation (%) Purchase price ($) Current price ($) No of shares/units Current value ($) Individual weighting (%) Gross yield (approx)
Table 1: Moderate Portfolio - Day one allocations versus target allocations
Cash (<2 yrs) 15.00% 46.65%            
RaboDirect online savings (4mth intro rate at 4.76%)      1.00  1.00  233,268.50  233,268.50 46.7% 4.8%
Aust Fixed Interest (>2yrs) 20.00% 17.06%            
RaboDirect 5 year TD      1.00  1.00  15,000.00  15,000.00 3.0% 4.7%
RaboDirect 4 year TD      1.00  1.00  10,000.00  10,000.00 2.0% 4.5%
RaboDirect 3 year TD      1.00  1.00  10,000.00  10,000.00 2.0% 4.4%
Schroders Fixed Interest Fund (SCH0028AU)      1.12  1.12  45,000.00  50,319.00 10.1% 3.9%
International Fixed Interest 10.00% 0.00%            
Aust Shares 25.00% 18.70%            
SPDR ASX 200 ETF (STW)      46.46  46.46  1,000.00  46,460.00 9.3% 5.6%
Vanguard ASX 300 ETF (VAS)      62.75  62.75  750.00  47,062.50 9.4% 5.6%
International shares 20.00% 14.26%            
SPDR S&P World ex Australia Fund (WXOZ)      16.93  16.93  3,000.00  50,790.00 10.2% 2.5%
Templeton Global Growth (TGG)      1.03  1.03  10,000.00  10,300.00 2.1% 2.5%
Platinum Capital Ltd (PMC)      1.36  1.36  7,500.00  10,200.00 2.0% 2.5%
Property and infrastructure 10.00% 3.32%            
SPDR ASX 200 Property ETF (SLF)      9.44  9.44  1,000.00  9,440.00 1.9% 5.0%
Sydney Airport (SYD)      3.58  3.58  2,000.00  7,160.00 1.4% 6.0%
Other 0.00% 0.00%            
Totals 100.00% 100.00%        500,000.00 100.0% Avg yield (grossed up) 4.5%
                 
Note: Based on closing prices at 3 June 2013

As we work through each asset class we’ll add to these initial positions and work towards our target allocations. Today the portfolio has an average (gross) yield around 4.5%, with the potential for more growth than the Conservative Portfolio.

That’s as it should be, higher expected returns should come with the increased risk involved in this portfolio. Our Aggressive Portfolio asset allocation and starting investments will be next off the mark.

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