3. The ETF Portfolio
OTHER PEOPLE’S PORTFOLIOS – THE LONG-TERM, LOW-RISK PORTFOLIO
Today we continue to look at “Other People’s Portfolios”. For new members, we are developing a Portfolio Assessment business which will be targeted mostly at financial planners and financial advisers but will be offered to members at a price. Whilst we develop this service we are doing some portfolios for free and, with the permission of the Members involved, are anonymously publishing these portfolios in the newsletter as a fabulous insight for Members into what other investors (Members) are doing.
Today we have a very interesting portfolio from a long-time Marcus Today Member who runs two portfolios. One is a fairly conservative SMSF with about $1.7 million in it and the other is a growth portfolio with a little under $1 million in it. We have combined the two today. Here is the combined portfolio:
Features of this portfolio include:
- 68% of the portfolio is in ETFs which have a (very) low level of risk at 1.77% – this is the size of the trading range this group of ETFs trades in from top to bottom each week on average over the last 14 weeks. An ASX 200 ETF, for instance, has a risk of about 1.85%. So 70% of this portfolio has a lower risk than the ASX 200 index.
- At a total portfolio risk of 2.27%, this Member has constructed a sleep at night portfolio which balances low-risk ETFs with some solid growth equities.
- 28% of the portfolio is invested in Australian equities and as you will see below, this Member has departed from the usual “Moron Portfolio” and picked what he considers to be the best stocks rather than the usual stocks. The interesting observation is that the stock-picking is not rocket science, it is pretty obvious stuff.
- The total yield on the portfolio is 2.71%. This is an example of a retiree relying on growth rather than income and making a good job of it.
- Most of the shares are in the growth portfolio and most of the ETF’s are in the SMSF.
- The tables split the shares from the ETFs and both sections are listed in order of the size of the holding.
- We do not take into account the trading history, so this is a “Snapshot” only – it is not a performance record for the total portfolio just for the shares held now.
Asset Allocation: The asset allocation is fairly standard stuff, 59% equities in Australia, 26% in international equities, 6% in fixed interest, 2% in a gold ETF, 2% in a property ETF and 5% in cash. Whilst this might seem plain vanilla and uninteresting, the point to make here is that this portfolio has been successful over a long period with plain vanilla asset allocation. As you’ll see below that has also been achieved on a very low level of risk. This is a long-term sleep at night portfolio that has done pretty well.
Observation – No Moron Portfolio stocks: The equities portfolio is very interesting because it completely departs from the “Moron Portfolio” that we often see with privately managed equity portfolios. This Member has deliberately avoided the standard big stock holdings (the four banks, BHP, Rio, Woolworths, Wesfarmers, Telstra) and instead, for what you would imagine is a conservative long-term investor, has simply gone after what he considers to be some of the best stocks in the market. Whilst you could argue some of these holdings, the big ones are some of the best big caps in Australia and this Member is to be admired for cherry-picking the market rather than “buying the market”.
Observation – More interested in good stocks and franking credit refunds: The other bit that impressed me with this portfolio is that the Member has paid no attention at all to chasing typical Australian yield and franking. I have written a few times about the folly of income investment, a dollar is a dollar whether it comes from a capital gain or a dividend, and the Australian obsession with franking has driven people into mature, low growth, high yielding stocks simply because they want the franking credit. In a low-interest rate environment income stocks are targeted by retirees, but this is an example of growth stocks outstripping income stocks. Obviously I’m not going to stop retirees buying banks and other income stocks and collecting their franking credit refunds, but this is a bit of an eye-opener. Picking these stocks has not been rocket science, but it does require a mental reset for most retirees to do this sort of thing.
This is a table showing the Australian equities held and broker target prices. It is provided simply for the interest of the Member involved and is part of our PORTFOLIO SNAPSHOT assessment reports.
A final observation: This sort of portfolio construction will not suit avid equity market traders. Investing in ETF’s is like watching paint dry. Try it and you’ll see what I mean. That, of course, may suit the agenda of a lot of investors, but I would just warn active, interested traders against suddenly getting into ETFs, it is a different experience. Plus there is that liquidity issue in ETFs in a crash, although it is a very very low odds event.
OTHER CHARTS AND TABLES
I have added descriptions of all the ETFs below at the request of some other members. This is also a standard part of our PORTFOLIO SNAPSHOT assessments.
Note to financial planners and Members
If you can think of some way to improve this SNAPSHOT – something else you would like included, something that would add value to the assessment, please contact me – especially if you are a financial planner – imagine going into a meeting with a client to talk about their investments…what would you need or like to see in this report. Please EMAIL ME HERE
- This Snapshot contains facts not opinions
- If you find errors please tell us and we will re-issue the tables
- Tables mostly in market capitalisation order
This portfolio snapshot is a factual analysis of the holdings submitted. The stock market is dynamic and it should be noted that this snapshot is simply a moment in time. Whilst we hope it provides useful insight, it is not advice and it is not intended as so. Marcus Today has not and cannot take into account your personal financial circumstances, and we cannot provide specific recommendations about any holdings or any portfolio strategy. If you wish to receive personal advice, you should speak to your financial planner or advisor.
Whilst every effort has been made to ensure the accuracy and validity of the data herein, Marcus Today provides no guarantee, representation or warranty as to the reliability, accuracy or completeness of the information and does not accept any responsibility or liability arising in any way (including by reason of negligence) from errors or omissions. Marcus Today Pty Ltd, or their directors, employees or agents do not guarantee the performance of, or the repayment of capital or income invested based on any information herein. Please note that most of this data is based on forecasts, which have been provided by a third-party data service provider and can be badly wrong. The snapshot has been prepared on a best endeavours basis and Marcus Today has done all it reasonably can in the circumstances to achieve the desired outcome but no more.
If you do uncover any errors in the information provided (and the experience is that with so many forecasts and formulas there can be a few), please let us know and we can correct (if possible) and re-issue the snapshot.