4.8 PORTFOLIOS

Annotations:

• Advs: leaving specialist manager for each asset class.

Annotations:

• http://www.asx.com.au/education/investor-update-newsletter/income-or-growth.htm

1. Growth - Shares with some property
2. Income Funds - Fixed interest & Cash
3. Balanced Funds - 60% Capital Growth & 40% Defensive Assests

   Annotations:

   • This helps smoothing out returns during the ups and downs of the market cycle

1. Passive Style / Index funds
   1. Track a specific index with a mirror composition of the index, lower fees (research & trading costs), higher returns but higher risk than active funds
2. Active Style
   1. Value Style - underpriced assets compared to their intrinsic value, usually in mature industries, seeking reliable growth over longterm to rapid growth, P?E Ratio and book to market ratio are of interest, effective in a bear market
   2. Growth Style - seek assets that are expected to achieve long term above- average earnings growth (share prices follow earnings growth), effective in a bull market

      Annotations:

      • Growth stocks These are companies focused on expansion, offering the potential for capital growth as share prices follow earnings and higher profit. However, their share prices can be more volatile because earnings are less predictable. They are more inclined to reinvest earnings into product research and development, entering new markets or acquiring other businesses in order to grow. This leaves less money, if any, available for dividends. A company investing heavily to expand in pursuit of exponential market share or sales growth might be labelled an ‘emerging’ or ‘aggressive’ growth company. Several years later it might begin to use some of its earnings to pay a modest dividend. At that stage, it might be considered an ‘established’ growth company. A growth strategy might suit you if you’ve got a long-term investment horizon
   3. Core Style - mix of value and growth (GARP) with a view to diversify between the 2 styles, choose shares they believe will outperform the market,
      1. Market favours different styles at different styles at different stages of the economic circle. Growth style during economic growth phase and value during economic downturn
   4. try to outperform the selected index by considering general influences to the market, specific influences to the share, higher MER (research and trading costs,
3. Choosing Superior Performers - minority active funds do outperform the index but not consistently, thus leaving the only option of switching funds which is inconvenient and costly
   1. Multi Manager Funds - takes the asset allocation one step further by diversifying not only between asset classes but also investment styles of the numerous managers within the one product which is the fund, high MER, centralised reporting & management, specialist investment advice included in MER
   2. Investor Platforms - upto 200 wholesale funds in one structure, investors choose and move between funds will low fees, specialist investment advice for a fee, low MER
      1. Master Trusts - trustee owns underlying assets, no provision for transferring assets in or out of trust without realising an asset sale or redemption of units if cash is required giving rise to possible CGT liabilities
      2. Wrap Services - investor is the owner of the underlying asset hence allowing transfer in and out of wrap bypassing CGT problem