Lonsec eyes model portfolio expansion

On the 10th anniversary of its Australian Equity Core Model Portfolio, Lonsec is fine-tuning an emerging leaders model portfolio through its stockbroking division.

The emerging leaders portfolio identifies stocks outside the ASX100 with a minimum market cap of $150 million, and is currently being monitored for performance before it is released through Lonsec’s stockbroking division, according to Lonsec Portfolio Services manager Jeremy Pree.

When Lonsec creates a model portfolio it is first tested, then implemented across the stockbroking desk and benchtested with stockbroking clients. It is then launched through Lonsec’s MDA division and through external managers, Pree said.

Lonsec’s flagship Australian Equity Core Model Portfolio has returned 16.2 per cent for its 10 years since inception, and in September was expanded from 12 to 15 core stocks — a move Pree said was aimed at reducing volatility while maintaining high returns.

The move was aimed at broadening the appeal of the portfolio, particularly with the elevated volatility seen in recent years.

Turnover within the portfolio had been traditionally low at around 20 to 30 per cent per annum, with zero changes for two years at the height of the global financial crisis, Pree said. This affirmed the portfolio’s high-conviction approach, and also made it easier for advisers to recommend because they knew what the portfolio was holding, he added.

“Highly concentrated portfolios are increasingly prevalent in today’s marketplace. However, 10 years ago there were few direct equity model portfolios with less than 20 stocks,” Pree said.

Pree said there had been a revolution in direct investing, partly due to the booming self-managed super fund (SMSF) sector. He added that about one-quarter of all active accounts and half of new accounts in the stockbroking division were SMSF accounts.

Utilising exchange-traded funds, listed investment companies and diversified direct portfolios, advisers could essentially construct fully diversified model portfolios solely using ASX securities, based around broad-risk profiles from defensive to high growth, Pree said.