How Does ASX Blue Chip Work?
Returns From Share Price Growth and Dividends
ASX Blue Chip was developed for investors who want to hold a portfolio of large capitalization companies that pay a high dividend yield. This provides investors with a simple, robust diversification option that has continually outperformed the Australian market.
This portfolio invests in 10 high dividend-yielding stocks contained within the ASX 50 index. From this, we expect a steady dividend stream that is an attractive percentage of the original investment amount.
Need to Know
|Goal||Market||Risk||Re-balance||Horizon||Minimum Suggest Investment|
|Share price growth and dividends||ASX||High||Monthly||At least 3 years||$2000 per stock (model uses $5000)|
How Does ASX Blue Chip Work?
This portfolio invests in listed ASX equities that fall within the S&P/ASX 50 index. It has been back-tested over 22 years and selects 10 of the top 50 Australian stocks. Our strategy is to identify the highest-yielding stocks and hold them until their share prices grow enough to bring the dividend yield back down to the average level.
For investors, the benefit of this portfolio is that during times of underperformance, you continue to be paid a healthy level of dividend income, while the main risk is that dividends are cut.
How do I Follow ASX Blue Chip?
We’ve designed this portfolio to be easy to follow with these steps:
- Buy: Buy the stocks in the <table> in equal weights. Weights can drift over time as stock prices move, but we will only recommend re-balancing stock weights if they stray too far from the target weight. The stock volumes are based on a $5,000 investment per stock.
- Re-balancing: Every now and then, the list of stocks will be updated in what we call a ‘re-balance’. When you subscribe to this portfolio, you will receive the re-balancing notification when it is required with an updated list of stocks. You sell any stocks that are no longer on the list. After these stocks are sold the new stocks from the current table can be bought.
Is There a Minimum Investment Period or Amount?
Our investment team recommends a time horizon of at least three years for this portfolio due to the possibility of a negative return in any given year. Based on our portfolio back-testing, the probability of a positive return over any three-year time horizon is 96%, so a time horizon of at least this much maximizes the probability of a positive outcome.
There is no specific minimum investment amount although as the portfolio holds 10 stocks the minimum brokerage charged by your broker can put a practical limit on the minimum investment size. For example, if your broker charges a minimum of $10 per trade, this represents a 0.5% charge on a trade size of $2,000 (portfolio size of $20,000 for five stocks). Given an annual portfolio turnover of approximately four times, this would produce an annual brokerage charge of 4%. In this example, with a minimum brokerage charge of $10, we would recommend an investment of no less than $20,000. This portfolio is also offered in a Separately Managed Account version for which you pay a small management fee for us to follow the portfolio on your behalf.
Learn More about ASX Blue Chip
ASX Blue Chip has been developed and tested by simulating the investment performance over historical stock price data. This allows us to gather performance data based on how this portfolio would have performed if we had run them during these prior time periods. The statistics in the table below summarise the results of this testing and compare them to the ASX 50.
|ASX BLUE CHIP PORTFOLIO||S&P/ASX 50 INDEX|
|Construction||Ten of the highest dividend-yielding stocks in the S&P/ASX 50 index||Free-float-adjusted market cap weighted, comprising 50 of the largest ASX stocks|
|Management||Rebalanced, on average, once every three months on the 1st of the month||Rebalanced four times per year according to market cap and liquidity|
|Annual Average Return*||10.5% per annum, before fees||8.5% per annum, before fees|
|Worst 12-Month Return*||-42% (Feb-2007 to Feb-2008)||-37.1% (Nov-2007 to Nov-2008)|
*As of 31 December 2017, based on 15 years of back-tested data
Please note that this article contains back-tested data which shows how the model would have performed using historical data. “Backtest” results are neither an indicator nor a guarantee of future returns.
To learn more about how we calculate performance click here.