This portfolio was developed for investors who want to hold a portfolio of large capitalisation companies that pay a high dividend yield. From this portfolio of stocks we expect to receive a steady dividend stream that is an attractive percentage of the original investment amount. Based on the popular US portfolio, ‘The Dogs of the Dow’, this portfolio invests in ten high dividend-yielding stocks contained within the ASX 50 index. It is adjusted on an ‘as-needed’ basis, based on a monthly check, to ensure we continue to hold the optimal portfolio.
About the portfolio
The portfolio invests in listed ASX equities that fall within the S&P/ASX 50 index. The investment premise is to identify the highest yielding stocks in the investment universe and hold them until their share prices grow enough to bring the dividend yield back down to the average level. The benefit of this portfolio is that during times of underperformance, investors continue to be paid a healthy level of dividend income, while the main risk is that dividends are cut.
ASX Blue Chip Portfolio
The Blue Chip portfolio has been backtested over 22 years and selects ten of the top 50 Australian stocks. This portfolio represents a simple, yet robust, diversification option that has continually outperformed the Australian market. We advise that investors buy equal proportions of the ten recommended stocks to hold for the long term. From there, optimisation is only needed upon instruction, which occurs on average four times per year (but can be more or less frequent).
How To Follow This Portfolio
Our portfolios are designed to be as easy as possible for investors to follow. To follow the ASX Blue Chip portfolio, investors need to buy the securities in the above table in equal weights. Weights can drift over time as prices move, but we only recommend re-balancing security weights if they stray too far from the target weight (10% per security). The volumes shown in this table are based on a $5,000 investment per stock which produces a $50,000 portfolio.
Every now and then, the list of stocks will be updated in what we call a ‘re-balance’. This means investors will need to look at the new list and 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.
The ASX Blue Chip portfolio 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 at 31 December 2017, based on 15 years of back-tested data
Minimum Investment Amount and Period
There is no specific minimum investment amount although as the portfolio holds ten 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 would represent 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.
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 the portfolio back-testing, the probability of a positive return over any three-year time horizon is 96% and therefore having an investment time horizon of at least this much maximises the probability of a positive investing outcome.
Fees and Charges
Our advice product attracts a fixed annual subscription fee that does not depend on the amount invested. Other than this, the only fees and charges relate to those charged by your broker for trading. Under this model, the more funds you invest in our portfolios, the lower the annual cost on a percentage basis. 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.
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.
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