This strategy 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.
About the Strategy
The strategy 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 strategy is that during times of underperformance, investors continue to be paid a healthy level of dividend income. The main risk to this strategy is that dividends are cut.
The ASX Blue Chip strategy 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 strategy 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 Strategy||S&P/ASX 200 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.
Rivkin recommends a time horizon of at least three years for this strategy due to the possibility of a negative return in any given year. Based on the strategy 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
Rivkin’s 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 strategies, the lower the annual cost on a percentage basis. This strategy is also offered in a Separately Managed Account version for which you pay a small management fee for us to follow the strategy on your behalf.
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