Strategy
Income
Australia

Separately Managed Accounts – Defensive Income

2 Dec 2019
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In June 2019, Perpetual and Mainstream started using Rivkin Portfolio's in their Separately Managed Account (SMA) offering that gives investors the opportunity to follow our proven strategies. Rivkin runs four portfolios that are offered through the SMA platform. Each portfolio is designed for a different investor type ranging from growth to defensive. Here you can find more information on our Smart Growth Portfolio.

Defensive Income

This portfolio focuses on securities that pay dividends and generally produces an investing outcome that has lower volatility but with a lower return than the growth models. Much of the dividend income is franked which will be available to the investor to offset eligible tax liabilities.

Description# of StocksInvestment UniverseMinimum Rec. Time Frame
Highly Diversified Portfolio Holding Mostly Income Stocks With Some Growth Allocation27-30ASX 2001 year

Table 1: Summary of Defensive Income Portfolio

The Defensive Income portfolio selects high dividend paying securities that provide a constant stream of income. The aim is to produce a more stable return than the growth portfolios. The defensive component comes from a sizeable allocation to ASX listed hybrid securities which pay regular dividends and have a relatively stable capital value. Hybrid securities have some features that are similar to bonds and are therefore perfect for providing a stable capital base for the portfolio. Another significant component of the portfolio is access to event driven trades that are based on corporate actions. These trades have been a Rivkin staple for many years and provide the portfolio with a component of low risk returns that are independent from market volatility. The final component of the portfolio is a small allocation to growth stocks that help increase its capital value.

PORTFOLIO PERFORMANCE

The SMA product has been running live since June 2019 and therefore results for the Defensive Income portfolio within this structure go back to this date. The table below shows monthly returns for this portfolio after all fees and brokerage. Returns for June represent performance from the launch date of 12 June to the end of the month.

Jan (%)Feb (%)Mar (%)Apr (%)May (%)Jun (%)Jul (%)Aug (%)Sep (%)Oct (%)Nov (%)Dec (%)Total (%)
20191.411.01-1.230.90-1.110.791.66

Table 2a: Monthly Returns of Defensive Income portfolio in the SMA structure

Further historical performance of the Defensive Income portfolio is compiled below from the two main underlying components of the portfolio, the newest of which has been running live in Rivkin’s retail advice product since November 2017. This portfolio also contains a component of Event driven trades which are typically takeovers and other corporate actions. Rivkin has been participating in this type of trade for 20 years and typically targets a very conservative return profile. The data for this component isn’t included in the returns below but the individual trade data for Rivkin’s Event trades can be provided on request. The composite returns (excluding Event trades) are shown in the below table:

Jan (%)Feb (%)Mar (%)Apr (%)May (%)Jun (%)Jul (%)Aug (%)Sep (%)Oct (%)Nov (%)Dec (%)Total (%)
20180.81-3.340.821.081.311.126.96-3.24-6.440.710.32-0.48
20195.566.910.311.720.2815.47

Table 2b: Monthly Returns of Defensive Income portfolio compiled from Rivkin’s ASX Blue Chip, ASX Income and ASX Value strategy performances

Furthermore, extensive back-testing has been used to determine the portfolio performance over a longer time period. Back-testing is the process whereby an investment strategy is simulated over historical stock market data to determine how a strategy would have performed if it had been run over that time. A summary of the Defensive Income portfolio characteristics and back-tested data is presented in the table below.

Investment UniverseASX 200
Number of Holdings27-35
Expected Average Annual Return7.5%
Volatility Relative to ASX 200 Index0.63
Probability of negative return in any 12-month period7%

Table 3: Backtested statistics for Defensive Income portfolio

Benefits of a Separately Managed Account

  • Choose from four professionally constructed portfolios depending on your needs
  • All portfolio management is taken care of for you
  • Access Rivkin’s systematic strategies that have proven themselves in live trading in our retail advice product
  • Obtain institutional brokerage rates that are not typically available to individual investors
  • Execution is performed using algorithms that spread trading out across the day to obtain a fair price
  • No upfront cost – management fees are deducted from your account on a monthly basis
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