As a result, the investment process is designed to generate an unconstrained, highly concentrated portfolio of high-quality companies. The investment process integrates three key disciplines:
Each portfolio is established with 10-15 stocks of equal weighing with portfolio rebalancing reviewed at the end of each calendar quarter.
There is a broad parameter that each stock should not represent more than 15% of the total portfolio, ensuring a level of diversification within these concentrated portfolios.
Leodaritsis & Lynch believes a focus on quality companies will enhance returns, when combined with a disciplined valuation overlay. We seek to identify quality companies that are mispriced by overlaying our quantitative screen with a strong intrinsic valuation discipline. The portfolios are high conviction, after-tax focused and invested for the medium-to-long term. We have established three share portfolios to provide our clients with a guide to portfolio construction considering three different investment objectives.
By necessity, these are broad generic categories, and we remind investors that they should always consult their adviser, as individual needs vary. Each of our share portfolios contain a minimum of 10-15 stocks and thereby should be seen as ‘concentrated’ or ‘high conviction’ portfolios that focus on stock picking. The stocks are selected primarily from the S&P/ASX 200 Accumulation Index, which implies that stocks in our portfolios generally have reasonable liquidity and market capitalisation of at least $500m.
Our Australian Income Plus Companies portfolio contains stocks selected from the S&P/ASX Small Ordinaries Index, which is used as an institutional benchmark for small-cap Australian equity portfolios. The index is designed to measure companies included in the S&P/ASX 300, but not in the S&P/ASX 100.
Our International portfolio, The Global Leaders portfolo contains a minimum of 15 stocks with an ability to increase our exposure up to a 25 stock holding with an established benchmark being the All MSCI World (Ex Australian) Companies Index and has a predominantly growth based objective. Each portfolio is established with 10-15 stocks of equal weighing with portfolio rebalancing reviewed at the end of each calendar quarter. There is a broad parameter that each stock should not represent more than 15% of the total portfolio, ensuring a level of diversification within these concentrated portfolios.
Asset allocation is often acknowledged as the key driver of investment returns. We consider two key asset allocation issues:
employs a medium-term horizon. Utilised from time to time by investors with a high conviction and where there is significant mis-pricing in one or more industry sectors. Expectation is for a return to “fair” or “normal” values over, say, three to five years.
considerations have a short time horizon, usually one to three years. This aims to manage risk and improve returns by managing entry and exit points and identify stocks that are heavily influenced by cyclical market correlations.
are considered over a long-term horizon. This involves a top-down approach based on broader macroeconomic themes and the creation of a portfolio of companies that we anticipate will generate above-market returns over the longer term.
has a short time horizon, usually one to three years. The aim is to manage risk and improve returns by allocating between the major countries because of anomalies in market pricing.
Leodaritsis & Lynch uses an initial quantitative based screening system to identify and create the initial universe of investable stocks that meet the required criteria of each of the individual portfolio mandates. We then provide a bottom-up fundamental assessment to construct our high conviction direct share model portfolios.
Our models target investors who desire a simpler, concentrated and more efficient way to gain direct equity exposure via a model portfolio, while maintaining ownership of the securities.
The analysis process used to construct implemented research model portfolios comprises a number of qualitative and quantitative assessments, including:
(i.e., strong, or rapidly improving return on equity, prudent gearing levels);
Is determined through reviews of company operations based on site visits, management interviews, competitor interviews and consistency in stock financial performance.
We primarily value stocks using discounted cash flow valuations; however, a number of other cross-checks are employed, including dividend discount models, relative yield, and relative price/earnings ratios.
The following process is adopted for the Australian Equities Portfolios to take into consideration the respective Income and Growth investing criteria specific to these portfolios.
We use a fundamental bottom-up research process with a top- down overlay. Each stage of the process is outlined below.
Australian Portfolios – ASX 300
International Portfolios – All MSCI World Ex Australia (1,500
Earnings quality, ROE, ROI, gearing, operating margins, profit margins, ROA, beta, debt/equity
Discounted Cash Flow valuations Vs Consensus
Detailed financial modelling & risk assessment
Company Visits & Management Interviews
Discounted Cash Flow Valuations Vs Consensus
Our corporate governance structure is critical to the financial and operational well-being. Not only to set up an operationally efficient business model, but also to provide a structure through which Company objectives are set and monitored.
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