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What the big boys are thinking

24 Jun 2021 3 month(s) ago

The large institutions are constantly changing their portfolios. It is worth looking at how they think.

Large financial institutions: pension funds, superannuation companies and insurance companies, have large portfolios. Self managed super funds are rarely big enough to diversify to that extent, but managers can learn from what the big boys are doing. It is important to stay informed about what is happening in the market.

Morgans puts out model portfolios, with suggested weighting in different shares. In its balanced portfolio it has 23% in banks, 13% in financials, 17% in resources, and 10% in industrials. Eleven per cent is allocated to health care, 8% to staples, nothing to IT/Telco, 11% to utilities/infrastructure and 5% to retail.

Over the last year the balanced portfolio has recorded a 25.6% return against a 28.2% for the ASX200 Accumulation Index.

Here are Morgans suggested individual holdings:

Morgans' growth model portfolio has different weightings: only 12% for the banks, 12% for financials, 19% for resources, 10% for industrials, 13% for health care, nothing for staples, 8% for IT/Telco, nothing for utilities/infrastructure and 24% for retail. The growth portfolio has sharply outperformed in the last year, recording 37.8% against a 28.2% for the ASX200 Accumulation Index.

Here are the suggested individual holdings.

About a quarter of the balanced portfolios of super funds is in overseas shares, and Morgans assesses some index-style options, including those that are hedged (remove currency risk):

Morgans also looks at overseas stocks for direct investment, mostly in the tech or finance space: Apple, Alphabet (Google), Microsoft, Paypal, Mastercard, Visa, Berkshire Hathaway, Ali Baba, Tencent. The one with the greatest consensus upside (25%) is considered to be Amazon. Amazon is among the world's highest-grossing online retailers, dominating in the US. Its operational efficiency, network effect, and a brand built on customer service provide its markets with sustainable competitive advantages that few, if any, traditional retailers can match.”

Apple, which has very high profit margins, also has a strong consensus upside of 23%. “Apple enjoys ample opportunity to reap the rewards of its iPhone business though greater smartphone penetration in emerging markets and repeat sales.”

Reader note: This is general reporting only and should not be considered in any way to be investment or tax advice, including for individuals. For more information please read our disclosure statement.

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