diversified share portfolios

[voltage]

To construct a diversified equity portfolio for long term hold I am confused with the differences suggested by different brokers. Some have very low allocated to NZ and much higher global > 50%
I am working towards
NZ 40%
ASX 20%
Global 40%
I am higher in NZ due to good dividends and imputation credits.
Should I treat NZ and ASX as one market?
Any comments about percentages?

[percy]

I really think you must use common sense constructing any portfolio.
I now only follow NZ and Australian shares.
Australian shares do not pay as high dividends as NZ shares and carry no imputation credits.
So a good NZ share will pay you a net 5%, while after tax a good Aussie will be around 2%.
It is also a lot easier to follow NZ and Aussie shares.
I used to be about 60% NZ,40% Aussie,but am now about 80% NZ, as NZ shares have been out performing Aussie.
With Trump the US market is now potentially very volatile.
You can get exposure to US with FPH and THL,while EBO gives a very large exposure to Aussie.
Be careful that you do not replace your winners with losers trying to "keep your portfolio in balance."
That is broker talk for churm,which destroys clients wealth, by increasing brokers' wealth.

[huxley]

Be careful that you do not replace your winners with losers trying to "keep your portfolio in balance."
That is broker talk for churm,which destroys clients wealth, by increasing brokers' wealth.


S&P/ASX 200 Resources Index last 12 month investor returns = 45.57%

Sometimes it pays to rebalance your portfolio.

[percy]

HBL. 1 year 30.33% plus fully imputed divies.
SCL..1 year 42.04% " " " " .
TNR..1 year 36.36% " ' " " .
Good enough for me,to keep my well balanced portfolio as it is.
ps.Growing eps will see growing dividends.[fully imputed] which will drive their share prices.

[huxley]

HBL. 1 year 30.33% plus fully imputed divies.
SCL..1 year 42.04% " " " " .
TNR..1 year 36.36% " ' " " .
Good enough for me,to keep my well balanced portfolio as it is.
ps.Growing eps will see growing dividends.[fully imputed] which will drive their share prices.

Ha, definitely fair enough, however it depends on how "active" your investment strategy is. I got the impression the post was more concerning a buy & hold passive asset allocation.

[percy]

Ha, definitely fair enough, however it depends on how "active" your investment strategy is. I got the impression the post was more concerning a buy & hold passive asset allocation.

Well I would think if you held onto HBL,SCL,and TNR for the next 5 or 10 years you would beat any index,and in the meantime the fully imputed divies could be reinvested or enjoyed.!!..lol..

[huxley]

Well I would think if you held onto HBL,SCL,and TNR for the next 5 or 10 years you would beat any index,and in the meantime the fully imputed divies could be reinvested or enjoyed.!!..lol..

No doubt, but if you're trying to get as much return as you can for the least amount of risk a basket of shares might still be a better option. All good if you're happy to take high conviction view on just three nz listed vehicles but you'd want to beat the overall market by a large margin to justify those positions.

[percy]

Well why not add AWF,EBO,EVO,RBD,SAN and SUM to HBL.SCL and TNR list,along with FPH and THL..
And in Aussie you could stsrt off with,KKT,LOV,PGC and RXP.
Note RBD gives exposure to NZ,Aussie and Hawaii.

[Bjauck]

...
Should I treat NZ and ASX as one market?
Any comments about percentages? Some brokers treat NZ and OZ as one market with all other markets classified as foreign.

However I think OZ should be treated as foreign. Many Oz shares may be exempt from FIF rules. However taxation issues (eg inability to claim Australian franking credits) justify investing in shares in a less successful NZ company, rather than in an Australian Company. As ever, differing taxation considerations help warp the optimal investment of capital.

[huxley]

Well why not add AWF,EBO,EVO,RBD,SAN and SUM to HBL.SCL and TNR list,along with FPH and THL..
And in Aussie you could stsrt off with,KKT,LOV,PGC and RXP.
Note RBD gives exposure to NZ,Aussie and Hawaii.

Looks good, I hold a few :)

[voltage]

thanks for the comments, I suppose I am looking at a global diversified portfolio. I do hold direct shares in NZ and Aussie. Yes, many brokers financial advisors look at NZ and ASX as an Australasian market.

[Snoopy]

To construct a diversified equity portfolio for long term hold I am confused with the differences suggested by different brokers. Some have very low allocated to NZ and much higher global > 50%
I am working towards
NZ 40%
ASX 20%
Global 40%
I am higher in NZ due to good dividends and imputation credits.
Should I treat NZ and ASX as one market?
Any comments about percentages?

I tend to think about where a company operates rather than where it is listed. For example one of my 'NZX' investments, Scott Technology, obtains 84% of their revenues outside of NZ's borders. So thinking of Scott Technology as a 'New Zealand' investment is probably not wise.

I would never invest for 'tax reasons' alone. But for NZ investors, investing in the NZX is generally tax favourable. Thus if you have a choice between two broadly equivalent investments, one NZ domiciled and one not (e.g. Fisher and Paykel Healthcare (NZX) vs Resmed (ASX) ), I would generally choose the NZ based one.

You may have guessed that using this kind of logic I am more exposed to NZ shares than some financial advisers regard as being prudent. But because I am very unlikely to have to draw on my share portfolio at short notice and am not concerned at missing out on theoretical big overseas market gains, or portfolio smoothing effects, I am comfortable with this position. To me, the generally higher income derived from NZ shares makes up for this.

A further disincentive to pursue overseas shares that kick in the FIF investment taxation regime ( a sum of 'overseas' share purchases above $NZ50,000 ) is that this regime assumes a 'risk free' return of 5%. With government interest rates in Europe, Japan and the US well below this figure, I don't believe a 5% risk free rate of return is an attainable goal in the modern investment environment. If you regard something under 2% as a realistic risk free rate of return (as I do), this means that your 'foreign' investments are being taxed at an assumed return rate that is 3 percentage points higher than is actually attainable long term. In after tax terms, that amounts to around one percentage point. No much in any one year. But it does compound over time to make investments outside of the NZX and ASX less attractive. If such investments are managed funds, the management fees come off your long term returns as well, making the annual return deficit to be overcome sitting at about 2%.

Unless you really have a lot of capital and or specific overseas industry knowledge or expertise, I would tend to recommend getting your 'overseas exposure' through NZX and ASX companies that operate mostly in markets outside of Australia and New Zealand. There would be many financial advisers out there who would regard this kind of advice as heresy. I should add that I am not a financial advisor. You should take great care in accepting any investment advice from a dog on the internet! But neither am I 'clipping the ticket' on those 'overseas investment funds' that I am not selling to you!

SNOOPY

[voltage]

okay, what about companies like google, amazon and apple for example that can not be accessed from our exchange.

[Snoopy]

okay, what about companies like google, amazon and apple for example that can not be accessed from our exchange.


There are certain companies that do not have any real equivalent on the NZX. For high tech companies that don't pay dividends, then the tax disadvantage is less if you buy those shares listed on an overseas bourse. And the higher the growth, the less the handicap of paying an extra single percentage point in tax (the FIF issue I mentioned before) turns out to be. I think all of us have heard of those three big names: Google (now Alphabet I believe), Amazon and Apple, and appreciate what they have achieved in the market so far. So, as leading market players, you could draw up a case for directly owning shares in those three. They are good companies. But whether they still offer value at today's market prices is a different question. Buying a successful 'badge' won't necessarily translate to future investment success, even if the company itself continues to prosper at an operational level.

Perhaps you could invest in a US based hi-tech fund that would include all of those, and some others besides? The problem with the latter is that it would be managed in accordance with US tax laws. So what they do over there might not line up with the best interests of NZ taxpayers?

SNOOPY

[macduffy]

I'm with Snoopy on this subject. The current "fashion" to diversify broadlyinto overseas equities is somewhat overdone in my opinion. Insufficient regard seems to be paid to the difficulty of monitoring such investments nor in getting timely and knowledgeable analysis on developments affecting companies domiciled overseas. Local expertise is absent and the internet has limitations in this regard. Better "control" of a local portfolio, imo, with taxation advantages, no management or custodial fees and avoidance of currency risk.

[voltage]

macduffy and snoopy, you are quite right about the difficulties managing global portfolios from NZ as you have indicated some of the issues involved. That is why the global component is probably best done through ETFs listed on the ASX. This will allow you time to focus on direct control of NZ and Australian component of a portfolio. The successful NZ superannuation fund only has a 5% holding in NZ shares. So, what I am asking is what % of your portfolio should be outside australia and NZ. I know the FIF tax issue complicates things but should that influence portfolios?

[huxley]

Hmmm.... why should an NZ investor hold an overseas ETF? For example do you want a hedge in case some huge event effects the NZ economy?

I'm assuming the Aus ETFs you're looking at are valued in USD? A New Zealand investor buying an offshore fund with no full or partial hedge in place is arguably buying a currency fund...

I don't have an answer to you percentage question, but it's an interesting problem eh.

[macduffy]

No answers re percentages fom me, either, but if I had the billions that had to find a home, as NZ Super Fund does, I'd be forced to look offshore too! And employ the experts to do it.

:)

[voltage]

interesting comments, just that all these financial experts push portfolios that usually have high allocations overseas

[Snoopy]

interesting comments, just that all these financial experts push portfolios that usually have high allocations overseas


In these days of interconnected global markets, I like to get my diversification through investing in different market sectors. There are some market sectors , particularly where those businesses have a strong position in their chosen market and a global reach, where there is no NZX listed share present. In this instance, I would look at the ASX next for investment options, with the rest of the global markets being the third cab off the rank.

From the point of view of a New Zealander investing in global markets, a share listed on the NZX will in general have the most effective tax regime around it for that NZ domiciled investor. However, investing purely for tax minimisation purposes has been from my perspective a road to sub optimal returns. I might compare an NZX listed share from an NZ perspective with an ASX listed share from an Australian perspective. I do this because I recognise that the home market perspective, whatever that is, generally sets the share price. My 'overseas allocation' then comes from the results of these kinds of comparisons.

I could work out what my 'overseas allocation' is. But I have never bothered, because the overseas allocation is an incidental result of my wider 'head to head' in a chosen market investment strategy and is not part of any 'overseas allocation target'.

SNOOPY

[huxley]

Just playing devils advocate ;) What if the companies with global exposure, that are listed on Australian and New Zealand stock markets, underperform in their respective sectors (or are out completed by their contemporaries listed overseas)?

Are we not such a tiny part of the global economy?


Carl Sagan
"...Our posturings, our imagined self-importance, the delusion that we have some privileged position in the Universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves."

[percy]

Just playing devils advocate ;) What if the companies with global exposure, that are listed on Australian and New Zealand stock markets, underperform in their respective sectors (or are out completed by their contemporaries listed overseas)?

Are we not such a tiny part of the global economy?


Carl Sagan
"...Our posturings, our imagined self-importance, the delusion that we have some privileged position in the Universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves."

The answer may be to "invest"??????? in some SAS on the ASX.

ps.I do not hold.
pps I doubt I will ever hold.

[Snoopy]

Just playing devils advocate ;) What if the companies with global exposure, that are listed on Australian and New Zealand stock markets, underperform in their respective sectors (or are out completed by their contemporaries listed overseas)?

Are we not such a tiny part of the global economy?


Point 1/ I don't think you can judge your investment performance entirely on retrospective hindsight. In the beginning you can make your best guess at what an investment might do. For that you have to make the best use of the information you have at the time you started your investment. After your investment has taken place, markets will evolve and 'black swan' events might happen. The best protection against these unpredictable things is to look for an investment with the ingredient of resilience.

Point 2/ If you are investing in a global industry, and you do this by investing in an NZX listed company, that doesn't mean you can't benchmark your investment against overseas competitors. IMO you should do exactly this, otherwise how can you judge whether your NZX investment target is truly competitive to start with? If the company you invest in is competitive, there is no reason to suspect that you will do anything other than outperform over time.

Point 3/ Don't beat yourself up if you find, with hindsight, you have not invested in the best performing company in your chosen investment sector. The chances are that if you look globally, you will find an investment in the same market sector that has done better than yours over the snapshot timeframe you chose. But an 'Above average' performance over the same time frame will do.

SNOOPY

[silu]

After starting from nearly Zero in 2013 after a not so successful business adventure my portfolio has added today, albeit briefly, another digit to the portfolio. Overall I'm up over 45% since 2013 with most of the dividends re-invested.

Although my strategy might not be of much use to others I have implemented some basic rules that have served me well:

50% in Blue Chip
30% in medium to large growth companies
20% in start-ups and high-risk stocks

No stock in the bottom two shall be over 5% in cost of my total portfolio size
Be more prepared to take profits on the bottom two
Don't average down unless I am certain the market has reacted irrationally (i.e. Trump slump)

Fwiw NZX accounts for 43%, ASX 50% and USA 7%.

I know this is very basic but I'm chuffed to bits to have reached this little milestone and I just wanted to tell somebody who doesn't know me personally because no one likes a bragtard ;)

[iceman]

After starting from nearly Zero in 2013 after a not so successful business adventure my portfolio has added today, albeit briefly, another digit to the portfolio. Overall I'm up over 45% since 2013 with most of the dividends re-invested.

Although my strategy might not be of much use to others I have implemented some basic rules that have served me well:

50% in Blue Chip
30% in medium to large growth companies
20% in start-ups and high-risk stocks

No stock in the bottom two shall be over 5% in cost of my total portfolio size
Be more prepared to take profits on the bottom two
Don't average down unless I am certain the market has reacted irrationally (i.e. Trump slump)

Fwiw NZX accounts for 43%, ASX 50% and USA 7%.

I know this is very basic but I'm chuffed to bits to have reached this little milestone and I just wanted to tell somebody who doesn't know me personally because no one likes a bragtard ;)

Well done silu. Doesn't really matter how we do it as long as we reach a goal and a result that we are personally happy with. Do you mind me asking how many stocks you have in your portfolio ?

[kiora]

After starting from nearly Zero in 2013 after a not so successful business adventure my portfolio has added today, albeit briefly, another digit to the portfolio. Overall I'm up over 45% since 2013 with most of the dividends re-invested.

Although my strategy might not be of much use to others I have implemented some basic rules that have served me well:

50% in Blue Chip
30% in medium to large growth companies
20% in start-ups and high-risk stocks

No stock in the bottom two shall be over 5% in cost of my total portfolio size
Be more prepared to take profits on the bottom two
Don't average down unless I am certain the market has reacted irrationally (i.e. Trump slump)

Fwiw NZX accounts for 43%, ASX 50% and USA 7%.

I know this is very basic but I'm chuffed to bits to have reached this little milestone and I just wanted to tell somebody who doesn't know me personally because no one likes a bragtard ;)

Congrats SILU. Better to brag on how well the portfolio has done than look for sympathy on how crap ones investment decisions have been :t_up:

[silu]

Thanks guys. fwiw I hold
10 stocks on NZX
17 stocks on ASX (as most of my high risk stocks are there)
4 stocks in the US

Biggest winners:
ATM.NZX +378%
AJX.ASX +252%
MEL.NZX +98%

Biggest Losers:
SKO.NZX -66%
EPD.ASX -33%

One thing I forgot to mention - the moment I usually get a sniff that something is not right I try to sell immediately like SNK (bought at 11c sold at 9.5c) or PEB (bought at $1.53 sold at $1.28) or NWT.ASX (bought at 43c sold at 30c - now delisted). I have still faith that SKO comes right that's why I continue to hold.

[couta1]

Going forward I will hold a maximum of four stocks only, currently my portfolio is made up of only two (SPK&RYM) I don't see the need to diversify more than that, it all comes down to being confident in the companies you choose and what your risk tolerance is. Also I only invest in NZ companies.

[iceman]

Going forward I will hold a maximum of four stocks only, currently my portfolio is made up of only two (SPK&RYM) I don't see the need to diversify more than that, it all comes down to being confident in the companies you choose and what your risk tolerance is. Also I only invest in NZ companies.

And I thought I was "bad" with normally only 5-8 in my portfolio :-)

[macduffy]

Going forward I will hold a maximum of four stocks only, currently my portfolio is made up of only two (SPK&RYM) I don't see the need to diversify more than that, it all comes down to being confident in the companies you choose and what your risk tolerance is. Also I only invest in NZ companies.

When I was very, very young I risked, and lost, a big part of my meagre wealth in an Australian company called Reid Murray. These days I over-compensate for that by over-diversifying my portfolio. But I sleep a lot better!

:)

[h2so4]

http://www.cnbc.com/2017/02/27/billionaire-warren-buffett-more-than-doubled-his-holdings-in-apple-in-2017.html

This 86year old can sniff out value.
Stickiness new valuation metric. I like it wonder if it could apply to any NZshares?

[Valuegrowth]

WB never liked tech stocks. After IBM, why does he like to buy APPLE now? Stock’s P/E ratio is good but it’s expensive compared to its historical average. Is it still a good buy?
http://www.cnbc.com/2017/02/27/billionaire-warren-buffett-more-than-doubled-his-holdings-in-apple-in-2017.html

This 86year old can sniff out value.
Stickiness new valuation metric. I like it wonder if it could apply to any NZshares?

[h2so4]

WB never liked tech stocks. After IBM, why does he like to buy APPLE now? Stock’s P/E ratio is good but it’s expensive compared to its historical average. Is it still a good buy?

He likes the product. "A fellow at the office had 10m shares and before the report came out I added about another 123m shares.In about 20 days."
Do you think he paid to much?
Thats exactly what Wall Street said when he bought Coke all those years sgo.Ha!

[h2so4]

....doesnt seem to mind this badge company. Ha!

[h2so4]

WB never liked tech stocks. After IBM, why does he like to buy APPLE now? Stock’s P/E ratio is good but it’s expensive compared to its historical average. Is it still a good buy?
What it basically comes down to is the future earnings of Apple.

[couta1]

When I was very, very young I risked, and lost, a big part of my meagre wealth in an Australian company called Reid Murray. These days I over-compensate for that by over-diversifying my portfolio. But I sleep a lot better!

:) Each to their own aye, I'm very partial to XOS sized divvies and big holdings equals big divvies. PS-Ive never been a great sleeper so no difference either way having XOS sized holdings (Must have that short sleep gene, as I function just fine on less)

[Valuegrowth]

Intelligent investors buy stocks on value and future earnings. Companies such as APPL (http://www.retirebeforedad.com/2014/01/30/elephant-portfolio/)and Microsoft (MSFT) are two high-profile companies that were debt-free for a very long period. APPL could dramatically increase its dividend yield if it gets some support under U.S. corporate tax changes. Debt free and cash rich companies are some of the best bets in global markets now.

What it basically comes down to is the future earnings of Apple.

[h2so4]

Intelligent investors buy stocks on value and future earnings. Companies such as APPL (http://www.retirebeforedad.com/2014/01/30/elephant-portfolio/)and Microsoft (MSFT) are two high-profile companies that were debt-free for a very long period. APPL could dramatically increase its dividend yield if it gets some support under U.S. corporate tax changes. Debt free and cash rich companies are some of the best bets in global markets now.

Do you think Buffett is betting on tax law changes? LOL! He didn't mention that. What he did say was he thought there would be a lot less Apple shares around in the future.

[Valuegrowth]

http://fortune.com/2017/02/16/warren-buffett-apple/

https://www.businessinsider.com.au/apple-is-the-perfect-warren-buffett-stock-2017-3?r=US&IR=T

[GTM 3442]

If you are diversifying, then you are trying to spread/reduce risk. The opposite of diversification is concentration, which is where you make serious money*.

Then there are the "punts", (ATM, PEB, BFW, PIL, BLT etc) which provide you with much amusement.

Who's the richest man in the world,and did he get there by diversifying or concentrating?

*at the risk of losing serious money.

[arc]

APPL Might be a safer bet than print media. just ask modern uni students if they read a newspaper.... NO..


From my experience as a guest lecturer, the number of students reading news papers or even magazines has dropped drastically over the last 10 years. last time there were only three students in the audience who read paper based "anything", other than their movie ticket.....

Attention spans of goldfish.

My bet for future tech is on portable Holographic displays. Whoever cracks that first will be a Trillionaire.