We launched Stockspot Themes in April 2016 and became the first digital investment adviser in the world to offer a range of curated investment options that clients could use to personalise their portfolio. We’ve developed sophisticated portfolio tracking and risk management software to enable us to manage this.
Stockspot Themes have given our clients access to 1,000 different portfolio combinations and allowed them to include a range of different markets and assets.
We’ve carefully selected 14 theme options from over 150 different ETFs available on the ASX. These ETFs complement our model portfolios and offer additional diversification benefits across markets, assets, sectors and personal preferences (like socially responsible investing). You can see our methodology for selecting the best ETFs in our annual ETF report.
We’ve seen great take-up of Stockspot Themes, particularly from our individual and SMSF clients that want to have more control over where they are invested.
Popular investment themes
Investment themes come in and out of fashion so it’s crucial that themes don’t make up too much of your portfolio. If they did, you could face longer periods of high risk and low returns and ultimately not reach your financial goals.
Predicting which market themes will perform well over the short term is notoriously difficult (as you will see later), this is why we carefully manage the percentage allocation to each theme and ensure your overall investment strategy remains balanced for times of higher market risk.
18 months on we’ve looked into which themes are most popular with our clients and how they’ve performed.
Interest in property falls
Property was the second most popular theme a year ago, this year Australian property has fallen down to 8th. Higher interest rate expectations have capped returns in this sector over the past year and reduced the appetite for property (both Australian and global) as a theme.
Despite a historical return of 13% p.a. over the past 5 years, our Australian property theme has neither risen or fallen over the past 18 months. It now offers a yield of 4.0% which is counterbalanced against concerns that Australian property may not have much near-term upside for capital growth.
On the other hand Asian large companies have seen the largest increase in popularity as well as the best returns, rising in line with emerging market shares. Once again we’re seeing clients move into themes that have performed well in the recent past. Asian shares had gone nowhere for 5 years and now people are starting to rotate into these markets as they start to play catch-up to US shares.
US shares remain the most popular theme
US shares remains the most popular theme with our clients, accounting for about one in 5 selections.
The positive performance of US shares and technology companies like Google, Facebook and Apple have supported this choice. Adding additional US shares to the Stockspot portfolios has enabled clients to increase their US share allocation up to 18% of their overall portfolio.
Our risk model shows that allocating much more than this to the US market could be dangerous for Australian investors and likely add undue risk (without extra returns) over the long term. This is why we won’t recommend a higher allocation to US shares despite that market being popular at the moment.
How have the themes performed?
The majority of investment themes have performed well with 12 of the 14 themes delivering a positive return since March 2016 including 10 with over 10%.
Global property and bonds have fallen as global markets have started to expect future interest rate rises. Despite their subdued year, bonds and global property remain attractive themes over the long term and are likely to cushion any period of share market risk. We’ve previously written about the benefit of bonds in your portfolio.
Asian large companies and Chinese shares have both returned over 20% since March 2016. Despite being dismissed in early 2016 by many market commentators who predicted that emerging markets were facing a dire year…
“If you’re going to do something in emerging market equities, my recommendation is to short them. They may fall a further 40%.” – Jeff Gundlach, CEO DoubleLine Capital ($100B AUM) 25 Jan 2016
“Emerging market majors all remain sells” “Sell everything except high quality bonds” – RBS, 11 Jan 2016
“RBS has advised clients to brace for a ‘cataclysmic year’ and a global declationalry crisis, warning that major stock markets cold fall by a fifth and oil may plummet to $16 a barrel. – UK Telegraph, 11 Feb 2016
Anyone who followed that advice in early 2016 would have missed out on substantial returns.
That’s why listening to the prophecies of market gurus and commentators can be so dangerous. This is why we encourage clients to use dollar cost averaging to avoid costly behavioural mistakes and make the most of market dips when they happen.
Clients should also understand investments that have performed well in the past often face periods of ‘returning to average’ while unpopular investments can turn around just when nobody expects them to.
Stockspot Themes can give you more control over where your money is invested. However investing too much of your portfolio in a concentrated part of the market can also attract higher risk. This is why we manage the percentage of each theme within your overall portfolio so that it’s balanced and right for your investment time horizon and risk preferences.
Grow your savings the smart way
Stockspot is Australia’s largest digital investment adviser. We can help you build and manage a personalised portfolio tailored to your financial situation and your goals. It’s professional investment advice without the high costs of seeing a human adviser.
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