Question of the Week

Question of the week – Please explain your income and growth portfolios?

Co-founder of the Switzer Report
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Q: I have had occasion to compare the ‘growth’ portfolio and its comments, with the ‘income’ portfolio and its comments. Apart from some minor differences in the ‘view’ and the ‘comments’, there are really very few substantive differences to your approach to both of these portfolios.

A: Thanks for the observations and question.

While there are some similarities with the stocks, the sector weightings are quite different. For example:

  • Financials 45% in ‘income’ and overweight; 31% in ‘growth’ and underweight;
  • Materials 17% in ‘income’ and underweight; 24% in ‘growth’ and overweight;
  • Telecommunications 7.5% in ‘income’ and overweight; 4% in ‘growth’ and underweight;
  • Healthcare 4% in ‘income’ and underweight; 9% in ‘growth’ and overweight.

Further, in the financials for example, the choice and weighting of the bank stocks in the ‘growth’ portfolio has a bias towards the bank stocks we feel will do best in a stronger market.

And, the ‘income’ portfolio is forecast to generate a yield of 5.23% (98% franked); the ‘growth-biased’ portfolio is forecast to generate a yield of 4.50% (89% franked).

Perhaps the word ‘growth’ is a little misleading – because it is really only a ‘bias’. Let me restate the second paragraph from the article that explains the context of the portfolio:

“In relation to this growth-biased portfolio, we need to state some important caveats upfront. Firstly, recognizing the importance of tax-effective income from dividends to the overall portfolio return, and a general aversion by many SMSFs to taking excessive risk, our sector biases are not strong. While there is an orientation to the sectors and stocks that we believe will grow over the medium term, our aim is to design a portfolio that will also track reasonably closely to the overall market, as measured by the S&P/ASX 200 Accumulation Index. It is a bias only towards growth.”

You can read the full article here.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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