Over the last few years, Amicus has been compiling and developing a database of its own clients’ portfolios and investment performance and those of peers who either do not receive external advice or who are advised by others.
Last month we distributed updated EOFY June 2018 peer comparisons for all our retained clients. The comparisons cover portfolio size, composition, investment maturity profile, range of issuers, portfolio construction and performance. The purpose is not for every client to seek to conform to the peer group average, but where there are deviations from the mean, these usually highlight the reasons for over or under performance relative to the group and provide a basis for discussion.
Our study showed a minority of investors have a passive investment strategy and are simply rolling three month term deposits. However, typically we find conservative investors are pursuing one (or a combination) of three active base strategies. The first strategy is to enhance returns by taking on additional credit risk, the second by taking on interest rate and the third by taking on maturity risk; all in a prudent and conservative manner.
Increased performance was seen by those clients deliberately pursuing a defined active strategy or combination of active strategies with Amicus advised clients out-performing non-Amicus advised clients by around 20bps per annum on average.
Portfolio size was also a significant factor in investment performance with those investors with larger portfolio sizes tending to perform better than those with smaller portfolios. This was not unexpected as in general the larger the portfolio size the more resources are made available to manage the portfolio and to seek expertise if it was not available internally. This makes economic sense because the dollar value of any percentage out-performance is proportional to portfolio size with 20bps of outperformance on a $300 million portfolio being worth $600K per annum, but only $60K on a $30 million portfolio. However, even at lower portfolio sizes, advice from Amicus to enhance returns is beneficial as we aim to make clients a five to ten fold multiple in enhanced performance over all fees we charge even on smaller portfolios. Amicus also does not charge based on portfolio size, but relative to service levels provided and since we try to focus on the higher value-add areas of advice our service proves economic for clients with conservative fixed interest portfolios of $30 million or even less.