Your portfolio needs more than a great quarterback
Whether you are managing a sports team or an investment portfolio, relying only on one great player is not the answer to long term outperformance. It requires something more.
As Australian football codes are getting deeper into their season, in the US the NFL draft takes place this week. Last year's Super Bowl winners, the New England Patriots, are known for their canny draft and team selection strategies and their domination.
There are two differences between the Patriots structure and everybody else's:
- they found the greatest core of all time, one that everybody else overlooked; and
- they actively managed the rest of the team around it.
The core player in an NFL team is the quarterback. Tom Brady has been the quarterback for the Patriots since 2001 and in that time they have built a winning record that no other team comes close to, with six Super Bowl appearances leading to four championships.
In the 2000 draft Brady was the 199th player chosen. Every team passed on him multiple times before the Patriots took him.
Van Eck Global's Tom Brady for an Australian equities investment portfolio is Market Vectors Australia Equal Weight ETF (ASX code: MVW). The smart yet simple mechanics of equally weighting stocks produces a well balanced index that consistently outperforms other index construction methods. MVW tracks the performance of the index by buying the same components in the same proportion as the index.
While some coaches have chased fads and trends, Patriots coach Bill Belichek identified Brady as a consistent outperformer, well balanced and smart and then built teams around him to compliment this core.
A quarterback cannot win on their own. Miami Dolphins' great Dan Marino never won a super bowl. Part of the Patriots success since 2001 has been actively managing stingy defences and diversified attacking options. Coach Belichek has cut players no matter the loyalty once their performance dips or they start costing too much. By sticking with a consistent core and a rotating roster of complimentary high performing players, acquired at the right cost, the Patriots have outperformed over the long term.
The same approach is a commonly used strategy used by successful investors, known as ‘core and satellite.' It relies on identifying a consistently outperforming core and rotating specific sector or stock selections to compliment the core as markets move. It requires an active management approach to the satellite rotation. ETFs can provide solutions for both the core and satellite selections.
MVW was the best performing ASX-listed broad-based Australian equities ETF for the 12 months ending 31 March 2015 returning 16.60%, outperforming the S&P/ASX 200 Accumulation Index by 2.35%1. It is designed to be a core holding for investors seeking exposure to Australian equities. The index MVW tracks has outperformed the S&P/ASX 200 Accumulation Index with lower volatility over the long term. It is consistent, balanced and smart.
Source: Morningstar Direct. Performance shown of the Market Vectors Australia Equal Weight Index prior to its launch date of 29 November 2013 is simulated based on current index methodology. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in MVW. You cannot invest directly in an index. The above performance information is not a reliable indicator of current or future performance of Market Vectors Australia Equal Weight Index or MVW, which may be lower or higher.
MVW is an ideal fund to make the quarterback of a portfolio while actively managing the short term holdings around it.
1 Source: Factset, using ASX classification scheme of ETPs http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Important Notice:This information is issued by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 as responsible entity (‘MVI') of the Market Vectors Australian Equal Weight ETF (‘Fund'). MVI is a wholly owned subsidiary of Van Eck Associates Corporation based in New York, United States (‘Van Eck Global').
This is general information only and not financial advice. It does not take into account any person's individual objectives, financial situation nor needs (‘circumstances'). Before making an investment decision in relation to the Fund, you should read the product disclosure statement (‘PDS') and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.marketvectors.com.au or by calling 1300 MV ETFs (1300 68 3837).
The Fund is subject to investment risk, including possible delays in repayment and loss of capital invested. Past performance is not a reliable indicator of current or future performance. No member of the Van Eck Global group of companies guarantees the repayment of capital, the performance, or any particular rate of return from the Fund.
The Market Vectors Australia Equal Weight Index (‘MVW Index') is the exclusive property of Market Vectors Index Solutions GmbH based in Frankfurt, Germany (‘MVIS'). MVIS makes no representation regarding the advisability of investing in the Fund. MVIS has contracted with Solactive AG (‘Solactive') to maintain and calculate the MVW Index. Solactive uses its best efforts to ensure that the MVW Index is calculated correctly. Irrespective of its obligations towards MVIS, Solactive has no obligation to point out errors in the MVW Index to third parties.
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