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Morningstar Model Income Equity Portfolio: July 2021 performance

Nimalan Govender  |  16 Aug 2021Text size  Decrease  Increase  |  
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Download the July 2021 performance update (PDF)

What is the Morningstar Model Income Equity Portfolio?

We started the Morningstar Model Income Equity Portfolio in 2001 as a model (theoretical) portfolio to demonstrate the returns potentially achievable (on the basis described below) from a concentrated portfolio of high quality income-producing shares. The target dividend yield for stocks in the model portfolio is greater than the benchmark S&P/ASX 200 Accum Index (the ‘Benchmark Index’), which is also effectively a model equities portfolio with reinvestment of dividends. The Morningstar Model Income Equity Portfolio aims to have 15–30 holdings with limited trading. Companies with narrow or wide economic moats and low or medium uncertainty feature heavily in the model because of their more predictable cash flows, more stable dividends, and generally lower share price volatility.

How do Income Portfolio stocks compare with the Benchmark Index?

The Morningstar Model Income Equity Portfolio is generally invested in similar classes of equities as the (model) Benchmark Index in terms of investment objectives, types of investments, countries and markets/sectors covered. Both the model portfolio and the benchmark are therefore exposed to some normal investment risks such as foreign exchange, sector, manager and liquidity risk, but not to risks such as derivatives. As both represent equity investments, they are likely to experience volatility common with the asset class, although it is our goal to generate less risk than the benchmark in the long-run. We have achieved this historically by focusing on high quality, undervalued, sustainable dividend yield investments, but cannot guarantee future success.

How is performance calculated?

Performance for both the Morningstar Model Income Equity Portfolio and the benchmark is expressed on the following basis and assumptions so that we are comparing ‘apples with apples’:

  • before deduction of fees (ie entry, exit, performance or management fees), costs and taxes payable by either the Portfolio/benchmark or the investor;
  • without allowing for franking credits or interest earned on cash balances; and
  • dividends that would notionally be received are theoretically reinvested without any tax deduction.

Where this model is offered as an investable option by third party providers, management fees of between 0.44% and 0.85% (inclusive of GST) will be charged. There may also be performance fees (ranging from 10%–15% of outperformance) charged. Third party providers may also charge their own fees which will vary between providers.

Disclaimer

Performance results represent modelled performance only. Past performance of any investment is not a reliable indicator of future performance and the performance described here is of a theoretical model. The model performance will differ from actual performance which follows that model depending on actual fees, taxes and other factors including transaction timing and divergence from constituent weightings, rounding adjustments and minimum trade sizes.

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© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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