Category: Australian Equities

Perpetual kicks goals with Mainstream SMA

Elston Asset Management has taken out the Australian Equities category at the 2019 IMAP Managed Account Awards. 


IMAP congratulates all the finalists in the Australian Equities category.

  • Antares Equities
  • Blackmore Capital
  • DNR Capital
  • Elston Asset Management
  • Perpetual Private
  • Watershed Funds Management
As one of Australia’s largest privately owned and operated investment firms, Elston knows a thing or two when it comes to investing. Having taken out the IMAP Award for Innovation in 2018, this year it took out the Australian Equities category at the IMAP Managed Account Awards.

And it’s an achievement not lost on Elston CIO and co-founder, Andrew McKie: “After winning the inaugural IMAP Award for Innovation last year, this award means a lot to Elston, as it’s great peer recognition and endorsement of the journey Elston Asset Management has been on for the past eight years as a managed account specialist.” 

Andrew adds that any recognition by key stakeholders (whether it’s advisers, investors, peers, regulators or industry bodies) is the by-product of constant hard work and improvement.

“We are continuing to look at ways we can enhance and improve the way we support advisers in executing a successful managed accounts solution in their business,” Andrew says. 

“Most people are probably not aware that our logo is the double helix of a DNA strand. These were chosen to represent the ideals of evolution and constant improvement within our business. Our goal is for Elston to be Australia’s most trusted and respected investment firm, so we are obviously pleased that the hard work and improvements made during our eight year journey as a managed account specialist have been recognised by winning this award.”

Leading strategy

Elston took out the Australian Equities category at the 2019 IMAP Managed Account Awards with its Elston Large Cap Australian Equities SMA model portfolio, which focuses on the top 100 companies listed on the ASX. This Australian Equities model portfolio also forms the core of Elston’s multi-asset managed account offerings.

According to Andrew, when it comes to investing, overarching all Elston’s investment strategies is a belief that the most effective way to invest is through exposure to intelligently constructed high conviction portfolios that are actively managed.   

“The key tenets of our investment philosophy are focusing on long-term fundamentals that balance the need for earnings growth against the price paid for those uncertain future earnings, protecting capital through genuine portfolio diversity, avoiding illiquid investments, and always considering the tax impacts of decisions on investors,” Andrew says.  

“Our investment philosophy, policy, process and people are all instrumental in the delivery of our managed account solutions.”

According to Nick Revis – CEO of Elston Asset Management – what sets Elston apart in the universe of Large Cap Australian Equities managed account providers, is that Elston is both truly active and large cap focused, with a minimum of 80 per cent invested in the S&P/ASX 50 Index.  

“As an active manager, we believe it’s best to avoid style biases (contrarian, growth, value, GARP etc), since different investment styles tend to outperform at different times,” Nick says. “Also, sticking rigidly to benchmark weightings in constructing portfolios will result in sub-optimal returns over time.”  

Instead, Elston adopts a fixed weight methodology to portfolio construction – the minimum and maximum allowable positions are 2.75 per cent and 6.5 per cent respectively – and have exposure to a minimum of eight GICS (Global Industry Classification Standard) industry groups. The end result, Nick says, is a ‘true-to-label’ benchmark unaware, large cap portfolio, consisting of 20-25 holdings designed to be the ‘core’ of any investor’s portfolio. 

Andrew also attributes much of Elston’s success with managed accounts to the expertise and skills of the investment team, which consists of nine investment professionals, with the Large Cap strategy led by four portfolio managers. And when it comes to portfolio changes, a majority consensus first needs to be reached before any changes can be made. 

“The differentiated backgrounds of our portfolio managers is conducive to robust discussion and peer review,” Nick says. “Additionally, the portfolio managers’ long-term working relationship provides a strong working culture and environment. This team-based approach, we believe, is a key to the long-term consistent returns achieved by the strategy.”  

Investment process

The investment approach used at Elston Asset Management is a combination of quantitative and fundamental analysis designed to be robust and repeatable over time.

The investment process encompasses six stages:

  1. Quantitative screening and ranking of the S&P/ASX 100 Index in a consistent and repeatable manner for idea generation and to focus the research effort;
  2. Qualitative assessment of each company focused on understanding the complexity of operations, market share, earnings stability, balance sheet capacity and management quality;
  3. Valuation and expected return calculations using Elston’s derived forecasts over a three year period;
  4. Portfolio construction in accordance with strict policy guidelines to ensure diversification is achieved across both securities and sectors;
  5. Momentum screening and portfolio execution, which assists with the timing of purchases and sales; and
  6. Ongoing rebalancing to avoid individual positions and sector exposures in excess of risk tolerances.

The result of this six stage investment process is proving successful for Elston, delivering – first and foremost – consistent and reliable outcomes for investors over time.

“As a long-term provider of managed account solutions, the business measures its success in a number of ways, with the most important being to ensure consistent and reliable investor outcomes over time,” Andrew says. “And that goes to the fact that we don’t have a style bias. We’re not value or growth. We’re a combination of styles. So, we find that being style neutral, we’re able to deliver more consistent outcomes over time.  

“We also are very focused on the adviser experience, which is not only about meeting long-term return goals for their clients, but also in executing our investment process constantly and with discipline.”

Andrew also credits Elston’s proactive communication strategy, for which it won the 2018 IMAP Award for Innovation, as a key to its continuing success and the strong relationship it has with the advisers who support the business.  

“If the advisers and investors are informed in a timely and innovative manner as to our specialised investment approach, then we can really leverage the benefits of transparency offered by managed account investing and control the challenges,” he says.

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