We started in November 2014 with the daunting task of choosing the best from well over 10,000 potential investments available in Australia. After nearly 12 months of exhaustive research we have finalised our initial portfolio of investments for the Affluence Fund.
We created the pool of over 10,000 listed and unlisted investment funds by combining ideas from many different sources. These included publicly available databases, fund research services, “best of” lists, media and internet searches and, most importantly of all, talking to our many contacts in the industry to discover what was exciting them at that particular point in time. This, was our first point of difference.
Most other professional investors and financial planners rely on a much smaller and concentrated pool of investments – their “approved list”. In our opinion, this approach is flawed because they tend to concentrate on one type of fund structure, thereby severely limiting the depth and breadth of potential investments.
We then excluded those investing in asset classes or using strategies we did not believe could meet our benchmark long term return hurdle of inflation plus 5%. This eliminated close to half of the remainder and left us with just over 500 funds to look at in more detail.
Our final large cull entailed looking at performance history in more detail – particularly looking at the performance of each fund in down markets and eliminating many which had proven to be under-performers during these periods.
- Those with immediate interest, where we scheduled management discussions;
- Those with significant potential which we continue to monitor closely, and
- Those with promise, which we continue to revisit regularly.
In the end it comes down to a gut feel – whether we are confident enough to invest ours, and your hard-earned capital with each of them on a long-term basis. And that was the final test we applied.
For example, there are many great small cap funds out there. But it make no sense to have half the portfolio made up of these, because if one falls in value, it is likely many others will as well. So some funds missed the cut for the simple reason that there were too many other great managers in that space.