The Swell difference
The Swell Global Portfolio is a global investment strategy focused on owning a concentrated portfolio of the world's best companies. It is similar to a traditional Fund, however, each portfolio is held in the investor's own name in a managed account. Since portfolio companies are held in the client's name, they tend to be more tax-efficient than traditional funds. This is because the constant entrance and exit of people in traditional funds create tax gains for those who remain invested.
Absolute return focus
Our investment objective is to attain an annual return of 9% after deducting management fees over a rolling period of three years. Since inception in June 2015 the Portfolio has returned 12.88% p.a. after all fees.
Long term orientation
Our approach is rooted in the belief that enduring success comes from owning exceptional businesses that compound value over time. We use our long term orientation to identify opportunities and leverage the market’s short term focus.
Concentrated quality
Our process is to acquire quality companies with a durable competitive advantage and strong management team. We adopt a concentrated approach to portfolio construction, allocating meaningful weights to each holding which affords us an opportunity to outperform traditional index funds.
How is Swell unique?
Five elements contribute to our competitive advantage
Capital preservation through risk control
As value investors, we emphasise capital preservation, that is, safeguarding our clients’ investments. This means we acquire each stock at a discount to its conservatively estimated intrinsic value, which is the fundamental premise behind value investing. Our process acknowledges the dichotomy between risk and reward and accordingly we prefer a more certain 12% return against a less certain 20%.
Concentrated quality
We adopt a concentrated approach to portfolio construction, holding a maximum of 20 stocks and allocating meaningful weights to each holding. When our investment process and our search for quality yield results we make a substantial investment.
Alignment of interest with investors
We believe it is important to invest alongside our clients, regarding them as partners. This is a distinguishing feature of our business. We have adopted the CFA Institute Code of Ethics and Standards of Professional Conduct which is considered the benchmark for investment professionals around the globe.
Rational unbiased analysis
We do not subscribe to or use any investment broker research or pay commissions to any investment brokers. Our independence ensures we remain free from bias and not pressured by stakeholders driving short term business outcomes that may not be in the best long term interest of our clients.
Long term orientation
We spend many months researching a business before we invest, so when we commit to it we know the company well and we’re confident in its prospects for long term growth. The scope of our research enables us to find and value opportunities the market regularly overlooks and that gives us an edge over other investors.
Transparent results
We publish our investment track record so existing and prospective investors can assess our performance relative to other funds, investment advisers or investment offerings.
When selecting an investment manager, you are entitled to ask and receive their investment track record and should hold reservations about investment products that do not publicly disclose it.
Our investment philosophy
Our investment philosophy is based on the principles of quality, value, conviction and time
Quality
Quality means different things to different people, but to us it means exceptionally managed companies with a clearly articulated strategy for creating shareholder value over the long term. We look for companies exhibiting a sustainable competitive advantage that can be perpetuated through time, as they are likely to carry substantially less risk than the overall market.
Value
Swell is a value investor, but unlike traditional value managers we do not focus exclusively on low price to earnings or low price to book metrics. Our approach to value investing emphasises the acquisition of companies at discounts to their conservatively estimated intrinsic value. When considering an investment, we want the potential for a positive return to be much greater than the possibility of a negative return.
Conviction
We adopt a concentrated approach to portfolio construction, allocating meaningful weights to each holding. When our investment process and our search for quality yield results we make a substantial investment.
Horizon
We believe price efficiency declines as the investment horizon lengthens. To exploit this inefficiency, we seek investments in high quality businesses that can be held for more than five years.
Our investment strategy
Our strategy is to safeguard investors’ capital pursuing quality investments offering long term growth
Investment approach
We are a fundamental, value investor and our principal objective is safeguarding our investors' capital.
Investment universe
We consider companies listed in developed markets with a market capitalisation over US$1.5 billion
Stock selection
Our investment strategy is to curate a concentrated selection of 10-20 high quality global companies purchased at a discount to their conservatively estimated intrinsic value. We seek businesses with these key traits:
- A sustainable competitive advantage
- Honest and able management
- Acquired at a fair price
- Our investment thesis has changed
- The share price exceeds our valuation
- More attractive opportunities are available with commensurate or less risk
Portfolio exclusions
An early screen in our investment process excludes companies from further consideration which do not meet our ESG standards. The screen removes industry sectors such as production and distribution of gambling products, weapons manufacturing and fossil fuel mining. We do not short sell stocks, invest in derivatives or bonds and do not leverage our investments.
Focus on after tax returns
As our investment strategy is designed to optimise returns to investors, we are mindful of the tax implications of our trading strategy. We prefer to hold investments as long as possible, avoiding taxable realised gains. We only invest when it makes sense to do so and If we can’t find a suitable investment we will hold cash. We target an absolute return of 9% per annum over rolling three year periods and our cash weighting is driven by available investment opportunities not an arbitrary benchmark.
Why invest overseas?
Many high quality investment opportunities can only be found outside Australia
Greater opportunity
The Australian equities market is very small, accounting for less than 2.5% of developed global equities markets, and has only a handful of truly exceptional businesses. Accessing a selection of high quality multinational companies in leading edge industries is only possible through international markets.
Diversification
Adding international equities to an investment portfolio of Australian equities, fixed interest and property has the potential to increase return and lower risk. Our strategy provides exposure to companies in a variety of sectors and industries that are not available in Australia.
Low correlation
If all your assets are highly correlated, when one goes down, they all go down. Historically the Swell Global Portfolio has had a correlation less than 1 to the ASX All Ordinaries Index. This means you may increase your risk adjusted returns by adding the Swell Global strategy alongside your Australian equities holdings.
Risks
Every investment attracts risk but we work to mitigate risk through our company research and stock selection process
What is your risk appetite?
Our risk appetite is comparatively low. We do not seek the possibility of a higher return with greater risk. Rather we pursue the probability of a good return with lower risk. Our objective is an annual 9% return after management fees over a rolling three year period which reflects our inherent preference for prioritising risk over return.
What are the investment risks?
The Standard Risk Measure considers equities investments as high risk. Investment risks may come from a variety of sources including fluctuations in stock prices, currency or interest rates as well as counterparty problems. Government or policy failures around the world may impact any of these. The strategy has no significant exposure to liquidity risks because we invest in highly liquid assets. Regular liquidity testing allows us to confirm we could liquidate the entire portfolio in a short period if necessary.
How do you manage investment risks?
We adopt a fundamental approach to our investment decisions which requires us to analyse risk at the individual company level. Before considering a business for inclusion in the strategy we undertake months of research that includes assessing risks associated with the company’s management, business model, markets, production chain, competitors and future business plans.
How do you measure portfolio risk?
We use various metrics to quantitatively measure investment portfolio risk. Consistent with our investment philosophy, we employ scenario analyses to stress test our investment models. This ensures the strategy is positioned to weather market dislocations and other unexpected events. In periods of high market volatility such as global crises, additional stressors are incorporated into the tests to monitor and assess the sustainability of each company’s performance.
Can the risk be quantified?
We acknowledge that equity investments carry risk but we believe the exceptionally managed companies which make up the strategy should carry substantially less risk than the overall market. We characterise risk as the potential for capital impairment rather than subscribing to the traditional view of price volatility as risk. It is not possible to quantify the risks associated with investing with Swell but our recommended long term horizon reduces the impact of short term market instabilities. ASIC provides further advice on its MoneySmart website.
How do you manage operational risks?
Risks associated with business operations are managed through policies, procedures and continuous professional development to constrain them at a negligible level. Swell promotes ethical behaviour among its employees, consistent with our regulatory compliance requirements and adherence to the CFA Institute Code of Ethics, Standards of Professional Conduct and Asset Manager Code of Professional Conduct. All members of the investment team are CFA charterholders and each employee’s annual performance review incorporates a heavy weighting for assessment of their compliance with and understanding of government regulations and Swell's internal policies.
Invest with Swell
You can be a direct investor in the Swell Global Portfolio
How can I invest in the Portfolio?
Wholesale investors can invest directly in the Swell Global Managed Portfolio with a minimum investment of $500,000. The Portfolio is administered by Mason Stevens.
You will need to read and agree to our managed discretionary agreement, by which you appoint Swell to manage your investment in the Swell Global Portfolio. You will also need to provide information and documentation to help us set up an account for you with Mason Stevens. Please contact us for further details on the requirements.
What is a wholesale investor?
To invest directly with us in the Swell Global Managed Portfolio you must qualify as a Wholesale or Sophisticated Investor as specified in the Corporations Act 2001 S708(8)(c), S761G(7)(c) and the Corporations Regulations 2001 S6D.2.03. Your accountant must certify that you meet one of the requirements, either holding net assets in excess of $2.5 million or gross income of more than $250,000 pa in the last two years.
Please contact us for more information on these qualifications or visit ASIC's website.
Do I need advice before I invest?
You should consult a qualified adviser to ensure the Swell Global Portfolio is suitable for your investment needs. Swell is licensed to provide general financial product advice to wholesale investors only and cannot give you personal financial advice for your individual circumstances.
Separately managed accounts (SMAs)
Investments in the Swell Global Portfolio are managed within separate client accounts. This is different from a managed fund where clients subscribe to units in a pool of assets, known as a unit trust.
Each one of our clients holds a portfolio beneficially owned directly by them and managed by us. This combines the benefits of direct share ownership with professional management. Each client account holds the same weighting of stocks as the Swell Global strategy, and the only difference between client portfolios is the amount invested.
Benefits of SMAs
The benefits of separately managed accounts are tax efficiency and transparency relative to a traditional managed fund.
When you invest in a managed fund (unit trust), you inherit the tax position of the existing members. When one member leaves the trust, assets are sold to redeem that investor’s units. Capital gains are crystallised and incoming investors may incur a tax liability. This does not occur with SMAs.
The SMA also provides transparency enabling each investor to see the stocks and cash they hold, including the number of shares, the cost and market value.
Identification documents
The Anti-Money Laundering and Counter-Terrorism Financing Act (2006) requires anyone opening an account with a financial institution in Australia to provide proof of identity documents. This may include photo ID, trust deeds or other corporate information. These documents, together with personal identification information, are required to open an account.
Fees
Our standard fees are shown below
Management fees
Our management fee is 1.25% per annum inclusive of GST on your account balance, charged monthly. We do not charge contribution or withdrawal fees on your investment.
Performance fees
An annual performance fee of 15% is payable if we outperform the MSCI World Net Total Return Index (MSCI) after management fees. We apply a high-water mark, so the fee is only paid for genuine outperformance.
Worked example performance fee calculation
Let’s say your investment was valued at $500,000 on 1 July 2019 and increased in value to $590,000 by 30 June 2020.
The benchmark return was 8.60%, so the benchmark value is
$543,000 = ($500,000 x (1+8.60%))
The fee payable is$7,050.00 = ($590,000-$543,000) x 15%
Administration fees
Mason Stevens as custodian and administrator of your account charges these fees (inclusive of GST):
Administration fee based on net asset value:
0.275% p.a. $0 - $500,000
0.220% p.a. $500,000 - $1,000,000
0.00% p.a. > $1,000,000
Account keeping fee: $165 p.a.
Custody fee: 0.055%
Administration fee based on net asset value:
0.275% p.a. $0 - $500,000
0.220% p.a. $500,000 - $1,000,000
0.00% p.a. > $1,000,000
Account keeping fee: $165 p.a.
Custody fee: 0.055%
Minimum investment
The Swell Global Portfolio is available directly to wholesale investors
How can I invest directly with Swell as a wholesale investor?
Wholesale investors can invest directly in the Swell Global Managed Portfolio with a minimum investment of $500,000. The Portfolio is administered by Mason Stevens.
Beneficial ownership
An investment account is established in your name and you appoint Swell as the investment manager on your behalf. Mason Stevens Limited is the administrator and custodian of the account. Mason Stevens is a privately owned Australian company which uses Citicorp Nominees Pty Limited as its sub-custodian.
Advised investors
Retail investors can access the Portfolio through their financial adviser
How can I invest through my financial adviser?
Investors using a financial adviser can invest in the Swell Global Managed Portfolio, an unregistered managed investment scheme operated as a managed portfolio service by Mason Stevens Limited or in the Swell Global Portfolio (SWE001) ARSN 645 033 941, a non-unitised registered managed investment scheme offered by HUB24 Managed Portfolio Service.
How do I apply?
Your financial adviser will manage the application process for you on either platform.
What fees will I pay?
The fees attributable to your investment will be determined by your adviser.
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