The Swell Edge

Absolute return focus

We target an absolute return of 9% per annum over rolling three year periods, and have exceeded this target since inception. Our cash weighting is driven by available investment opportunities and not relative to an arbitrary benchmark. We only invest when it makes sense to do so.

Capital preservation

As a value investor, we emphasise capital preservation. This means we acquire each company at a discount to its conservatively estimated intrinsic value. This is the fundamental premise behind value investing. Our process recognises the dichotomy between risk and reward. Accordingly, we may prefer a more certain 12% return against a less certain 20%.

Concentrated quality

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.

What is unique about Swell?

Capital preservation through risk control

As a value investor, we emphasise capital preservation. This means we acquire each company at a discount to its conservatively estimated intrinsic value. This is the fundamental premise behind value investing. Our process recognises the dichotomy between risk and reward. Accordingly, we may prefer a more certain 12% return against a less certain 20%.

Concentrated quality

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.

Alignment of interest with investors

We believe it is important to invest alongside our clients, treating them as partners. This is a distinguishing feature of our business. We have adopted the CFA Institute Code of Ethics & 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 interest of our clients.

Long term orientation

We conduct fundamental analysis on each business without regard to sector, industry group or location within our market capitalisation range. The foundation of the Swell investment process is quality, stemming from exceptionally managed companies with clearly articulated strategies for creating value over the long term.

What is your investment philosophy?

Quality

Quality means different things to different people, but to us it means exceptionally managed companies with a clearly articulated strategy for creating value over the long term. We are looking for companies exhibiting a sustainable competitive advantage that can be perpetuated through time, which 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 return to provide asymmetry to the upside.

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 three years.

What is your investment strategy?

Investment approach

We are a fundamental, value investor and our principal objective is capital preservation.

Investment universe

We target international listed securities within developed exchanges including the United States, United Kingdom, Europe, developed Asia and Australia.

Unconstrained

Portfolio construction is not determined by reference to any index and each investment is selected based on fundamental analysis. Industry and country weightings are an outcome of the process. Our cash weighting is determined by available opportunities.

Stock selection

The portfolio investment strategy seeks a concentrated selection of 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
• Acquisition at a fair price

Portfolio exclusions

We do not short stocks or invest in derivatives or bonds. Our investments are not leveraged.

Investment horizon

The recommended investment horizon is 5 to 7 years.

How do you manage the Portfolio?

Concentration on quality

The foundation of our investment process is quality stemming from exceptionally managed companies with clearly articulated strategies for creating value over the long term. Quality of management is an important feature of any successful company and is critical for the long term investor.

Capital preservation

As a value investor, we emphasise capital preservation. This means we acquire each company at a discount to its conservatively estimated intrinsic value. This is the fundamental premise behind value investing. Our process recognises the dichotomy between risk and reward. Accordingly, we may prefer a more certain 12% return against a less certain 20%.

Focus on after tax returns

As our investment strategy is designed to optimise returns to investors, it is important that clients understand the difference between pre- and post-tax returns so your expectations align with our approach.

All portfolios are not created equal.

Assume two portfolios, A and B, both earn a 10% pre-tax return. Portfolio A does not turn over any stock, so the after-tax return is also 10%. No tax is payable as no investments have been sold. Portfolio B, on the other hand, turns over 100% of their holdings. Assuming a 45% tax rate, this could reduce the after-tax return in portfolio B to only 5.5%. Obviously, this can make a meaningful difference to investors over the long term.

We are not trying to buy in one quarter and sell in the next.

Why should I invest in the Swell Global Portfolio?

Separately managed accounts (SMAs)

Investments in the Swell Global Portfolio are managed within separate client accounts. This is different from an investment trust where clients subscribe for units in a pool of assets, known as a Unit Trust.

It is a portfolio beneficially owned directly by you and managed by us. It combines the benefits of direct share ownership and professional management in one account. Each client account holds the same weighting of stocks as the Swell Global Fund, 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 fund.

When you invest in a traditional 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 the incoming investor may have a tax liability.

The SMA also provides transparency enabling each investor to see the stocks and cash you hold, including the number of shares, the cost and market value.

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 broker executing trades and is custodian of the account. Mason Stevens is a privately owned Australian company which uses the National Australia Bank as its sub-custodian.

Account security

Two factor authentication is required to access your investment account online.

Investment protection

Your investment is protected against broker failure by Australian regulatory authorities.

Why should I invest overseas?

Greater opportunity

The Australian market is very small by international standards, accounting for less than 2% of global equities, and has only a handful of truly exceptional businesses. Access to a broad range of high quality multinational companies is only possible through international markets.

Diversification

Adding international investments has the potential to increase return and lower your risk. Our portfolio has 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. As international investments have a low correlation to Australian investments, adding them may lower your investment risk. Historically the Swell Global Portfolio has had a low correlation to the ASX All Ordinaries Index. This means you may increase your risk adjusted returns by adding the Swell Global Portfolio to your Australian equities portfolio.

How does the Portfolio perform?

Swell Global Portfolio performance

The Swell Global Portfolio returned 19.93% per annum over the 3 years to 31 August 2019. Our performance has significantly exceeded similar domestic funds, relative benchmarks, and global peers. We have delivered these returns despite holding a significant cash weighting and with a laser focus on capital preservation. You can view our investment track record on the Performance tab above.

Transparent results

We publish our investment track record so existing and prospective clients can assess our performance relative to other funds, investment advisors or investment offerings.

When selecting an investment manager, you are entitled to ask and receive their investment track record. You should hold reservations about investment products that do not publicly disclose their investment track record.

Focus on generating absolute returns

We are focussed on generating absolute returns. 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 have exceeded this target since inception. Our cash weighting is driven by available investment opportunities and not relative to an arbitrary benchmark. We only invest when it makes sense to do so.

What fees will I pay?

Management fees

Our management fee is 1.50% per annum inclusive of GST on your account balance. We do not charge any contribution, withdrawal, or administration fees on your investment.

Performance fees

A performance fee of 15% is payable if we outperform the MSCI World Net Total Return Index (MSCI) after all fees and expenses. We apply a high-water mark, so you only pay for genuine outperformance. The performance fee is only payable in years where your account return exceeded the MSCI after all fees and expenses.

Worked example

Let’s say your investment was valued at $500,000 on 1 July 2017 and increased in value to $590,000 by 30 June 2018.

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%

How do I become a client?

What is a wholesale investor?

To invest directly with Swell, you must qualify as a Wholesale client and your accountant must certify that you meet at least one of ASIC's requirements including holding net assets in excess of $2.5 million; gross income of more than $250,000 pa in the last two years; requisite investment history; and other specific criteria. Please contact us for more information on these qualifications.

What is your minimum investment?

Our minimum direct investment is A$500,000 (or as agreed with the manager).

Opening an account

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. These documents, together with application forms are required to open an account with Swell Asset Management.

Application forms

New investors need to complete our Managed Discretionary Agreement together with an application to establish their account with Mason Stevens Limited.

Application process

The sign-up process can take around 7 business days to complete. We manage the process for you, providing guidance on selecting your identification documents, assisting with the application forms and helping with any issues which might arise.

We are happy to provide a copy of the required application documents by email, post or in person at our office.

I’m not a wholesale investor, how can I invest with Swell?

What is the minimum investment in the Swell Global Portfolio on HUB24?

The minimum investment via brokers, advisers or accountants on the HUB24 platform is A$25,000.

How is the Swell Global Portfolio managed on HUB24?

Swell Asset Management as the portfolio manager designs and manages the portfolio. Your adviser will be able to access the Portfolio on your behalf.

Which HUB24 approved product lists include the Swell Global Portfolio?

The Swell Global Portfolio is available through the HUB24 Super Managed Portfolio or the HUB24 Invest Managed Portfolio.

What fees will I pay?

The fees attributable to your investment in the Swell Global Portfolio will be determined by your adviser.

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