Underlying performance is crucial when building a portfolio - Samway
Financial advisers need to consider underlying performance, not just the branding of an investment, when building a portfolio.
That's according to Hyperion Asset Management institutional business director Tim Samway, who said financial advisers should be looking at businesses that have a real competitive advantage, have long-term potential sales growth, and that have a predictable outcome.
"In building a long-term predictable earning stream, financial advisers should consider companies that have a high return on equities, low debt, and a strong organic growth path - as opposed to building by acquisition," Samway said.
Small cap businesses present a distinct advantage over large caps because they are growing from a lower base and can often achieve higher long-term growth rates, he said. While small caps still have their disadvantages, he said mature businesses generally don't have the organic growth to develop much further financially.
"We (Hyperion) are not at all tempted to build our portfolios in reference to a benchmark, because we understand benchmarks are rubbish," Samway said.
"It's better to buy the things that you really believe in and that you are prepared to hold for periods of time when the market doesn't like them."
Undertaking proper due diligence on investments is a better way of giving clients capital protection, he said.
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