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Investment Approach

Investment philosophy

Balanced Equity Management’s investment approach is based on fundamental value, going overweight on a stock in its benchmark when it believes the market is pricing the stock below its long term fundamental value. Portfolio construction is underpinned by a fully invested strategy driven on detailed in-house bottom up fundamental valuations. The firm has retained a consistent investment approach since inception, which has proven to add value to client portfolios over the years.

Investment process

The research team uses a range of resources to conduct detailed bottom up fundamental valuations of companies in its benchmark. These include analysis of company financials and industry literature, direct contact with company management and boards, independent field research and site visits, and research from all leading Australian brokers. The focus of detailed analysis includes the sustainability of earnings of companies, after tax returns, ESG considerations, and qualitative assessments of company management and board directors.

The Lead Analysts / Investment Managers determine the relative target weightings for each stock after rigorous assessment of company valuations and other qualitative considerations. This results in a spectrum of overweight positions (allocated to undervalued stocks), positions close to index weight (allocated to stocks believed to be correctly priced), and underweight positions (allocated to overvalued stock). The research team continually monitors stocks in the investment universe, with Lead Analysts / Investment Managers promptly modifying relative target weightings as required.

Tax Considerations

Tax considerations are central to Balanced Equity Management’s investment decisions. The firm’s analytical approach assigns a value to the generation of franking credits as part of the valuation process. Through careful planning of its disposal transactions and the use of derivatives, Balanced Equity Management actively maximises the retention of franking credits in its portfolios. As a result, the team’s portfolios consistently earn greater franking credits than the benchmark index.

Balanced Equity Management also serves the interests of its clients by avoiding frequent transactions that trigger capital gains on shares held less than a year. Our investment strategy exhibits relatively low turnover when compared to most Australian equity managers.

We provide after-tax reporting on a client by client basis as each client has their own specific requirements in this area. Some clients have selected an after-tax benchmark and we are happy to tailor our reporting as required.

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