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What is the Morningstar Model Income Equity Portfolio?

We started the Morningstar Model Income Equity Portfolio in 2001 as a model (theoretical) portfolio to demonstrate the returns potentially achievable (on the basis described below) from a concentrated portfolio of high-quality income-producing shares. The target dividend yield for stocks in the model portfolio is greater than the benchmark S&P/ASX 200 Accum Index (the ‘Benchmark Index’), which is also effectively a model equities portfolio with reinvestment of dividends. The Morningstar Model Income Equity Portfolio aims to have 15–30 holdings with limited trading. Companies with narrow or wide economic moats and low or medium uncertainty feature heavily in the model because of their more predictable cash flows, more stable dividends, and generally lower share price volatility.

How do Income Portfolio stocks compare with the Benchmark Index?

The Morningstar Model Income Equity Portfolio is generally invested in similar classes of equities as the (model) Benchmark Index in terms of investment objectives, types of investments, countries and markets/sectors covered. Both the model portfolio and the benchmark are therefore exposed to some normal investment risks such as foreign exchange, sector, manager and liquidity risk, but not to risks such as derivatives. As both represent equity investments, they are likely to experience volatility common with the asset class, although it is our goal to generate less risk than the benchmark in the long run. We have achieved this historically by focusing on high quality, undervalued, sustainable dividend yield investments, but cannot guarantee future success.

How is performance calculated?

Performance for both the Morningstar Model Income Equity Portfolio and the benchmark is expressed on the following basis and assumptions so that we are comparing ‘apples with apples’:

  • before deduction of fees (ie entry, exit, performance or management fees), costs and taxes payable by either the Portfolio/benchmark or the investor;
  • without allowing for franking credits or interest earned on cash balances; and
  • dividends that would notionally be received are theoretically reinvested without any tax deduction.

Where this model is offered as an investable option by third party providers, management fees of between 0.41% and 0.85% (inclusive of GST) will be charged. There may also be performance fees (ranging from 10%–15% of outperformance) charged. Third party providers may also charge their own fees which will vary between providers.

Disclaimer

Performance results represent modelled performance only. Past performance of any investment is not a reliable indicator of future performance and the performance described here is of a theoretical model. The model performance will differ from actual performance which follows that model depending on actual fees, taxes and other factors including transaction timing and divergence from constituent weightings, rounding adjustments and minimum trade sizes. This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’).

© Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document.