Bellmont manages Australian share portfolios for Individuals, Self Managed Super Funds and Financial Intermediaries. Our unique approach draws heavily on academic research to create conservative strategies designed to outperform the market over the long term, while actively minimising risk. Our tax aware strategies and efficient holding structure ensures our investors keep more of every dollar they earn. Furthermore, our managed accounts platform provides administration and reporting, as well as providing investors with full transparency of their investments.

Systematic value

The Bellmont Systematic Value Portfolio is a value investing share portfolio which uses a rules-based approach to select and invest in Australia’s highest quality companies trading at attractive prices.   By leaning on research from peer reviewed papers as well as following the principles of the world's best value investors and then implementing these ideas on the Australian market, we can offer a low cost systematic managed portfolio designed to outperform the broader market.

CLASSIC VALUE

The Bellmont Classic Value Portfolio is a true value investing portfolio. Following the lead of value investing greats like Warren Buffett, Charlie Munger and Benjamin Graham, our approach is more akin to buying businesses than trading stocks. Rather than attempting to predict short-term market movements, we simply aim to acquire at a sensible price, partial ownership in a range of easily understandable businesses, with excellent economics and able, honest management, whose earnings are virtually certain to be significantly higher in five and ten years time.

FeatureS of both portfolios

 

TRANSPARENT

Unlike traditional fund managers, we believe investors have a right to see how their money is invested. By holding individual shares, rather than units in a trust (such as a managed fund), our investors enjoy complete transparency in regards to holdings, transactions, performance and fees. 

ALIGNED

Our fee structure is carefully calibrated to ensure long term alignment of interests between ourselves and our clients. With a low base management fee and a performance fee if we outperform the benchmark index, our focus is on generating positive long term performance, not just bringing in more funds. If you do well, so do we.

LOW BASE FEES

Net returns after the deduction of all fees and taxes are the only returns that matter. By keeping our base management fees low, and utilising cost-effective administration and reporting services, we minimise the effect of fee drag on investor returns, enabling far higher long term returns to investors.

VALUE BASED

With decades of research and real world results, there is no question - value investing works. From Benjamin Graham’s ‘cigar butts’, to Warren Buffett and Charlie Munger’s quality focus, the consistent theme of getting more in value than what you pay in price is universal, and a defining feature of everything we do.

 

TAX EFFECTIVE

Research has shown that taxes are the single biggest cost for investors, yet they are often overlooked as a consideration in the evaluation of an investment strategy. With a tax-effective holding structure combined with tax-aware strategies, we ensure that our investors keep more of every dollar they earn.

INDEX-AGNOSTIC

Too many fund managers charge high fees just to hug an index - a result that can be achieved far more cost effectively with an index fund. Not us! We are paid to outperform an index, not replicate it. Stocks in our portfolios are selected or excluded purely on their merits, not because of their weighting in a benchmark index.

DIRECT OWNERSHIP

Despite their dominance of the investment landscape, unitised investment structures are horribly inefficient from a tax perspective. Instead, by ensuring that our investors retain full beneficial ownership of their shares, we are able to provide a similar outcome from a simplicity perspective, but in an infinitely more tax effective manner.

RESEARCH DRIVEN

While markets are generally efficient, decades of academic research have identified pockets of inefficiency, often caused by the behavioural biases of investors, that provide opportunities for disciplined investors to earn superior returns, without taking on excessive risk. It is these pockets of inefficiency that we target.

Systematic Value portfolio

Philosophy

The Bellmont Systematic Value Portfolio is a value investing share portfolio which uses a rules-based approach to select and invest in Australia’s highest quality companies trading at attractive prices.  

Bellmont considers high quality companies those which exhibit strong economic moats and in turn have high and stable returns on assets and capital as well as strong margins.   We assess value by examining a number of fundamental price measures.  By combining both measures of "cheapness", as well as measures of quality, we seek to avoid those companies which are cheap for good reasons and instead select quality companies which are currently out of favour with the market.  We believe that over our holding period, on average, prices will revert back to fair levels.

By holding a relatively concentrated, equal weight portfolio of the 20 highest ranked stocks, we are able to hold sufficient diversification, without overexposure to any particular sector, and without simply reconstituting the index.

Our objective is to offer a managed share portfolio that is designed to generate higher total returns than simply investing in the broad market*, implemented in a manner which allows investors to directly hold the underlying assets. 

Our Process

At a high level, we have designed and built a rules based stock selection process that eliminates us from the cognitive biases that we all inherit as humans.  Free from these biases that impede investors, our model examines years worth of institutional grade financial statement data, filtering out the bad (and potentially bad) and selecting only those stocks that meet our exact criteria.

Starting with the largest 200 ASX companies we initially filter out stocks with characteristics that suggest potential issues in the financial statement data. This method helps us avoid stocks that could be at risk of bankruptcy. Once these stocks have been removed we look at identifying those companies which are currently trading at attractive prices.  It is from these "cheapest" stocks that we select only those which exhibit strong characteristics of quality providing them with a competitive advantage over their peers.

 In short, our process is as follows:

  1. Select universe 
  2. Enhance our margin of safety by avoiding stocks at risk of bankruptcy
  3. Identify companies that trade at reasonable prices
  4. Identify high quality companies
  5. Invest with conviction

Portfolio Characteristics

The Bellmont Systematic Value Portfolio provides investors with hands off exposure to the Australian sharemarket.

  • A diversified Australian share portfolio
  • Rules based approach
  • 20 stock equal weight
  • Direct ownership of stocks
  • Full transparency
  • Tax effective ownership
  • Full real-time reporting
  • Low Base Fee with performance fee to align incentives

 

Trusting the data and model – ensuring reliability of back test results

The Systematic Value Portfolio is unapologetically mechanical. By design, it is free from the behavioural biases that influence the decisions of most fund managers. The decisions to buy and sell are instead driven by the rules we have intentionally built into the model. Inherently, this systematic approach also allows us to better understand the performance and risk of our strategy through simulation and back testing, providing investors with more information up front. 

Investors are right to question the reliability of back-test results, particularly those showing excess returns over the benchmark. Critics often point to data mining (the practice of examining large volumes of data in order to find an optimal investment method). In an effort to illustrate the ridiculousness of this practice, David J Leinweber (a physics and computer science graduate from MIT) famously gathered hundreds of data sets and found that the S&P500 could be predicted by looking at butter production in Bangladesh! If we examine enough data sets we are bound to find more meaningless coincidental patterns. 

Rather than blindly examine any type of data set, we limit our analysis to those factors identified in academic research, published in top rated peer reviewed academic journals, and that have continued to exhibit ongoing excess returns subsequent to their discovery and publication. It is by sticking to this time tested approach i.e. examining only those metrics that have been accepted and proven through both interrogation by peers, as well as through the passage of time that we can truly have confidence that we have a sound investment methodology rather than stumbling on some contrived data correlation.

Further to the criticism of data mining, sceptics often question the validity of backtest results with most arguments falling into two camps. These potential pitfalls will be outlined below as well as how we treat them to ensure we can have confidence in our model.

Look-ahead Bias

The first pitfall when constructing a systematic portfolio and back-testing is known as look-ahead bias. This bias occurs when the database includes data that was not available at the point the data was analysed during the back-test. Look-ahead bias generally occurs because it takes time to collect and input data into a database after it has been released by the market. For example, if a company releases its annual results on the 15th of August it is not necessarily available in the database on this day which means if the model assumes the data is available its back-test results will be positively skewed and the simulation results cannot be trusted. 

Another source of look ahead bias can potentially stem from instances where ASX companies issue corrections to their financial reports i.e. their financial data is restated. Since it is unknown whether a company will restate data, the quantitative researcher must always ensure non-restated data is used for any calculations. 

The correct method to handle look ahead bias is to ensure that any back test simulations lag the data conservatively to account for the lag between release and input into the database as well as ensuring the model only uses non-restated financial data. Bellmont follows best practice with regard to look-ahead bias.

Survivorship Bias

The second pitfall when constructing a systematic portfolio and back-testing is known as survivorship bias. This bias occurs when the database from which the model selects stocks includes only companies that are still in business today, i.e. it excludes companies that have subsequently gone out of business. It is essential that any back-testing and simulation draws from a data source that includes both delisted companies (e.g. bankruptcy, takeovers etc) as well as those still in business. 

Without this important feature back-test results do not accurately represent reality because back-test results only include investments in survivors i.e. the model only selects from those companies still in business. This means that back-test results will generally be overstated and therefore cannot be relied upon to draw conclusions about the investment process and performance. 

At Bellmont we spend tens of thousands of dollars per year on institutional grade data which is free from survivorship bias, to ensure best practice and prevent this bias being introduced via errors in our model.

Systematic Value Portfolio Management Fees

The following sliding scale management fees are payable, monthly in arrears. 

$0 - $1m - 0.65%
$1m - $2m - 0.50%
>$2m - 0.35%

With an outperformance fee of 20% paid quarterly in arrears of all outperformance achieved. Benchmark for outperformance is the ASX 200 net total return index (ASX:XNT).

  • All figures quoted are exclusive of GST
  • Brokerage on Managed Account transactions will be charged at $10 or 0.10%

Minimum Investment

The minimum initial investment for the Bellmont Systematic Value Portfolio is $100,000. The minimum subsequent investment is $20,000.

Take the Next Step

To speak to a Bellmont representative about how a Bellmont Systematic Value Portfolio can meet your specific needs, please contact the dealing desk on 1300 368 294 or apply now.

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The Bellmont Classic value Portfolio

The Bellmont Classic Value Portfolio is a true value investing portfolio. Following the lead of value investing greats like Warren Buffett, Charlie Munger and Benjamin Graham, our approach is more akin to buying businesses than trading stocks. Rather than attempting to predict short-term market movements, we simply aim to acquire at a sensible price, partial ownership in a range of easily understandable businesses, with excellent economics and able, honest management, whose earnings are virtually certain to be significantly higher in five and ten years time.

We see no need to hold any particular stock simply because of its weighting in a benchmark index. Instead, we analyse each investment purely on its merits and its potential to grow earnings significantly and sustainably over the medium to long term.

  • ’Value Investing’ philosophy
  • Low portfolio turnover, with long intended holding periods for underlying investments
  • Portfolio constituents and performance largely uncorrelated with major benchmark indices
  • Regular commentary on portfolio constituents and watchlist companies
  • Transparent and tax-effective structure, with full beneficial ownership of underlying investments
  • Comprehensive portfolio administration and reporting

Portfolio Composition

We don’t restrict our investment universe to ‘small-cap’, ‘large-cap’ or anything in between. Our sole investment objective is to identify outstanding companies at reasonable prices – we see no need to place artificial barriers in our way making that process more difficult.

Consequently, our portfolio composition and performance is unlikely to bear any resemblance to the benchmark index. At times, comparison with the index will flatter us, at times it will not. In the long run though we are confident that our selective approach will yield results far better than the market as a whole.

Cash Weighting

We don’t have a crystal ball. We don’t know, and have no interest in attempting to predict where the benchmark index will be in 1, 6 or 12 months time. Importantly, we definitely can’t predict when the next market ‘crisis’ will occur. What we are confident in though, is that a portfolio of outstanding businesses, run by quality management, is virtually certain to generate long term returns far in excess of that available from cash.

Since we can’t predict the short term, yet we’re confident of attractive long term relative performance, our preference is to remain close to fully invested at all times – as long as we can find a sufficient number of high quality, attractively priced businesses to invest in.

Investing, Not speculating

Every company has a wonderful story about why their future prospects are bright, despite track histories that are often anything but. Research has shown however, that companies that have delivered solid and stable economic returns in the past are far more likely to deliver more of the same in the future. Whilst the future might not necessarily look exactly like the past, on average it is in fact a very good starting point.

We are therefore not interested in speculative companies, no matter how rosy their future might be.

We prefer to invest where we can be virtually certain of a good return, rather than hopeful of a wonderful one.

Investing for the long term

 

In the short term, share prices can swing around wildly as a result of changes in market sentiment, yet in the long term it is the trajectory of earnings that will determine a companies value. Our aim is not to try and anticipate changes in sentiment, but rather to invest in a group of companies whose collective earnings rise steadily over time. If we are successful in doing that, the valuation aspect will take care of itself.

In order to profit from long term earnings growth, we must by definition be long term holders. We are not interested in purchasing any business unless we intend to hold it for at least 5 years. Of course if circumstances change, or if we were wrong with our initial thesis we may sell at any point. Over time though, we would expect that our average annual portfolio turnover (the inverse of which is the average holding period) should not exceed 20% – a fraction of the rate of most managed funds.

Founder Led Businesses

The quality and alignment of management is crucial in determining the long term success of a business. While their intelligence can rarely be questioned, unfortunately assessing the business nous of senior management is exceptionally difficult (note - 'business smarts' are not the same as 'book smarts'). In addition, with ASX CEO’s having an average tenure of only around five years (hence an average remaining tenure of half of that), and with the majority of their financial rewards coming through wages rather than ownership of the business, there is a clear and meaningful misalignment between the long term interests of shareholders and the often conflicting short term interests of management.

We believe the best way to deal with these difficulties is to focus heavily on founder-led businesses. There can be no questioning the capability or business smarts of a management team that has not only built a business from nothing to the point where it is large enough to list on the ASX, but then generated financial performance since listing sufficient to show up on our quality screens. Most founders also retain significant shareholdings in their business, often representing the vast majority of their family’s assets, ensuring that they are motivated not by short term KPI’s, but by maximising the long term value of the business. This unique combination of capability and alignment is exactly what we as long term shareholders are looking for.

Focused Portfolio

Traditional financial theory operates on the assumption that price volatility is risk, and that the best way to reduce risk is therefore to diversify widely - i.e. hold a large number of uncorrelated assets, each of which you know nothing about. 

We think differently, believing risk is more accurately defined as the likelihood of permanent loss or erosion of our capital. Given that our portfolio is comprised of a collection of individual businesses, and we’re concerned with a permanent loss of capital (rather than temporary swings in the market’s mood), risk is therefore determined by the stability, sustainability and trajectory of the earnings of our portfolio of businesses.

As a result, rather than diversify widely, we believe the best way to reduce risk is in fact to concentrate our holdings in a small number of high quality companies, with robust balance sheets, sustainable competitive advantages, steady and growing earnings, run by highly capable and aligned management. Regardless of price volatility, we believe this sort of portfolio is a far lower risk proposition than one that is more broadly diversified.

  Communication

One of the fundamental differences between a Bellmont Managed Account and a traditional managed fund is the level of transparency. At all times, you are able to view a full list of your portfolio holdings, see all transactions on your account, calculate performance, and even generate tax statements – by logging into your online portal.

In addition to this information, you will receive quarterly portfolio reviews (in January, April, July and October) where we discuss the portfolio’s overall performance in the preceding half year, and highlight those companies that have contributed to or detracted meaningfully from results. You will also receive daily news updates (when there is relevant news released) in regards to the portfolio’s constituent companies, in which we summarise the news released and provide our views on what this means for your portfolio holdings. None of this news requires any input from you, and you are free to pay as much or as little attention to it as you please, but it ensures that you are always kept fully informed in regards to your portfolio’s overall performance, as well as the underlying business performance of the companies that you are invested in.

Classic Value Portfolio Management Fees

The following sliding scale management fees are payable, monthly in arrears. 

$0 - $1m - 0.85%
$1m - $2m - 0.60%
>$2m - 0.35%

With an outperformance fee of 20% paid quarterly in arrears of all outperformance achieved. Benchmark for outperformance is the ASX 200 net total return index (ASX:XNT).

  • All figures quoted are exclusive of GST

  • Brokerage on Managed Account transactions will be charged at $10 or 0.10%

Minimum Investment

The minimum investment for the Bellmont Classic Value Portfolio is $500,000.  The minimum subsequent investment is $20,000.

Take the Next Step

To speak to a Bellmont representative about how a Bellmont Classic Value Portfolio can meet your specific needs, please contact the dealing desk on 1300 368 294 or apply now.