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Adviser milking big returns for clients

Financial adviser Alistair Bean has rejected suggestions his clients’ investments are too focused on one stock – and says the personalised DIMS set-up allows more flexibility of decision-making to maximise their returns.

Wednesday, August 22nd 2018, 6:00AM 13 Comments

by Susan Edmunds

The Christchurch-based adviser has produced very strong results for clients in recent years, due in large part to a heavy weighting to A2 Milk.

Across his portfolio, more than 75% of client assets is in the stock.

In the quarter to March 31, the top 10 holdings in his portfolios delivered a combined return of 11.45% for the quarter or the equivalent of 45.8% a year. Bean said he had turned some clients into millionaires.

He said the interest from others in his strategies was “understandable”. Some advisers and other market commentators have questioned whether it is too risky because clients had too much riding on the fortunes of one company. The stock has lost about $4 since mid-March.

“My belief is that A2 Milk is currently at about 10% of its journey and the price of the stock is doing what stocks do, they go up and down and constantly try to find their equilibrium relative to the market at any given point in time,” Bean said.

He said it appealed because it had no debt, significant cash on hand and could be the rescue tube for Fonterra. The market was growing daily and consumer demand was “insatiable” he said.

“The science also keeps growing in in what appears to be their favour and the A2 Milk brand name is protected similar to how Coca-Cola is protected, Nestle and many others are jumping on the bandwagon but it hasn’t seemed to have affected A2's first-to-the-market market share, even with some of their patents expiring.

“With proper due-diligence, there comes a time when it is prudent to rebalance clients individual portfolios and others may have done this a long time before I.”

Each client’s portfolio was managed individually, he said, and was appropriate to their needs. Not every client would have more than 70% in A2, he said. Newer clients would have less than 15%.

For clients who had been invested for some time, the significance of A2 in their portfolios would be driven by the value of the stock rising from an initial smaller holding.

“Class DIMS would have likely dictated a rebalance of the asset quite some time ago (dependent upon mandates and benchmarks) and this then may have been far less beneficial to the investor, although still very healthy considering the original entry purchase price for the great majority of my reserve funds-type client base - while constantly also allowing for the short, medium and longer-term needs as required by the individual clients when making decisions on their behalf,” Bean said.

“I do have benchmarks and price targets for my individual clients and these will kick in when triggered, then the disposal of the equity may be over a pre-prescribed, also strategic time-frame if it is appropriate to do so. This would also apply to any other holding that I have for any other asset that I hold on my clients’ behalf, other than A2 Milk. “

He said it was important to research as much as possible and observe the market, as well as continue communication with clients.

“My view is that most portfolio management is generalised and while this may be in some people’s point of view the safer way to go, it risks treating groups as all the same  within those groups and perhaps - it limits and restrains possible potentials, whereas we are all individuals and I specifically created my business to handle clients purposefully in this way.”

Tags: DIMS

« Fund manager research: Where to from here?NZ shares at fresh record as Trade Me, A2, Meridian gain on earnings; Fletcher drops »

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Comments from our readers

On 22 August 2018 at 9:29 am Steven Popodopolus said:
breath taking
On 22 August 2018 at 10:08 am R1 said:
Mr Bean's approach to asset allocation looks a bit like betting on the All Blacks with the returns on the wins being rolled back into the next bet.

I wonder if the clients know how much risk they are taking with Mr Bean making decisions with their life savings on their behalf?

Hopefully, for his client's sake, Mycoplasma Bovis does not suddenly become a bigger issue than it is now and/or A2 'benefits' are found to not be scientifically proven as the A2 CEO was apparently avoiding admitting on a recent TV interview. Only a small proportion of the total population has an A1 intolerance.

Good luck Mr Bean.
On 23 August 2018 at 8:10 am MPT Heretic said:
I for one am glad that the FMA, in issuing Mr Beans DIMS licence, was convinced and accepting of his repeatable and well structured investment process and policy.

And that all his clients are fully aware of the inherent risks in his investment strategy. Otherwise who knows what would happen if markets or heaven forbid a single stock went through a rough patch.

Good on you FMA, you have the investors back
On 23 August 2018 at 8:21 am smitty said:
You have to worry that the FMA has approved the DIMS licence to this adviser. I would have thought there would be a rigorous process to demonstrate how you put together a portfolio, combining theory and client risk tolerances etc..., granted this article is somewhat limited, but Mr Bean does himself no favours.

Im also puzzled that he is suggesting that Class DIMS would have rebalanced sometime ago, and yet individual DIMS not?

It is all in the strike limits you set, not the type of DIMS you employ. If I was the FMA, I would be keeping a very close eye on this adviser.
On 23 August 2018 at 11:07 am traveller said:
Is he related to Rowan Atkinson's Mr Bean?
On 23 August 2018 at 11:24 am Pragmatic said:
I’m delighted that this adviser has designed a portfolio that reflects his research & beliefs. Whilst I have no direct insight into all of the portfolios, I suspect that the media have targeted a unique portfolio for the purposes of this story.

What is of greater concern was when I recently heard an employee of the Regulator inform an audience of advisers that all portfolios must reflect Modern Portfolio Theory principals, irrespective of the performance / risk attributes. Following an earlier analogy; that is like fielding an All Black squad with a bloke in a wheel chair to ensure diversity...

Good on Mr Bean for differentiating himself in an industry that seems reluctant to look beyond outdated theories.
On 23 August 2018 at 3:21 pm Eyeinthesky said:
A focussed lack of diversification worked and still works for Warren Buffett, so who are we to comment.

However, Mr Buffett wasn't constrained by the current New Zealand regulatory regime in the creation of his business.
On 24 August 2018 at 8:41 am smitty said:
A focussed lack of diversification is one thing, but I would love to compare what Buffett and his team does in terms of research versus a one man band in CHCH. Still good on Mr Bean for finding a niche, i just hope it doesn't go pear shaped for his clients.
On 24 August 2018 at 1:33 pm Eyeinthesky said:
@smitty
Agreed. Mr Buffett is doing his research in a different way. It is a fine line we walk in the balance between producing vanilla portfolios and vanilla returns, and going out on a limb and ensuring clients understand the risks.
I finding it disturbing in the extreme (the comment by Pragmatic) that the FMA employee said they expect all portfolios to reflect MPT. Bollocks - that isn't their role as regulator.
On 24 August 2018 at 2:00 pm smitty said:
@eyeinthesky Agreed. MPT works till it doesn't.
On 24 August 2018 at 2:57 pm Graeme33 said:
This guy should be held up as a shining example.I dont know him...But Buffett and Bean do both start with a B.I understand a DIMS license probably costs 10K to obtain Hes a bright GUY..ATM is a top stock on the NZX ..This guy understands Dow theory..better this than Fletchers or Fonterra..I assume the guy knows how to hedge a portfolio..we need more stories how people like this think in NZ...Graeme Adams
On 24 August 2018 at 3:14 pm Graeme33 said:
Smitty seems a bit condescending of this Beans Knowledge and expertise .NZ is such a Tiny market..Buffett has 2 helpers that analyse the whole USA.NZ Has about 20 listed companies worth a look at .A good Analyst can look at NZ in about 45 minutes a day. Graeme
On 24 August 2018 at 3:55 pm Graeme33 said:
Rereading some comments...it would appear some people don't understand the The Phrase "Home Runs"...Buffett Does am sure GA

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