By Hugh MacNally,

Chairman and Founder of Private Portfolio Managers (PPM)

An SMA (Separately Managed Account) is the ideal structure for investors looking for a high conviction, long term strategy for their equity holdings. Value investing through an SMA provides the client with transportability, transparency, direct ownership, low turnover and effective tax outcomes as well as consistent performance over the long-term while minimising downside risks.

Holding the investments directly gives the client ownership that is unsullied by the actions of others, something a pooled fund cannot do.

A ‘value investing’ philosophy is founded on the belief that attractive long-term investment returns will be achieved by investing in companies that have the following characteristics;

  1. The company must be financially strong and able to withstand adverse economic conditions. This primarily means that the debt levels are low or in the case of finance sector companies, that they hold high levels of capital in relation to the amount and type of their assets.
  2. The industry in which they operate has an attractive structure and they are well placed in the structure.
  3. The pricing of the stock must have a favourable relationship to the underlying returns being generated by the company. An analysis of cash flow and management’s use of capital is of great importance.

These characteristics enhance the probability that the portfolio will firstly, be able to weather difficult economic conditions and secondly, that investors will not be adversely affected by the reversion of once popular investment themes to more normal valuation metrics. This philosophy can be summed as ‘strength and value’.

So how do you implement this philosophy?

  • Exploit structural investment themes. A thematic approach looks to capture long term structural opportunities and is more forward looking.
  • A concentrated portfolio of between 20 and 25 exceptional companies provides sufficient diversification and affords a greater opportunity to provide superior long term returns as the larger the number of holdings in a portfolio, the greater the likelihood that the portfolio will track the broader market.
  • Limit exposure to any one stock to 10% and any industry to 25%
  • Hold companies for long periods of time. Enable the underlying themes and growth dynamics of the business to play out over the next 3 to 5 years, but it would be anticipated that the holding period would be far longer than that. This is a valuable discipline in analysing opportunities; would I buy this stock if I had no way of selling it makes the analysis a lot more intense.
  • Take a patient approach and rely on the performance of well managed companies and the investment themes identified rather than volatile market sentiment.
  • Avoid the crowds and popular opinion.
  • Understand risk management. Achieving diversification across companies, business models, investment themes and industries is an important consideration but the strength of the companies you are investing in is more important in controlling risk.
  • Approach returns on an after-tax basis. Tax effective investment management can produce significant increases in returns.
  • Invest with discipline and without compromise. Returns in investment markets are non-linear. Focus wholly on investing in quality companies that operate in attractive environments.

For further information on PPM’s Australian Equities SMA or PPM’s Global Equities SMA please contact Simon Michell on (02)8256 3777 or

Private Portfolio Managers (PPM) is a privately owned boutique investment manager founded in 1995 with an established track record of constructing concentrated Australian and Global equity portfolios.