Investing outside the top 20

Co-founder of the Switzer Report
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Key points

  • Investing in the top 20 stocks has been a pretty good strategy over the last few years. However, in 2015, the top stocks have come under pressure.
  • One way to diversify outside of the top 20 is through a managed fund like Investors Mutual’s Future Leaders Fund. Compared to its benchmark, it has outperformed over most periods.
  • Other fund managers in this space include Eley Griffiths, K2, Pengana Capital and Perpetual.

The August reporting season highlighted a key challenge facing our top companies – flat or low top line sales growth. There is only so much “squeezing of the lemon” that can be done on the cost side, and if sales aren’t growing, bottom line growth stagnates.

With our top 20 companies, this is even more of a challenge because they are dominated by banks and resource companies. The latter are doing it tough due to falling commodity prices and top line growth is negative, while the banks are struggling to grow earnings per share as they increase their capital ratios.

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