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Why do some income stocks appear in a growth focused profile in the optimiser/constructor?

The Portfolio Optimiser and Portfolio Constructor are market leading tools designed to make DIY investing a reality for all share market investors.

At the core of the tools is the fact that as investors we try to manage portfolio risk. Portfolio risk is the risk that our portfolio's will not behave in the manner we expect them to and therefore our expected performance too will vary.

When measuring portfolio risk there are three things to consider:

  1. How the portfolio in total will behave
  2. The risk (volatility) of the individual stocks
  3. The propensity for income to be paid 

Every individual stock has risks 2 and 3. When they are combined it comes up with the portfolio's overall risk (Risk 1 above)

At times when creating a portfolio from scratch or when looking at possible considerations to an existing portfolio, it will be necessary to include a stock that has particular qualities relating to risks 2 and 3 in order to help the portfolio align to risk 1 and therefore the overall objective selected.

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So when constructing a growth portfolio within the constructor, or when optimising an existing portfolio to align to an income objective, at times a Star Income Stock will be recommended as it has the risk properties required to help the portfolio meet its overall objective.

For example: A balanced growth profile may need a Star Income Stock to be included as its risk properties balance off the overall risk of the portfolio. This is because the primary objective is to achieve capital growth which may from time to time be concentrated to higher risk (volatile) businesses due to their propensity to outperform. The Star Income stock may have properties when combined with the other holdings to offset that concentration risk. 

In the case of a growth based profile however the Star Income Stock will have growth elements prevalent therefore it still helps with the overall objective of achieving growth.

If you would like to discuss the mechanics of the Portfolio Constructor and Optimiser, members can contact our Research team via email at support@lincolnindicators.com.au or speak to the team directly on 1300 676 333.

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