VINCE SCULLY | from Life Sherpa

Can Australian small caps turbocharge your investment portfolio? Vince Scully from LifeSherpa explores the risks and rewards of small cap investing. More information about the Life Sherpa ETF based portfolios available here.

This episode was inspired by his YouTube video, Australian Small Caps: Big Rewards, Big Challenges, and it’s packed with actionable takeaways for anyone looking to add some rocket fuel to their portfolio.

We began by defining small caps: companies typically outside the ASX 300, with smaller market capitalisations but significant growth potential. Vince explained that these companies can deliver higher returns over time due to their ability to scale rapidly—think turning a $100 million business into a $1 billion one, a feat much harder for large caps.

This potential is backed by academic research, notably the Fama-French three-factor model, which identifies size, value, and market factors as key drivers of outperformance. However, small caps aren’t a sure bet. Vince noted that recent US market trends, driven by giants like the “MANGO” group (Meta, Alphabet, Netflix, Google, and Open AI), have favored large caps. In Australia, the real opportunities lie beyond the ASX 300, where active fund managers can uncover undervalued gems.

We also touched on factor investing, a strategy rooted in the work of Eugene Fama and Kenneth French. Their research shows that small size and value (low price-to-book ratios) can lead to superior returns over time. Dimensional Fund Advisors, influenced by their work, builds portfolios that emphasize these factors at a lower cost than traditional active management. At LifeSherpa, Vince uses Dimensional products to balance cost and performance, particularly in small caps and fixed interest.

Investing in small caps comes with challenges. Sifting through thousands of companies requires skill, patience, and opportunity. Vince shared that LifeSherpa’s due diligence process involves evaluating fund managers’ teams, processes, and investment philosophies. They meet managers, analyze data, and ensure a clear rationale for every investment decision.

For retail investors, accessing these funds can be tough due to high minimum investments ($10,000-$50,000), which is where platforms like LifeSherpa Invest shine. LifeSherpa Invest offers four diversified, evidence-based portfolios—Everest (90% growth), Denali 80, Kilimanjaro 70, and Kosciuszko 50—starting at just $5,000. Hosted on Open Invest, these portfolios provide transparency, tax reporting, and a low 0.65% annual fee. They’re ideal for self-managed super fund cash balances, kids’ accounts, or investors who want a hands-off approach.

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EPISODE TRANSCRIPT

Phil: G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. Can Australian small caps turbocharge your portfolio? What are the qualities to look for in the small cap sector? And what the hell is the small cap sector? Joining me today is Vince Scully from Life Sherpa. G'day, Vince.

Vince Scully: G'day, Phil. Thanks for having me.

Phil: Thanks very much for coming back on. But we were just talking off air a moment ago about equity mates and their announcement last week that they'd been taken over by beta shares. And I thought it would a. Beta shares, beta shares, whatever, however you want to pronounce it.

Vince Scully: Um, but I just want think they say Betashares.

Phil: They do say Betashares but I just wanted to because they were talking about that, that they will make no difference to the kind of guests that they have on. They could have complet editorial control and I just thought it was worthwhile quickly going over about our relationship in that I'm a corporate authorized rep of the Money Sherpa, uh, afsl which is why there's life Sherpa, uh, mentions during the podcast and also in the disclaimers and everything that go along with every episode and every time you see anything written about this, this thing that I'm in the AFSL of or a corporate authorized rep of the AFSL of Money Sherpa. But yeah, so, um, I just wanted to kind of disclose that relationship so people know what's actually going on.

Vince Scully: Yeah, that's a really good idea, Phil. You know, Australia is a unique market where financial content creators will generally need to be licensed by the regulator. This, I think that's almost unique globally. And so we at moneysh Sherpa license a number of the top content creators, including this podcast of course, but also the Money Money Money podcast, uh, Devraga, uh, invest with Queenie. She's on the money. And that's really our commitment to quality financial education, which is a fair chunk of our mission as financial advisors. And whilst that does create a liability for us for the content that is, I'm the one who goes to jail if fill stuffs up. That oversight is more a, uh, compliance in regulatory requirement rather than editorial. So we don't get involved in editorial, but we do obviously have an uh, oversight from a compliance perspective to make sure that both Phil and I stay out of jail.

Phil: And we lunch regularly just to ensure that content is discussed but not influenced.

Vince Scully: That's right. Our little bots go and check what goes out to air so that we can keep an eye on it next time.

Phil: I think it's the beef and Guinness pie on you. That's right. However, we're basing this interview on your YouTube video that I came across recently which is about Australian small caps.

Vince Scully: Huh?

Phil: Big rewards, big challenges. I'll put a link to that in the show notes and episode notes. So let's talk about the this sector. What is it, what's the size of it and what are the challenges in accessing this. This sector?

Vince Scully: Yeah, I mean the whole rationale for investing in small caps. So that's broadly smaller companies. I'll come back to what's smaller means shortly, but which should be expected to give you a higher return over time compared to their larger equivalents. And that's largely because firstly you would expect a small company to be more risky and therefore you should be rewarded for taking that risk. And secondly, it's much easier to double or triple or 10x or whatever it is the size and profitability of a small company. So if you've got a company with $100 million in revenue, much easier to multiply that by 10 than to take a billion dollar business and multiply that by 10. So the opportunities are bigger. And that's one of the reasons why, if you go back to the academic research that the uh, pharma French. Well, the originally the three factor model, which became the five factor model identifies size as one of the factors that would lead you to higher returns

00:05:00

Vince Scully: or an expectation of higher returns. So the three factors were market. Obviously how volatile the company you're investing is relative to the market as a whole, that's often called beta. The second one is value. So companies that are trading on uh, in farmers where it's low book to market multiples, but sometimes people use PE as a proxy for that. That's price to earnings. And then finally the size so that more volatile companies should give you more returns than less volatile companies. Small companies should give you more return than big companies. And companies where you pay a lower multiple of today's earnings should lead to a higher return than when where you pay a high multiple. These were supplemented by two more the profitability and investment factors in a later model. But they're starting to account for fewer and less and less of that uh, valuable outperformance. Uh, so the ones that we focus on generally are the size and value. Now that doesn't mean that every small company gives you a better return than every big company. It doesn't mean that every reporting period they will do better. But the uh, research is that over time you should expect a higher return from investing in small companies. That's not been. When you look at indexes, that hasn't really been true for the last few years, particularly in the US where the S&P 500 which has become the de facto measurement of the US share market has been dominated by the seven big companies. The so called Magnificent Seven and the other 493 of the 500 haven't really delivered huge returns. So the smaller companies haven't outperformed but on average they should over time.

Phil: Yeah, I'll just stop you there for a moment because apparently the term now is M Manga for Meta, uh, Alphabet, Netflix, Google and OpenAI.

Vince Scully: Okay. Yeah, there's always time for new acronyms. That's a good Mango actually is easier to, to say. But the point being that the biggest companies have delivered the biggest returns and they all happen to be growth companies as well. So not only did big outperform, uh, small in the US recently, growth also outperform value. So neither was particularly useful. But that sort of brings on the uh, question of well if, how do you access the uh, small cap if you simply take the uh, available indexes. So in the US that would be the Russell always get these mixed up. Is it the 3,000 or the 5,000? I think the 3,000 is 3,000.

Phil: Yes.

Vince Scully: And in Australia the small ordinaries or the MSCI small companies, but neither of those are particularly small and the real value is to be found outside the index. So in Australia particularly the hunting ground is outside the 300. And so if you look at VSO, uh, the Van Gogh small cap, that's the MSCI small cap index which is about 180, 180 or so companies in the lower reaches of the 300. So it's broadly 101 to 300, give or take.

Phil: So so broadly speaking it's the ASX 200 which comprises, well that's the main index I'd assume on the, the Australian share market. Then you've got the ah, ASX 300 which includes the next one uh, hundred companies by market capitalization and then another 1800 companies. I mean how are these accessed and are there funds that access these particular factors which I want to go into a bit deeper as well.

Vince Scully: Cool. Okay, so there are obviously funds that track the small ors, which is the lower reaches of the 300. And I mean the 300 gets a bit of attention because the Vanguard Australian Share Fund, which is the biggest ETF on the Australian market, chooses that as its benchmark. But the extra hundred between the 200 and 300 is 2,3% of the market. It's just not materially different. So the performance of the ASX AH300 VAS compared to a 200 or oz is not materially

00:10:00

Vince Scully: different. So you wouldn't choose VAS as your route to uh, small cap, even though you are picking up 100 of these because the allocation is just so small. So you really need to look beyond the 300 and that means you're not in index territory, it means you're not in ETF territory. Largely. There are a handful of small cap funds in ETFs but the real nectar is to be found in the unlisted managed fund sector and there are hundreds of them. We use three here at livehipper. So we use the OUSBIL Microc cap, we use the OC Micro Cap and the sgh, that's Hisck. What's the stand for? Sg, His Cock Emerging Companies Funds. So all of those hunt largely in just under the 300 range and they're very much active funds. And whilst we would normally be an indexed shop, as a general rule this is an area where active management adds value. So our methodology is to start with asset allocation. So we say, well we want to access Australian equities. Well for the big ones pretty hard to consistently add value. And so we would use an index fund for the big ones and then allocate a significant chunk of our Australian equities allocation to small caps. So maybe out of a 30 odd percent allocation to Australian equities, we might put a third of that into just over a third into small caps and that would be in a spread of active managers. So there's a lot of nuance around investment style and philosophies. So punting it all on one isn't particularly useful. So we have three on our list. Generally you have two of those in any one portfolio and there's obviously a fair bit of movement in that space. You know, OUSB Bill has been a mainstay of our portfolios for as long as Life Ship has been doing this over a decade now. But they closed to new investors three years ago. So you do have to keep an eye on these things. You obviously don't buy them on the stock exchange. The ASX did try a marketplace called M funds which never really worked and I think they're shutting it down from memory.

Phil Musatello: Super is one of the most important investments you'll ever make. But how do you know if you're in the best fund for your situation? Head to lifeshra.com.au to find out more. Life Sherpa, uh, Australia's most affordable online financial advice.

Phil: I think many of these funds now where they were managed funds or mutual funds they call them in the US are uh, doing a dual structure now, aren't they? Where they're becoming an ETF so that retail investors can access them?

Vince Scully: Yeah, there are a handful. None of the ones that we use have adopted that structure yet. But you've got to think that that's the future. I saw some interesting report in the other day. I think it was from Rainmaker who pointed out that the average fee on a dual access fund is higher by a large margin than pure ETFs, which is sort of a. And no shit shearlock statement that know because most of the dualist ones tend to be active and that's why they've become dual rather than simply being pure ETFs. So the traditional way of accessing a managed fund was you got the PDs, you filled out the form of the back in your check into the manager that's now moving online. But they still, you still have to go direct to the manager. You still need to deal directly with the manager. Many of them have minimum investment hurdles like 10, 20, 30, 50,000. So if you're allocating 5 to 10% of your portfolio to a fund, you need a reasonably big portfolio to be able to meet a 20 or $30,000 hurdle for a 5 or 10% allocation of your portfolio. So that does make it more difficult, which is where some of the more managed the managed portfolios come in like Life Show Invest, Shameless Plug or Stock Spot or Rask Invest or a whole bunch of separately managed accounts available through advisors. So y so you're really looking for something with a uh, fairly high conviction, consistently

00:15:00

Vince Scully: applied methodology and being able toly a narrative or A consistent narrative to why that stock is in the portfolio. So these could be 20, 30 stock portfolios with high conviction, portfolios with not necessarily big turnover. But you do see uh, um, more, more than your typical index portfolio turnover. So they do have structural differences that you need to be aware of when you're putting your portfolio together. But if you want to go genuinely capture the small cap premium, at least in Australia, you need to be going x 300 active, high conviction and therefore you need to be able to do manage your due diligence.

Phil: Okay, so if we could just quickly go over factor investing because this is something that's come up many times on the podcast. What is factor investing? And who are Farmer and French and I guess what's their relationship with dimensional? There's another fund that plays a part in your portfolios.

Vince Scully: That's right. So factor investing was uh, an attempt to put some academic rigor around why some portfolios do better than others. And it started with the CAPM model, which is the capital asset pricing model in 59, I think 58 or 59. So uh, not that long ago in the scheme of things. And that was the Sharp, what was this first name, Sharp. He said that returns are largely driven by beta. That is how volatile this stock is relative to the rest of the market. And that explains a fair chunk of it. And that's just the logic that says, uh, more volatile stock is riskier, therefore you should be rewarded more. And that explains a significant chunk of uh, performance difference across time, across markets. Eugene Pharma and Ken French then published a three factor model in I'm going to say the 60s, which said, well actually we can explain most of the rest of the variation through two factors. So the market factor that Sharp had already identified and the value and size factor. And so value is around in the farmarma French model, it's price to book ratio. So their theory that says that if you pay more for a given level of book value, you should expect a lower return over time. And so they went to look for low book to value stocks. So that's effectively market cap divided by owner's equity on the balance sheet. And the alternative to value is growth. So if you take a Facebook or a Google, you're paying a large multiple of book value and therefore you should expect a low return. That's clearly not what's happened over the last few years. But this is all looking at averages. So this is about stacking the deck in your favorite, this is not about guaranteed shoe in. And then the final one Was the size. Again the theory being small companies are riskier, you should get rewarded more for them. So those three factors together or dimensions make up the pharma French three factor model. And that explains a large chunk of the variability of returns that was then supplemented in the 70s by two more the profitability factor which says that profitable companies outperform unprofitable companies. Surprise surprise. And the other ones about that investment. So companies that invest tent outperform uh companies that don't invest. So you're looking at capital expenditure beyond replacement. So but those last two are much less significant. There are hundreds of other ones that have been identified in the meantime but few maintain statistical significance over time and across markets. One that does is momentum. So that's arguuedably with a sixth factor where companies that are rising in price tend to continue to rise in price. It's a little bit more of a short term factor and much more expensive to implement. But you certainly see a fair bit of that in the active funds management space. So the ones that most people focus on are uh, market size and value. Market is, you know, you might have heard you if you go back before infrastructure became an asset class in its own right people would have bought the utilities, so you bought the electricity company, the phone company ca becausee they had low volatility on the rails

00:20:00

Vince Scully: railway. You've paid monopoly in your time. And so you know real estate and infrastructure would fall into that category. And um, size, size is one that's sort of easy to understand. So many active managers where they generate outperforms. A fair bit of that outperformance is actually coming from the factory. So Warren Buffett is a value investor. So m much of that excess return is coming from the value factor. And similarly with most of the big fund manager in Australia people like perpetual would have been classic perennial classic value investors. And the thing that led to the foundation of dimensional fund managers they said well, well much of this outperform is actually coming from the factors. So let's build our own funds where we have uh, a computer or uh, a model assessing funds and building our own variations of and index which emphasizes one or more of these factors or dimensions from dimensional you can buy a small cap value. And so by applying those models you get much of the benefit of active management with a much lower cost. So the argument being that active fund managers don't on average outperform uh after fees and taxes. If you can reduce the fees you lower the threshold. And so when you start doing some more Genu Direct like for light comparisons, the gap is much narrower and there is evidence that some active managers can outperform, uh, sustainably. But if you're just buying factors, well why not buy it cheaper? And so that's what led to Dimensional which has been around for a very long time, you know, so its founders, Booth, what's his name? But he's the guy the Booth School at Chicago is named after where Eugene Pher and Ken Freingch did most of their research. And so Eugene Farmers on the advisory board of Dimensional. So it's very much an evidence based manager and so and a source of relatively low cost rules based investments. I'm a bit loath to use the word index for many of these funds. That an index fund is really just a uh, rules based portfolio selector. And for many of them the main criteria is size. So if you look when standard poore.

Phil: Are creating and size isected and size is affected.

Vince Scully: And so by buying an S&P 500 you are buying more of the larger funds in the largest 500 companies in the US and therefore you are uh, going short smalls almost by definition. So the choice of S&P 500 and in Australian context that sort of means IVV, the BlackRock Index Fund, that is an active decision to buy US. Well, to buy equities, to buy US equities, to buy large cap US equities and to weight them by market value. There is also a small profitability filter. So you do have to be profitable for I think four consecutive quarters to get in it. And then there's a little bit of a qualitative overlay because there's a committee that meets every quarter to decide what's in and what's out. So companies like Tesla as a good example was in the 500 biggest companies for years before it made it into the S&P 500 and delivered most of its excess returns before it was introduced to the index.

Phil: Okay, coming back to the small cap sector, uh, what are the particular challenges in trying to find good quality companies in this area? And I know you're outsourcing this expertise to fund managers who have got a record in Y, you know, trying to outperform. I mean there's the problems of size, there's the problems of you sifting through a lot of um, companies, let's face it, who aren't going to be the best. What would you be particularly looking for in assessing a manager and their ability to pick quality companies in this area?

Vince Scully: Yeah,

00:25:00

Vince Scully: I mean there's obviously three things you need to deliver a return you need skill which is takes a lot work to work out. Does this manager in fact have skill? But let's come back to that. You've got to have patients so they've got to be willing to take a research or evidence based position and commit to it. So they need conviction and then they need opportunities. So you need to be in a market that does have some opportunities and that's why large cap managers struggle to outperform. Ah. And ideally your patients is both patients for the manager to be willing to stick with their conviction even if it takes time to come good. But also the humility to recognize when they're wrong. So the narrative is particularly important. So the first thing we look at is people. So who's the team? What do they know? What have they done in the past? Process. So what's the process they go through? That it's not just how the portfolio management feels when they wake up in the morning. That there's a rigorous process and this evidence that it's been followed.

Phil: Um, and that's kind of the filter that they would apply, isn't it?

Vince Scully: Yeah.

Phil: So some having a broad remit in terms of what they're the kind of companies that they're looking for and the qualities that they re. Hopefully will. Will help to outperform.

Vince Scully: Yeah. So. So, so you've got to, you should start with a philosophy. The what is it that we do and why do we do it? So we focus on. Yeah. Small companies that have this particular characteristic which defines your universe of what you're gon toa look for. And then you'll have a process that you go through and filter those. Some of that's mathematical and obviously the bigger the universe you're looking at, the more quant filters you're going to need to uh, reduce the university you've got to analyze to a manageable number and then you'll have some sort of quality overlay. You would expect the manager to meet with management. You would look at what's their track record on voting, what's their general approach to engagement, what do they do? And then the final piece then is can they articulate a rationalist to why this asset is in and often importantly why this other asset is out and when they change their mind. And so that's the process that is pretty hard to do without access to the manager. So for the average.

Phil: So are you actually interviewing the managers and talking to them as well?

Vince Scully: So we with the managers. So as part of our due diligence process we start with quantitative review. So we'll look at all of the, yeah, the publish documents. We use a number of research tools, we'll do some modeling on what it looked like and then we will meet with select number of managers. We usually, we have a quarterly investment committee meeting where we'll usually have a manager more and more on zoom but they used to physically come to our meetings. So ye, so that's a sign of a, a portfolio constructor that's got enough volume to get attention. So Obviously you're investing $20,000 you don't get a meeting with the portfolio manager. And so uh, unless they come on this podcast, unless they come the podcast. And so we would look at obviously public stuff, you know. So most of these managers will hold advisor sessions from time to time, some of which are recorded and available on their YouTube channels. They're certainly becoming more and more social media savvy that they realise they're not just marketing to boring old industry professionals, that they actually need to engage with their end investors. Because it's much easier for me to have a discussion with uh, a uh, Life Shipp A members saying look, we've included the OC Microcap fund in this portfolio to give you access to small Australian companies. Here's what they've done over the last few years. Oh, and how about here's a video that the uh, portfolio management did with the last quarterly update.

Phil: Track your investments like a pro. Shareight is Investopedia's number one portfolio tracker for DIY investors. Simplifying your finances. Get 4 months free on an annual premium plan at sharesite.com sharesforbegin/ners it is interesting to reflect that there's a plethora of these managers out here doing a whole range of very, very similar things, all trying to outperform the market.

Vince Scully: You do raise an interesting point about outperforming the market. Well, if you're

00:30:00

Vince Scully: looking outside the index, well what is the market and what benchmark is your manager using? So many will use the ASX 300 or the small ords as their benchmark. M But you, if the smallardsds is the benchmark and you're Investing outside the 300 you should be expecting a sort uh, amount of course significant size outformance. Uh, anyway, so you, you've got to look at the benchmark. So most small cap managers would say they are benchmark unaware or benchmark agnostic. But ultimately every researcher in town is going to benchmark them against uh, the 200 or the small ODs or even heaven Forbid cash. So people naturally benchmark because you've got to be able to answer the question so well ye, you did, you might have done 10% over the past five years but how do I assess whether that's good or bad? Was it what you were trying to achieve? What did the sector you're investing in? What should I expect my risk premium to be? What was your volatility? What was your Sharpe ratio? What was your sortener ratio? So we do a lot of analytics around none of which individually decisive but they all go to paint a picture. But you truly it really comes down to people, process and philosophy and that's really hard to analyze without access to the people. And of course this is a small industry in Australia so everyone sort of knows everybody. So your past sins will be known by everybody else but they may not be known by your averageun punter or influencer. So that's where the real work is. Yeah, constructing a uh, portfolio going. So look, we're going to have this, an 80% growth portfolio. We're going to have 35% in Australia and of that we're going to allocate 13 and point half to small caps and we split that between these two funds. We're gonna have a US large cap, we're gonna have a world xus, we're gonna have an emerging markets, we're going a real estate infrastructure. So that makes up about 80% but you know you then break that down into individual factors and funds and you're starting to create a fair bit of work. But uh, that's where the value'added so when I look at our Australian equities performance, if you benchmark a that sort of 1/3 allocation to small cap that's added about 0.6% a year to a broader 80% portfolio over a decade or more. So that's ah, outperformance that's worth having. It's not easy to access but that, that alone would pay for our fee.

Phil: Well let's explore that then. Why should you have this sector uh, represented in your portfolio? What? Obviously it's a bit more outperformance but is there anything else that the value that it can add and does it change depending on the age of the person that is?

Vince Scully: Um, I mean to me the portfolio.

Phil: Is being provided for.

Vince Scully: Yeah, I mean to me portfolio construction is largely around doing one of two things. You're either trying to maximize returns for a given level of risk or you're trying to minimize risk for a given level of returns. So depending on which way you come out, if you go, Look, I need 9% a year, then we go, well, how can we deliver nine expected return with the minimum volatility or you're able to tolerate this level of volatility. Now, what's the way I can maximize returns on a very simplistic, risky, non risky asset? That's what's called a uh, efficient frontier.

Phil: Sharpe ratio, I believe.

Vince Scully: Yeah, indeed. So Sharpe ratio is a measure of return per unit risk. So it says that every unit of risk you should take above the risk free rate, you should be getting that extra return for it. It's not a perfect measure, but it's a good indication so that if you're taking more risk, you should be getting more return. So that's why you can't answer the question. Yeah, my portfolio did 10%, I'm doing well without going, um, well what risk did you take for that? And so you need to look at it at least in two dimensions so it delivers diversification. And diversification

00:35:00

Vince Scully: is always your friend. It should deliver increased return and it should, with the right combination, also dampen down volatility. Bizarre that that may seem, but you're just picking one small cap manager and whacking it in doesn't solve them. They all have. You do need a little bit of balance in your small cap active managers that with differing philosophies so they tend to counteract the big swings. So you the people like ousbill would delivered 25% plus returns in some of the last few years. But when you look at the index as a whole, has the small ords outperformed ASX 200? Well, not by very much. Certainly in the US though Russell hasn't outperformed the S and P over the last few years. So these dimensional or factor type returns don't turn up every year, but they do over time and that's the key to it. So for investing, none of us know what the market's going toa do tomorrow, let alone over the next 30 or 40 or 50 years. So what do you have to do? Well, you've got to use the evidence to stack the deck in your favor so that you're more likely to capture the return than not. And that's the skill of a good portfolio managing. It's not about lining up all the ETFs and go well which one has the lowest fee and which one had the highest return over the last decade. That might create a team of champions, but it's not going to create a champion team like we don't all want. We don't want 11 fast bowlers in our, you know, first 11.

Phil: The next question was tell us about the part that small cap investing plays in life shape of portfolios. But I think you've just done that.

Vince Scully: Yeah, it is a very important part. Australia obviously is a very happy hunting ground there. There's lots of managers that we can get access to. Small cap globally means something slightly different because the companies tend to be bigger. Half a billion dollar market cap is a small cap in the US and the allocations you can provide get less meaningful. So we use a global small cap manager which looks at uh, and global in that context means developed markets. So that's the 23 or 22 depending on which index manager you're dealing with. Developed markets. And so that s, uh, we use a company called Langdon based out of Canada and they've got an Australian based managed fund. And so that's a portfolio of 30, 40 high conviction holdings in that sort of small term mid um, cap. So the half a billion dollars plus spread across the world. In an ideal world you would want to geographically split that because it sort of gets dominated a bit by the US and so you would want a bit more flexibility but just because of the size. So if we'the typical portfolio we're managing for our uh, members is $200,000. When you start getting small allocations it starts becoming less and less meaningful which is a big problem for our super funds. If you're Australian super and you're managing $350 billion, it's almost impossible to invest in Aussie small caps because you just can't allocate enough capital.

Phil: It's just a size, the size problem, isn't it?

Vince Scully: So if you're Aussie super you need to be able to allocate a meaningful chunk. So if you took 5% of 350 billion, that's 17 to 20 billion dollars. Deploying that sort of money in the uh, Australian small caps is impossible. A billion dollar small cap manager is a big manager. Most of them are sort of 500 to a billion. So people like Ely Griffiths, uh, SG Hiscock, OZB Bill, that sort of billion ish sort of number, I mean as a manager they across all their funds they manage a lot more. But the small cap or the micro camp funds, investing a billion dollars is almost impossible in Australia.

Phil: So the Life Sherpa portfolios and we're talking about Life Sherpa Invest here, these are off the shelf portfolios and as you can say they've been carefully vetted. And carefully constructed by yourself and your team of advisors. Who are they for

00:40:00

Phil: and what sort of size portfolios should people be looking at to access these?

Vince Scully: Yeah, so that our uh, logic in launching LifeShop Invest was to provide access to non advised clients. So people who don't necessarily have a uh, relationship with Financial Advisor and be able to deliver the same rigorously assessed evidence based portfolios that we've been delivering for our members for over a decade and just to make those directly available. So you can go to Liveshop at Condo, do you invest and you can buy one of four of our portfolios that we make available from $5,000. So it's an entirely online experience. It delivers a fully diversified portfolio with associated tax reporting. It's hosted on a platform called Open Invest which provides all of the regulatory and compliance and money laundering inagle, not.

Phil: Money laundering, anti moneyundering, get that right.

Vince Scully: Um, they provide all of that and we provide the intellectual property in the portfolio. So these, there are four of them. So it's a subset of what we manage for our broader client base. But the four for a spread of risk profile. So We've got a 90% growth portfolio we call Everest. Keeping in the uh, Sherpa theme here. We've got an 80% growth called the Denali 80, we've got a 70% growth called the Kilimanjaro 70 and a fairly conservative 50% growth portfolio called a Coosiioscco 50. So those of you who paid attention in geography class will know they roughly they're in descending order of height of the mountain. But it's just a way of visualizing the portfolio. So that's go online, open an the account and you can put, you can do automatic deposits, you can do automatic withdrawals, you can have your distributions reinvested or distributed and you just pick a portfolio. We do have a tool which will help you choose which of the four aligns with your goals and risk profile. And that actually produces a statement of advice which says you've told me you want to invest $20,000, you've answered our quiz and here's which one of the four we think is most suitable. So some people just quite happy to go and say, well Look, I want a 90 go and buy Everest. Others need some, some guidance. So you go either way. But it's a low cost. So the cost is 0.65% on top of the underlying assets. So on $10,000, that's $65 a year. How much work do you want to do to save $65 and that includes all the tax reporting and performance reporting. We do a quarterly investment update.

Phil: You mentioned that this is for uh, people who don't actually need a lot of financial advice because financial advice encompasses so many areas of your financial life. However, a lot of people just need to know I've got some money, I want to put it somewhere and I want to know that it's going to.

Vince Scully: Be looked after well and you don't have to think about it. You know, a good application we see people doing is where they set up a self manage superund to buy a property and they need a solution for the $100,000 or $50,000 of cash that's left over which obviously needs to be invested in a diversified manner. And so this is a great solution for that. It's a great solution for people with smaller balances. You can open a kids account, you can open a family trust account, you a self made superfund account and it's just easy. P Now obviously for some people investing is a hobby and if you want to tinker, this is not for you. But if you want a low cost evidence based portfolio that has tried and true evidence based approach and um, it's all fully transparent so you can go on that website and look at what it's actually invested in. So this asset allocation, these funds. So you could just simply copy our homework if you want to do the work yourself. That's how confident we are. So we are, we believe in transparency.

Phil: That's as easy as it can be.

Vince Scully: But as they say, if you're going to copy someone's homework, copy from the smart kid in the class.

Phil: Fantastic. Use AI.

Vince Scully: Do not use AI to construct a portfolio. It's disaster.

Phil: Vince Guley, thank you very much for joining me today.

Vince Scully: Thank you very much Phil, it's been great.

Phil Muscatello: Uh, thanks for listening to Shares for Beginners.

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Phil Muscatello: You can find more at chesforbeginners. Com. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.