Transcription of The Stock Network Interview with Burcheart, Founder & Managing Director Sacha Burchgart
Lel Smits: As market volatility and diversification become bigger considerations for investors, many are rethinking the traditional approach of picking individual blue chip stocks and instead turning to ETFs for broader exposure and portfolio simplicity. In this Women in ETFs, ETF Education Spotlight, I’m joined by Sacha Burkhardt, founder and managing director of Burkhardt to discuss why ETFs are gaining traction among investors, the challenges of stock picking and how investors can think about balancing both strategies in modern portfolios. Sacha, welcome to the Stock Network.
Sacha Burchgart: Thanks Lel, it’s great to be here.
Lel Smits: Now, why are more investors moving away from picking individual blue chip stocks and moving towards ETFs?
Sacha Burchgart: I guess there’s lots of lessons to be learned over the past, especially since COVID, the market has changed so much with the COVID pandemic for one, the Liberation Day, the Russia-Ukraine war and more recently the Iran and Iraq conflict. So people are looking for more diversification.
We’re very in our blue stock picks, all at that top end, so over-concentrated in a particular market. So ETFs give a variety of options to investors at a low cost and a lower barrier to entry. So it’s a good opportunity whether you’re a young investor, an old investor, a retiree looking for some dividend payments to drive their income in their portfolio.
It just is a great opportunity for all types of investors.
Lel Smits: Yes, and when it comes to some of the biggest risks or challenges though, what do you generally see they are when they’re looking to build portfolios through individual stock selection?
Sacha Burchgart: Well, we all think we know lots about companies. I see, especially in a lot of the clients I work with, they work with companies that they also own stocks in.
So you overly concentrate on that stock risk. We think we know our behavioural finance, we grow up with certain brands and certain companies that we feel we know. So we tend to overthink it or believe that we have this extra knowledge that we might not have.
So stock picking does require conviction, it does require timing, it does require a lot of time. And most of us, as you know, are time poor. So we actually need to put it in the hands of the professionals who actually do this day to day, rather than trying to time the market and pick things just because we believe or we’ve been brought up to believe that these blue stock shares are where we should go directly.
So I guess the honest answer is individual investors are not resourced enough to pick it themselves. And then the market is changing so quickly. And I think the last six years has kind of proven that for a lot investors, thinking of CSL for one, you know, it was the top of the ASX for such a long time.
And what’s happened this year is like a stark reminder, if we’ve got that over concentration, it’s a lot of risk to carry.
Lel Smits: And so when it comes to ETFs, how are they helping investors achieve diversification differently compared to owning a handful, perhaps of blue chip companies?
Sacha Burchgart: I guess owning four banks and two mining companies is not a diversified portfolio. It’s like an ASX concentration play.
So ETFs allow investors to get access to global markets, different sectors, different themes, and different asset classes that simply aren’t available for everyday investors. True diversification means thinking across structures, not just companies. And I think that’s really important when building a portfolio, but also ensuring it’s cost-efficient.
Lel Smits: Absolutely. And are there still advantages, perhaps to owning individual blue chip stocks and also where can active stock selection add value?
Sacha Burchgart: Absolutely. We do have a lot of clients who’ve had those CVA shares for a long time.
And a lot of those CVA portfolios are being handed down generation to generation that I see in my client base. And for income focused retirees, the blue top blue chip shares are a very good opportunity for them to get that regular dividend every year and the franking credit back. So there is a play that you need to consider, but it really, you know, in financial planning, it depends.
It depends on timing. It depends on tax. There’s so many elements that come across in a portfolio.
And it also depends on the buying and price too.
Lel Smits: Yes. And finally, how do you think investors should think about combining ETFs and individual stocks when they’re constructing their long-term portfolios?
Sacha Burchgart: I guess building a portfolio really comes down to the client, a 28-year-old versus a 62-year-old is very, very different.
So a 28-year-old, you really want income wealth, sorry, a wealth generating portfolio, whereas for an older client, you’re really wanting an income generating portfolio. It’s not about choosing the individual stock unless you are a professional to do that. You want someone to look at if you’re over-correlated because if you’re choosing a stock and then an ETF and it holds the same stock, you’ve got double concentration risk there.
So it’s all about knowing what is in the ETF that you are looking for, what the underlying holdings are, and making sure that you’re not over-correlated. The biggest risk isn’t market risk. It’s a client who panics and sells everything when things go down.
You want to make sure you’re really, really well diversified so you protect that downside risk as well.
Lel Smits: Sasha, I really appreciate your insights for this Women in ETFs ETF Education Spotlight.
Sacha Burchgart: Thank you so much.
Ends