Beating a high calibre field of entries, Lonsec Investment Solutions has taken out the 2025 IMAP Managed Account Awards in the Australian Equities category. Nathan Lim (Evidentia) and Brad Matthews (Brad Matthews Investment Strategies) discuss Lonsec’s philosophy and approach to investing.

Lonsec Investment Solutions’ approach to building Australian equities portfolios has been acknowledged by its peers, taking out the competitive category of Australian Equities at the 2025 IMAP Managed Account Awards.

By Jayson Forrest

“The quality of entries in the Australian Equities category was very high,” says Brad Matthews — Founding Director at Brad Matthews Investment Strategies and IMAP Awards judge. “And because factors like client collateral, process documents, and investment philosophy were well articulated amongst the submissions, it meant that performance became increasingly more important in separating the entries.”

When judging this category, Brad says is was noticeable to see the evolutionary change in this space. This included the emergence of specialist SMA managers in Australian Equities.

“This year’s winner — Lonsec Investment Solutions — is a focused SMA manager, which can be challenging when you consider factors like the timing of transactions in the Australian market,” says Brad.

A common misconception about managed accounts is that they’re a recent development, when in actually fact, this structure has been around for quite some time. Lonsec is a good example, with the manager putting together its first SMA 25 years ago.

Nathan Lim — Chief Investment Strategist at Evidentia Group — credits Lonsec’s success with its ‘Core portfolio’ to its philosophy and long-standing investment approach, which underpins everything done by the investment team at Lonsec.

In relation to the ‘Lonsec SMA — Core portfolio’, it is a large cap, high conviction strategy that holds between 25-30 securities. It aims to generate long-term returns above the benchmark by investing in a concentrated portfolio of large-cap Australian listed companies within the S&P/ASX 200 benchmark. The portfolio is suitable for investors seeking capital growth, over a period of five years.

“A key part of Lonsec’s philosophy is our approach to balancing between diversification, alpha generation, and risk control. At the end of the day, as a large cap manager, you are inevitably going to be in one of the core parts of a client portfolio. What many advisers expect from us is to manage volatility, particularly in terms of how the portfolio performs relative to benchmark. So, being benchmark aware is part of what we do,” says Nathan.

“We do have a quality bias, which we call QARP (Quality At a Reasonable Price). We look for high quality, and that usually translates to companies with durable business models, which have a sustainable and competitive advantage, and that operate in the right sectors. That’s because some sectors are struggling, while other sectors are performing much better.”

However, Nathan does acknowledge that when investing, “there is a price for everything”. He says when a company starts to get up into triple digit price earnings, it gets very hard to justify owning that stock, irrespective of how high quality it is. 

In congratulating Lonsec Investment Solutions on winning the Australian Equities category, Brad acknowledges the strong performance of its ‘Core portfolio’ over the past 25 years. He particularly refers to the last 18 months, when many Australian Equity strategies have struggled. Most notably, he points to CBA where 20x valuations was an issue for many managers.

Nathan credits the performance of the Lonsec strategy over the past 18 months to stock picking. He explains: “In regards to CBA and resources, if you didn’t own these over the last 18 months, you were ‘cactus’. As a large cap manager, price earnings was the biggest challenge you had to face. Risk is managing awareness on the portfolio and being too far underweight financials is a risk in itself.  

“So, for us, we held CBA, Westpac and NAB at a slight underweight, which meant we were able to stay with a big part of the market in that way. Part of our reasoning behind not being too underweight financials was recognising that there was no credit stress 18 months ago, and similarly, the mortgage cliff didn’t happen as predicted, as people came off their fixed rate home loans,” says Nathan.

“Where we really added value was with our stock picking — Computershare, Aristocrat, ResMed, Newmont, Telstra — we nailed them all.”

As an example, Nathan cites the ResMed call, which was due to excellent research by the Lonsec team. The team looked at the impact of new weight loss drugs, and recognised that ultimately, these drugs would actually drive more awareness of sleep apnea, which it did. So, while there was initial concern that people were going to use less masks for sleep apnea, the opposite has actually happened.  

“Sometimes you do get lucky with good calls, but it really does come down to good old-fashioned fundamentals,” says Nathan.

According to Brad, Lonsec’s investment process was clearly evident to the judging panel. He says Lonsec’s approach was clear, pragmatic, and a logical process that could easily be handed down from one portfolio manager to another. This is something the judges were looking for, particularly for the core part of a portfolio that has to stand the test of time.

Nathan says Lonsec’s investment process starts with fundamental analysis. The initial screening is essentially what you would find in a normal quantitate and qualitative screen, which reduces the number of stocks being looked at in different sectors.

“From there, we get really deep into the sectors themselves, and make the call on whether or not we really want to be in that sector. Then within that sector, we look at the companies by considering the standard criteria like: quality management, performance track record, strong financials, and competitive advantages.

“On top of that, we also do our own cashflow modelling, and really spend a lot of time trying to get our cost of capital right. It’s basic fundamentals, you’ve got to get that calculation right.”

Ultimately, Nathan says that process is reflected in Lonsec’s ‘corp score’ (that rates a company), which helps drive the intrinsic value of a stock (the underlying worth, calculated using objective data like cashflows and earnings, rather than the current market price). That intrinsic value helps Lonsec with the sizing and risk management of its equity position. 

“Once we have all our stocks laid out and ranked, we’re able to better understand the strengths and weaknesses of each stock. From there, we run a fundamental overlay, which looks at the macro — such as where we are in the cycle, and policy risks like the Trump tariffs — and then finally, we get the sizing right,” says Nathan.