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Tuesday, 26 May 2020
Recently trending Buffett's meeting takeaway: extreme cautionWelcome to Firstlinks Edition 356The vibe of future returns: tell ‘em they’re dreamin’Baseline outlook for economic recovery is too optimistic Retiree spending patterns differ from most expectations
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We cannot throw our hands up in the air and say 'this time around, it's simply too hard'. Having no macro view is unhelpful, but many of the baseline scenarios are overly optimistic, says the former CEO of Westpac and now Chairman of Chi-X Australia.
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COVID-19 is an opportunity for a crucial policy reset, but what does that really mean? Business is hoping for three big reforms, but there are massive barriers to be overcome.
Everyone seems to be watching The Last Dance, a fascinating sports documentary about the pursuit of excellence by one of the greatest athletes of all time. Let's not stretch the business analogy too far.
When we look back five years from now, which companies will we regret not having bought at today’s prices? The next opportunities come from focusing on the long term, not the next few months.
Retail assets, particularly those focused on discretionary shopping, will continue to underperform and industrial and logistics assets will be the winners for the foreseeable future.
Downside risks remain and we expect another leg down, but active managers should take advantage of market dislocations. In the current context, humility and risk management are key.
The ability of countries to support their economies today turns on fiscal practices set well before this crisis. Increasing levels of debt escalate overall risk, and tie our hands in the future.
It will surprise many that benefits worth over $8,700 could be available for a couple with a super balance over $4 million. Check if you are eligible for the Commonwealth Seniors Health Card.
The government has announced initiatives to help people use their superannuation in response to the crisis, but for early access and drawdown changes, there are important rules to follow.
Unlike the share prices of some companies which have held up due to their defensive characteristics, Fisher & Paykel is playing an active role in mitigating the worst effects of the crisis.
The deteriorating mood will bring changes that will have profound economic, financial, social and political changes that can be grouped into new, accelerated, busted and possible trends.
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Welcome to Firstlinks Edition 358
One of the many victims of COVID-19 is Australia as a private sector, market-based economy. It's become a public-subsidised economy. Most workers are on some type of government support, and the downturn is disguised in the official numbers. Last week's unemployment rate of 6.2% is fiction, as most workers are either unemployed, paid by the government or they have given up looking for work. How do we climb out of the valley?Read More.
Investors often overlook the capital risk in high-yielding stocks. It's better to ensure capital grows and investors can sell a portion each year to make up for the shortfall in income from dividends.
The varying degrees of market performance are due to the mix of sectors and stocks in each index. The best plan of attack is to find quality companies in essential services at favourable prices.
A summary of an important message on the vibe of future returns. Super balance calculations default to earnings rates of 7.5%, but that's in the past. Planning needs a more realistic view.
Female representation on boards is increasing but still low, and they command fewer positions in small companies. Worse, of the 34 CEOs appointed to boards in the last year, only three were women.
It's the vibe, but not much else. Super balance calculations default to earnings rates of 7.5%, but that's in the past. Global experts suggest financial plans are now dreaming at this level.
Warren Buffett's annual meeting of Berkshire Hathaway showed he has not been 'investing while others are fearful' during the crisis. lt's a reminder to take caution and preserve cash.
As Australia prepares to relax Covid-19 lockdown restrictions, crucial questions of lives versus livelihoods are being asked. At its most pointed, it's also a matter of lives versus lives.
Free spending by governments risks unsustainably higher debt levels, as deficits matter and must be paid for. Here are four steps investors should consider as previous techniques may not work.
The oil market is as much about geopolitics as it is demand and supply, with regimes controlling much of the global production. Are negative oil prices part of a bigger plan by someone?
As we slowly emerge from the pandemic, there is a small window where everyone is on the same team, fighting a war against a common, invisible enemy. It's an opportunity to make some big decisions.
Italy is so weak economically, financially and politically that it poses an existential threat to the eurozone. Solutions to appease the crisis face political hurdles and a euro exit is possible.
Are analysts who repeatedly issue warnings that do not come true crying wolf about an imaginary risk of inflation? The problem is governments may become addicted to imprudent deficit spending.
Global markets are more uncertain today than at any other time in our lives. Nobody knows the future but we must make decisions about it. A solid dose of intellectual humility is essential.
Sixty per cent of the ASX200 total return is due to dividends, and for Financials, it rises to more than 70%. Moves to limit dividends could both reduce investor incomes and affect valuations.
There are heavy clouds on the horizon in the near and medium term, yet risk markets have separated themselves from the economics. Liquidity will not solve the problems of bankrupt companies.
The traditional notion that retail investors buy high and sell low has not been supported by activity at this broker, who has seen investors looking for bargains after the Covid-19 sell-off.
Anyone considering investing in oil must understand it is a commodity with supply and demand features, and the relationship between spot and futures markets is critical to how an oil ETF is managed.
Reductions in loan repayments, either deferrals or failing to opt out of lower payments, seem like a good idea. But they are expensive and should only be adopted if the borrower needs the money.
Aged care should not be narrowly defined, as opportunities include home care, granny flats, retirement villages, land lease communities and residential aged care. Take advice and don't rush it.
Simpler tax arrangements for investments are a key benefit of separately managed accounts, where after-tax outcomes vary from other vehicles such as managed funds and direct equities.
The use of discounted pricing by insurers to attract new business is unsustainable and leaves existing policyholders on higher premiums for what is essentially the same product.
The best way to preserve your SMSF’s favoured status is to make sure the fund’s annual return reaches the ATO on time. There are new rules this year that every SMSF trustee should know.
We often focus on the implications for financial security of being unable to save enough for a comfortable retirement, but mental wellbeing is as important. Financial advice can help.
Rob Arnott is a leading researcher, fund manager and academic often quoted in US media. We chatted at a moment in time when President Trump must make some critical calls on coronavirus.
While coronavirus has brought into sharp focus the risks in bond portfolios, markets are always changing. Relative value and risks must be constantly watched as opportunities are presented.
The Morningstar CEO on democratising investing, why saving in your youth is crucial, and why most investors care more about paying off their debts than comparing their results against benchmarks.
An active manager of cash and fixed interest funds can achieve higher returns than the cash rate through a selection of other securities while managing both liquidity and income for clients.
A global portfolio of infrastructure assets allows trends in one part of the world to be recognised early in another, while companies with pricing power and high barriers to entry enjoy extra resilience.
1997 Nobel Laureate Robert Merton wants greater focus on the income that will sustain a retirement, and even Jane Austen understood this. And he has a surprising proposal to help with longevity risk.
There is a remarkable concentration similarity between the Australian and US stock markets that has delivered poor results for Australians and great results for Americans (and global investors). As the share prices of five Australian banks have tanked, the prices of five US technology companies have surged. Each group now represents 20% of their respective indexes, but the journey has been a disaster for many Australians.
Few investors are as influential as Warren Buffett, although for the moment, the market is ignoring his caution. The annual meeting of Berkshire Hathaway revealed Buffett did not use the heavy market falls in February to buy shares. Rather than 'buy when others are fearful', he was a net seller of US$6 billion for the quarter, disposing of all airline shares. Berkshire is sitting on US$137 billion in cash, suggesting he expects better buying opportunities to come.
May Day delivered a reality check with a fall of 5% in the S&P/ASX300 after rising 8.8% in April. Hopes of a V-shape recovery are optimistic but Australian investors are reacting to market volatility with polar opposite portfolio changes. While one cohort has rushed for cash and safety in the crisis, another group has seized a share-buying opportunity. The S&P/ASX300 bottomed on 23 March at 4,500 and has since risen to about 5,200, but whether those brave enough to buy equities will be rewarded, only time will tell.
The impact of central bank activity on stock and bond markets is so pervasive that 'don't fight the Fed' has become a cliché. In fact, clichés are thriving in the coronavirus pandemic. We hear 'the cure is worse than the disease', events are 'unprecedented' and 'black swans', hotels and ships are 'Petri dishes', while 'we're all in this together' but it's 'the worst since the Great Depression' before we 'come out on the other side'. And yes, yes, yes, we know 'when the tide goes out, we can see who's been swimming naked'.
The Great Lockdown will be the worst downturn since the Great Depression, says the IMF. It warned this week that the Australian economy will slump by 6.7% in 2020, followed by a recovery in 2021. While the economy is not the stock market, there's a disconnection at the moment. Despite the poor outlook, price/earnings ratios for both the S&P/ASX200 and the S&P500 are still well above long-term averages.
The stock market usually bottoms well before positive data shows a turning point. The number of strong days in the market recently is a testament to the willingness of some investors to look through COVID-19 to a future of vaccines and economic stimulus. But as countries force business shut downs and demand people stay home, timing of sustained recovery is a coin toss.
Australian bank share prices are down about 40% since February 2020, with many of the risks factored in. It's hard to estimate short-term loan losses and asset growth, but the longer term is more positive.
Magellan has attracted massive inflows in the last five years, while Platinum has struggled. The disparity in both track records can be explained by their varying investment approaches.
Bear markets caused by recession fears follow a pattern, but we have never seen anything like coronavirus. If financial stimulus and medicine prove ineffective, all bets are off.
Three Morningstar resources are available to Firstlinks readers to assist in the current market turmoil. A short Hamish Douglass interview, detailed US research into the virus and a special trial offer.
Fidelity took out the top gong this year alongside other winners in Australian equities, global equities, fixed interest, listed property and infrastructure and multisector funds.
Chris has many years of experience in building successful wealth management practices.
Noel Whittaker is one of the world's foremost authorities on personal finance.
Phil Ruthven is the founder and director of IBISWorld, Australia's best-known business information, forecasting and strategic services corporation
Paul John Keating is a former Australian politician who served as the 24th Prime Minister of Australia, in office from 1991 to 1996 as leader of the Labor Party.
Webinar: Hybrids: The state of play and market opportunities, 2 June 2020.
awarded concentrated global equities mandate by State Super.
AIA Webinar: What are investors like you doing? Investigate real-life investor portfolios and discover trends for the 2020s, 19 May.
With more people living longer, retirement expectations are being reshaped and redefined. Now is the time to consider the financial and cultural solutions for making the most out of the gift of a longer life.
What does a portfolio look like when someone with access to almost every asset class and manager in Australia takes a genuinely long-term view, building the portfolio from the ground up?
It's often said that 'A man is not a financial plan'. A Practice Director in a successful business shares some of her life tips on financial independence for women aiming to self-fund their retirement.
Before you jump in and invest in that racehorse with its potential Group 1 winnings and breeding credentials, here is a reality check on your dreams of fame and fortune from someone in the know.
Make sure you're not focussing on minor investment problems while giving short shrift to the game-changers. This pyramid describes the important decisions and it might surprise what comes last.
When Barack Obama puts out a reading list with 19 of his favourites from 2019, it makes us realise we should spend more time reading books. Plus Morningstar's experts recall 2019 and preview 2020.
State Street Global Advisors is a pioneer in the Australian ETF market, but aggressive pricing from new rivals has eroded its competitive edge.
We should be grateful for our mandatory and 'auto enrolment' super system as the most powerful tool for increasing savings. Without one, the US has a severe retirement crisis approaching.