Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 262

Cuffelinks Newsletter Edition 262

  •   13 July 2018
  •      
  •   

There are many theories about why most active fund managers fail to consistently outperform their benchmarks. It takes many years of study and market experience to become a portfolio manager, but good results are often elusive. One theory is that there are so many skillful managers pricing shares that the market is relatively efficient and tough to beat.

Research by Hendrik Bessembinder of Arizona State University shows active management and stock selection is really difficult. He found that most stocks listed in the US since 1926 delivered lifetime negative returns relative to one-month US Treasury bills. Only 4% of companies (represented by the blue box below), or about 1,000 out of a total data base of over 25,000, produced half the returns of the entire market.




The grey space of the outer box represents the vast majority of companies that generated no returns, with 12% delisting at an average of 2.5% of their listing price. It's more common to invest in losers than winners, especially when competing against other talented analysts.

It's even more difficult to value a loss-making startup that has a good idea gaining traction. We take a close look at Raiz Invest, the former Acorns Australia, both as a micro investing platform and a company recently listed on the ASX. What's it worth? Take a guess.

Banks compete aggressively in many products, such as housing loans, but bank retail FX rates have always been pathetic. As I write this, the wholesale AUD/USD is 0.7419 and the retail rate from a major bank is 0.71. So A$100 buys US$71 at a branch instead of US$74, a difference of over 4% and a costly start to a holiday. Matthew Hayja uncovers the choices for a better deal.

The $1.6 million pension cap opens a number of financial planning choices, and Graeme Colleyand Emma Partenza explain how to contribute for a spouse with lower balances. Julie Steedalso shows how disability insurance works, something we all hope we don't need but might.

Longevity? 120 years is just the start

Few retirees know how long their money needs to last, and the doubt causes many to live frugally. Adam Curtis examines the dilemma that sequencing and longevity risks create. 
   
In the King James Bible, 2 Kings 25:27, the King of Babylon releases the King of Judah ...

"And set his throne above the throne of the kings that were with him in Babylon;
And changed his prison garments:
And he did eat bread continually before him all the days of his life.
And his allowance was a continual allowance given him of the king, a daily rate for every day, all the days of his life."


Average life expectancy in biblical times was less than 40 years, so the cost of this promise was probably not great. But in a presentation last year, Hamish Douglass of Magellan said that medical advances would allow people to live to 500. What about 1,000 years? While scientists do not unanimously support the claims of Ori Eyal, it's thought-provoking for how long retirement may last some time in the future.

Also looking into the future, the White Paper from MFS Investment Management is 'Dawn of the Urban Epoch', with the consequences for investing in an increasingly urbanised world.

ASIC on property spruikers for SMSFs

ASIC is watching SMSF service providers closely. The regulator recently found 90% of advice given to SMSFs was non-compliant and 30% risked disadvantaging the client. There was also a focus on 'one-stop shops' for the purchase of geared property through SMSFs, with groups of agents, lenders, brokers, developers and financial advisers all working together, even when a property was not suitable. So we reprise my article published in 2013 where I attended one of these spruiking seminars, when I was shocked by what happened. It's taken five years to 'crack down'.

A reminder that some new super regulations came in last week, including topping up unused $25,000 concessional limits over the following five years for super balances less than $500,000, and the new downsizing rules for people over 65 to make a non-concessional contribution.

Mark your diaries for 6 August 2018. The Financial Services Royal Commission has asked 30 superannuation funds to make a director available to give evidence. More sweaty palms.

Graham Hand, Managing Editor

 

Edition 262 | 13 Jul 2018 | Editorial | Newsletter

 


 

Leave a Comment:

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.