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Cuffelinks Newsletter Edition 269

  •   31 August 2018

On some measures, the US equity market is experiencing its longest bull market in history. Next week, I will chair a session at the Australian Institute of Superannuation Trustees' Annual Investment Conference called, "When is the next downturn coming?" Fortunately, I am not presenting because "I haven't got a clue" does not sound good. At last week's Portfolio Construction ForumMichael Blayney, Head of Multi-Asset at the Pendal Group, presented data showing expert strategists do no better than a coin toss in predicting market turns.

But increasingly, the big names of worldwide investing are warning that we're much closer to the end of the bull run than the beginning. One of our favourite investors, Howard Marks, offered his number one piece of investment wisdom on market cycles in a tweet a few days ago:  


The US market might feel like an aging bull, but the S&P500 has reached a new high, up 321% (or 415% including dividends) since 2009. Jon Boorman from Broadsword Capital has been tracking the comments made by famous bears in the chart below, which you can click for more detail. Remember the headlines grabbed by RBS at the start of 2016 when they told investors to "sell everything"?

Growth is fuelled by unprecedented injections of liquidity which are now being withdrawn, and investors should expect future returns to be lower, even if a recession or correction is not severe. Jason Orthmanand Mark Arnold look at the global economy's headwinds.

Royal Commission push back

The Commission has firmly placed the superannuation industry, especially retail funds, on the defensive, and the 200-page Closing Submission issued last Friday highlights potential criminal charges. But in a rare legal counter, Allens lawyers has issued some opposing opinions:

"When we went to law school, we were told that before someone could be found to breach a duty of care, the standard of care required had to be identified. In the case of superannuation trustees, it is the standard of a prudent superannuation trustee. The submissions do not say anything about what that standard means. They appear to be saying that whatever it means, the relevant trustees may not have satisfied it ... Contrary to what Counsel Assisting appear to be implying, the facts do not speak for themselves."

The Royal Commission and regulators will have a far-from-clear run through criminal proceedings. Furthermore, new Prime Minister Scott Morrison abolished the cabinet portfolio position of Revenue and Financial Services, rolling it into Treasury, but Josh Frydenberg will have more things to worry about than new superannuation regulations.

Don't ignore real (inflation-adjusted) returns

Two articles this week are reminders to consider investment performance in real terms, and it's sobering to see Ashley Owen's long-term chart of the All Ordinaries index adjusted for inflation. It often goes decades without reaching new highs, and is a long way off its 2009 peak despite what the headlines will say when we reach the nominal high of 6,873 again.  

Blockchain and cyber are creeping into our lives

In some good news for CBA, it has just led the world's first public bond created and managed using only blockchain technology to test decades-old sales practices. While blockchain and cyber remain arcane to many, Michael Collins sheds light on the opportunities and threats in blockchain and cyber investment opportunities are opened by Tamas Calderwood

Emerging markets, tax planning

Two more important articles. It's surprising how few people consider the tax-effectiveness of their estate after working all their lives to build and preserve personal wealth, as Matthew Collins explores. Then Jonathan Rochford shows how the rush to better yields in emerging markets debt has hit rocky ground, in a warning to all of us about chasing yields.

The McKinsey Global Institute estimates the world needs to spend about US$4 trillion a year on infrastructure, and no doubt this amount has risen after the Genoa bridge disaster. This week's White Paper from UBS Asset Management and CBRE Clarion Securities updates us on the opportunities.

The comprehensive Bell Potter Quarterly Review attached below shows Listed Investment Company (LIC) new raisings plus discounts and premiums, but check latest prices on the ASX for updates. 

Graham Hand, Managing Editor


Edition 269 | 31 Aug 2018 | Editorial | Newsletter



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