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Cuffelinks Newsletter Edition 276

  •   19 October 2018

First up, a quick note on last week's Factfulness survey results ahead of a full report next week. With an excellent response rate of over 4,000 readers to date, the average score is 37%, or less than 5 out of the 13 questions correct. How do you compare? We will show you the world and Australian results against Cuffelinks readers in the next edition.

What to do with your bank shares?

Australian banks occupy four of the top five weightings in the share portfolios of SMSFs, and dominate the portfolios of most super funds and all index funds. Under pressure from the Royal Commission at the same time as markets are falling, the biggest decision many direct investors face is what to do with their bank shares. It's complicated by the fact that, provided the banks can maintain their dividends at current levels, the yields are well in excess of most alternatives. In fact, grossed up for franking, the average yield for the majors is almost 10%. It's a lot to forgo with prices already down.

 Estimated 12 month forward yields (excluding imputation credits)

Source: Deutsche Bank forecasts

Trade wars and interest rates are spooking markets. Late in September, the US Federal Reserve raised interest rates for the third time in 2018, and more rises are expected in 2019. Share markets are finally taking notice. In the face of trade sanctions, US Treasury Secretary Steve Mnuchin was asked about a potential Chinese retaliation by selling US Treasuries. He said he isn't worried because there's plenty of demand for U.S. government bonds, but markets think otherwise. Major bond investor Jeffrey Gundlach said, "Investors are starting to realize just how many bonds are coming at us in the year and two ahead."

Focus on your long-term investment strategy

Investors will face more reminders of short-term market volatility in the coming months but we prefer to focus on long-term investment strategies and insights.

The Royal Commission will create new constraints for banks, and Matthew Davidson shows how specialised fintech disruptors could erode bank market shares in certain pockets.

Reverse mortgages have their uses for an aging population lacking investment income, but Robin Bowerman adds the cautionary tale drawing from ASIC’s report on the product structures.

Phil Ruthven looks at how asset classes have performed over long, multi-decade periods while suffering short-term volatility.

Doug Morris explores an aspect of ETFs rarely discussed, the potential complications in tax returns. Administrators and accountants need to be on top of the facts. 

Are investors in Tesla-like companies naïve? Absolutely not, says Alex Pollak, countering other views expressed in Cuffelinks. He outlines an approach toward assessing companies driven by disruptive technologies.

Technology leader stocks in the US have boomed (notwithstanding the recent fall), and Nick Paulshows how this inadvertently leads to reduced diversification via a reduction to mid-cap exposure in portfolios represented by the Russell 1000.

And Chris Cuffe explains how a new fund he will chair with a charitable focus intends to make money for investors. Two videos accompany the article.

This week's White Paper from AMP Capital is Shane Oliver's five charts to keep an eye on regarding the global economy. In our Additional Features section below, the BetaShares ETF Review for September shows Australian ETFs have now surpassed the LIC market.

Graham Hand, Managing Editor


For a PDF version of this week’s newsletter articles, click here.



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