Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 323

Welcome to Firstlinks Edition 323

  •   11 September 2019
  •      
  •   

Sometime in the next year, if there is no major market fall, total assets in superannuation will hit $3 trillion on the way to a forecast $10 trillion in 20 years, as shown below. Not bad for a country with GDP of about $1.9 trillion. The entire market value of all listed companies in Australia is about $2.1 trillion. While super funds obviously invest in a wide range of other asset classes, super investments will increasingly move offshore.

Projected superannuation assets, 2020 to 2040

Source: Association of Superannuation Funds of Australia

Already, this is making a major contribution to Australia's current account balance, which recently went into surplus for the first time in 44 years. With foreign equity holdings reaching $1.5 trillion, Australian investors now hold a record $141 billion more foreign equities than the amount of Australian equities owned by foreigners. AustralianSuper holds 44% of its assets overseas, or $76 billion, a doubling in five years. It contrasts with the heavy home bias in SMSFs.

Does history really repeat?

A phrase commentators love to trot out in its many variants is, "Those who cannot learn from history are condemned to repeat it." It's in contrast to, "This time it's different." One reason history might not be much of a guide to market behaviour is that we live in an age of automated trading driven by algorithms. History did not have powerful computers obeying quants.

Take the case of people arguing that the inverse yield curve is a sign of impending recession. A trader-friend offers another theory. In the US, borrowers can repay fixed rate mortgages without penalty. As rates fall, they refinance into lower rates, which means mortgage-backed securities are repaid at a much faster rate than expected. Large insurance and pension funds hold these assets against long-term liabilities. As the mortgage bonds are repaid, algorithms automatically buy longer-dated bonds to manage the maturity mismatch, driving down long bond rates.

Other factors suggest history offers no guide. Former Federal Reserve Chairman, Alan Greenspan, thinks the yield curve will continue to invert due to changing demographics. He said recently: “An ageing population is driving demand for bonds, pushing their yields lower.”

In this week's packed edition

Last week we showed how the Future Fund is investing in different fixed income assets, including peer-to-peer lending. Continuing our Interview Series, Daniel Foggo, the CEO of RateSetter, explains how 'marketplace' lending works, with some surprising insights. He thinks of his business as a fund manager for the large asset class of consumer finance.

While there is no doubt the financial advice industry needed to fix clients' best interest duty, an unwelcome consequence of the Financial Services Royal Commission inquisition is that full-service advice will increasingly be confined to wealthier people. On Tuesday this week, the Ending Grandfathered Conflicted Remuneration Bill 2019 passed which bans commissions paid to financial advisers from 1 January 2021, only 15 months from now. Many advisers will not survive this change.

Treasurer Josh Frydenberg's announcement said:

"Grandfathered conflicted remunerations can entrench clients in older products even when newer, better and more affordable products are in the market. Ending the payment of grandfathered conflicted remunerations will remove this inherent conflict and restore trust in the financial advice industry."

No mention of what new business model is supposed to pay for compliance-heavy and complex financial advice, because the majority of people cannot afford it. We ask if FoFA now stands for Failure of Financial Advice, and jump into the comments section if you have a view.

Peter Thornhill has a big following among our readers with his unconventional approach to asset allocation. He argues that chasing dividend yields is the wrong approach to finding income.

SMSFs are coming under increasing regulatory scrutiny. Graeme Colley provides a detailed checklist for trustees to review whether they are risking non-compliance and their tax status.

Investors need to watch that they are not buying into a company at the very peak of its growth, just as it enters a flat period. Nick Griffin describes how watching the S-curve works.

The Governor of the Reserve Bank, Philip Lowe, has warned the Government that interest rates can't do the heavy-lifting for the economy, and more fiscal stimulus is needed. July retail sales fell 0.1% despite recent rate cuts and tax refunds. He told a group of central bankers in New York:

"We can be confident that lower interest rates will push up asset prices, and I think that later on, we will have problems because of that."

It's timely that Michael Collins reviews the declining influence of interest rates and central banks.

The decline in the Australian dollar in the last year has boosted performance of foreign assets, and Gofran Chowdhury looks at the merits of holding cash in a foreign currency.

Finally, Peter Rae explains how many LIC's are struggling to remove their large discounts to NTA, as well as reviewing the latest new transactions in the market.

This week's White Paper from Legg Mason is 'Solving for the Retiree Problem with Innovation' and looks at research and philosophy for retirement income assets.

Graham Hand, Managing Editor

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

 


 

Leave a Comment:

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

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.