Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 325

Welcome to Firstlinks Edition 325

  •   25 September 2019
  •      
  •   

A few days ago, Bloomberg Markets reported the 'end of an era' and an 'epic shift' which has not been widely reported in Australia. Bloomberg called it a major turning point in history.

"In August, the investment industry reached one of the biggest milestones in its modern history."

For the first time ever in the US, index-based equity funds (including ETFs) exceeded actively-managed equity funds. The threshold was that, according to Morningstar estimates, inflows into passive US equity funds in the year to August 2019 were US$89 billion (to US$4.27 trillion) versus active outflows of US$124 billion (to US$4.26 trillion).

The momentum is irreversible. Although ETFs in Australia are growing strongly, they still account for only 2.5% of assets under management here, where managed funds dominate. There's a lot of contestable space. Research issued by Investment Trends this week reveals:

"When asked what proportion of total client investments they would prefer to allocate to passive investments over actively-managed investments, the average planner now prefers to allocate 33% of client portfolios into index-tracking investments, up significantly from 19% in 2018." 

The man who started index investing was Vanguard's Jack Bogle, who died in January 2019 at the age of 89. As Warren Buffett said in his Berkshire Hathaway letter of 2016:

"If a statue is ever erected to honor the person who has done the most for American investors, the handsdown choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing of added value.

In his early years, Jack was frequently mocked by the investment management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me."


At this historical moment, it's timely to interview the Managing Director of Vanguard Australia, Frank Kolimago, who previously ran Vanguard's Personal Advisor Services (PAS). He explains Bogle's philosophies and shows how personal advice can be delivered to the masses.

Treading a fine line on China 

Our 'Man of Titanium', Scott Morrison, must maintain good relationships with both Australia's major trading alliance, China, and major strategic defense alliance, the US. The Prime Minister supported Donald Trump's push for concessions from China on trade, even after the President said it would take more than a year to resolve the trade war. The framing is a delicate balance.

"It's got to be a sustainable outcome ... You need to understand Australia's economic relationship with China is very different from the United States' economic relationship with China ... We have a surplus with China, they have a deficit ... It has been an absolute boon for Australia and that is why I have always made it clear we have always welcomed China's economic growth."

So while Morrison backs Trump's hardline on trade, he needs to avoid irritating China. Treasurer Josh Frydenberg boasted of a Budget close-to-balanced, but it would be a bleak picture without Asia. As shown below, two-way trade with China is over three times larger than with the US.



Source: Deloitte Access Economics for 2017/2018

Bill Evans gives his latest predictions

The Australian Financial Review recently said of Westpac's Bill Evans' ability to predict the trajectory of official interest rates:

"This reputation means there is nobody outside the Reserve Bank who can move markets the way Westpac's veteran Chief Economist can."

Many moons ago, Bill and I worked at adjacent desks at CBA, long before it was a listed company, and Bill was as competitive on the squash court as he is today on correctly predicting markets. It's great to share his latest views on financial markets and interest rates.

Other investment articles ...

Also in this bumper edition, Vihari Ross explains the search for the best quality companies, eskewing any concept of chasing 'turnaround' or 'recovery' stories. Ben Inker reinforces similar ideas by showing how the biggest and best giant companies have prospered in recent years. The investment question is whether their success will continue.

Two articles take a look at mining and other commodities vital to Australia's success. Michael Salvatico offers a counterintuitive view that most mining is good for climate change, while David Bassanese shows how to invest in commodities and their role in a balance portfolio. With climate change headlining the news this week, it's worth noting Australia is installing renewable energy faster (in watts per person per year) than any other country in the world.

Jonathan Rochford's monthly look at Media Worth Consuming unveils dozens of links to sources outside mainstream coverage, often sceptical, quirky and challenging consensus.

The White Paper from Shane Oliver of AMP Capital is an excellent summary of recent market performance, but more important, gives his forecasts for medium-term returns by asset class. He describes five implications for investors relevant to portfolio construction.

Next week, we will take a break from preparing new material to allow our team to recharge their batteries after a non-stop 2019, including copying thousands of articles to our new website. To showcase this content, we will select some all-time favourites you may have missed.

 

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.