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Clear winner and loser in 2017/2018 survey

Over 400 readers completed the short survey on expectations for market returns in this new financial year, and the results suggest optimism for overall share market performance.

Winner of the expected best-performer category

Unhedged international equities (46% of votes)

Equities received strong support, with unhedged global shares (46%), Australian small caps (22%) and Australian equities (15%) adding up to 83% of votes. There was little support for fixed interest, and with cash at only 4% of votes, few investors see a market rout.

Particularly notable is that international equities have come first in four of the previous five financial years, so there’s either little support for ‘reverting to the mean’, or people are extrapolating from recent performance. How much does the concentration in Australia’s market among banks, miners and retailers play a role?

Only 2% expect residential property to be the best, but as in all years, that’s where most of the investment dollars will go.

Winner (or loser) of the expected worst-performer category

Cash (33% of votes)

Expectations for the worst performer were somewhat more balanced, with cash and fixed interest adding up to 57% of nominations. Taking a look at the Morningstar numbers for each financial year since 1998, cash has only come bottom twice. There are usually one or two other asset classes that put in a bad year and underperform the defensive characteristics of cash. Last year, cash outperformed listed property and fixed interest.

A healthy 22% expect residential property to perform worst, which is a decent vote for the market finally losing its head of steam (in Sydney and Melbourne, at least).

Most nominated range for S&P/ASX200 Total Return Index

+5% to +10% (47% of votes)

A strong 87% of votes placed the Australian index in the range of 0% to 10%, with most above +5%. Given the US market is at all-time highs and Australian and global valuations look stretched, and with US rates rising, this is an optimistic note for steady performance. There was stronger support for +10% and better (7.5%) than a bad result of -10% or worse (only 3%).

We will report on the results of these predictions at the end of 2017/2018.

Kenneth Maurice Ellis
July 21, 2017

Why are so many wanting to reduce the profit of our banks when the vast majority of all superannuation funds hove some exposure to them. Is it a desire to have a lower value for our superannuation? or just that people like bitching?

Cheers, Ken Ellis

July 22, 2017

Hiya Kenneth.

I think it is human nature to bitch,and accept that if everybody repeats something then it must be true, and great wisdom.

I keep annual reports.Looking at WBC and ANZ around 1991 when they were suffering, net interest margins were around the 4.5% mark.When they came back to profit most years the profit as a %age of assets is 1%.That is almost constant from 1991 until now.Net margins have fallen to around the 2% mark (less for NAB).Yet since then politicians,crowds,experts, all repeating the same thing, huge profits (where),how could it not be true.

CBA funds me so in 1996 if my memory is correct they almost had 100 billion in gross assets.Net profit of almost $1 billion.Net margins of around 3.8 or3. 9 %.They have been so constant in net profit,always 1% or 1.1% of gross assets.Net margins down to around 2.07%.

I would think shortly CBA will have gross assets of $1 trillion,which will produce net profit of $10 billion.No doubt politicians will have their crocodile tears,vote for me and I will do something about these huge profits.I wish they would explain how 1% is a huge profit margin after taxes and expenses

Andre Lavoipierre
July 20, 2017

Graham, You state that last year cash outperformed listed property and fixed interest. Also it appears that respondents to the survey have fixed interest as third worst performing asset class in 2017-18. I think your next survey should split fixed interest into fixed and floating because the floating rate securities have done very well over the past year eg Esltree Funds Management, who invest in listed convertible preference shares and subordinated notes (commonly known as hybrids) returned 13.7%...not a bad return considering _the volatility is only circa 22% of its comparable equities.

July 20, 2017

Graham, on your newsletter talking about ripping off existing customers, my bank offers walk in or “blow in” new customers 3% pa on their Maxi Savings account. Despite being a loyal customer over many years, they could only get me up to 2.7% after first stating that 2.55% was the rate for “high worth” existing customers. Bring on the Royal Commission!


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