The All Ords Index of Australian shares started 2018 at 6,230, peaked at 6,481 in August, and fell to 5,709 by the end of the year. That's a fall of 8.4% in 12 months and 11.9% in five months.
Source: Yahoo Finance, All Ords Price Index 2018 (excludes dividends)
It was a year when anyone who preserved their capital did well. Most of the companies which were 2017-2018 darlings are now well off their 12-month highs, but we hear far less from tipsters admitting their failures than lauding their successes. Many fund managers who list 'preserving client capital' as their primary goal will plead for a long-term perspective, but defensive managers should be outperforming.
Investors who do not check market prices regularly will be surprised when they see their end-of-year revaluations. Here are some high-profile examples: BWX was hyped over its Sukin natural beauty range, 52-week high $8.10, now $1.60. Automotive Holdings, at one stage riding the boom in new car sales, 52-week high $3.87, now $1.56. Boral and Adelaide Brighton both rose on the building surge, now almost half their 52-week highs. Hot stocks like Wisetech and Afterpay are well above 52-week lows but both 30-40% off their highs. In the US, the 'Dog of the Dow' was Goldman Sachs, down 34%, while GE lost 57%.
With billions flowing into superannuation each week (total super assets $2.8 trillion at 30 September 2018, annual contributions to APRA-funds $110 billion, annual benefit payments $72 billion), it seems like a great time to be in wealth management. As shown in the ASFA table below, super assets are expected to triple in the next 20 years. Yet the banks are getting out, a third of advisers are expected to quit under the FASEA qualification tests, and AMP has led the share price tumble from $5.47 to $2.45 over 2018.
The group of companies riding the SMSF/new platform wave and benefitting from the Royal Commission fallout are also facing a reassessment (from 52-week high to current price): Netwealth from $9.99 to $7.53, Praemium from $1.18 to $0.64, HUB24 from $15.40 to $11.88, OneVue from $0.92 to $0.59 and Class from $3.16 to $1.39. Listed Investment Companies such as L1 priced at $2, now trading at $1.35, and Forager with a 52-week high of $2.10, now at $1.33, have struggled. Listed fund managers such as Pengana, down from $3.95 to a 52-week low of $2.17 and Pinnacle, down from $8.60 to $4.39, are in a 'New Year 50% off' sale for investors wanting action on the other side of the active fee debate.
Germany's DAX was down 18% for the year, the US S&P500 7% and Japan's Nikkei 12%. For the first time since 2011, super funds are likely to report negative returns in 2018, and with the Fed withdrawing liquidity at the rate of US$50 billion a month, it will not get easier in 2019.
Residential property did not provide much cheer, unless you live in Hobart, as the latest report from CoreLogic shows.
This week, we have posted a lively debate from our Facebook page about Labor's franking policy, where many poorly-informed views have surfaced, and a reminder that we have collected 10 highlight articles from 2018 into a free ebook, Firstlinks.
Summer Series with Guest Editor, Alex Vynokur
"One of the longstanding attractions of the Cuffelinks newsletter is its role not just as a platform for discussing investment ideas, but also as a source for unbiased and dispassionate analysis of the actual ‘business’ of delivering investment services to investors.
In this regard, I’ve naturally found it particularly interesting to follow the ongoing discussion around the use of exchange traded funds (ETFs) and the (somewhat) associated age-old active versus passive debate. What follows are six of the articles I’ve found especially enlightening from the Cuffelinks archives.
1. Provides an unbiased and realistic assessment of the pros and cons of indexing investing, especially through ETFs, from one of the leaders of the global investment industry.
Howard Marks asks 5 questions on indexing
2. Introduces the concept of investing by global thematics rather than just passive asset class exposure or individual stocks.
Investing by thematics rather than indexes
3. Notes the challenges of innovating in an industry dominated by complexity, consumer apathy, strong existing players and hidden costs.
Is there an Uber or Amazon of wealth management?
4. Explains the open-ended structure of ETFs and dispels some of the myths related to their liquidity.
Will ETF liquidity be there when I need it?
5. Outlines some handy rules to keep in mind when investing and trading in ETFs
Ten rules for more effective ETF investing
6. A breakdown of the various costs related to adviser, investment and administration services.
Do you know the fees you’re paying?"
Alex Vynokur, Guest Editor and Managing Director, BetaShares Capital Limited.
For a PDF version of this week’s newsletter articles, click here.