Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

1 July 2022

Home / 308

Cuffelinks Firstlinks Edition 308

Welcome to Firstlinks Newsletter Edition 308
Graham Hand

Graham Hand


In an edition chock-full of investment ideas, we start with a caution to the people calling for Labor's franking credits policy to be modified with either a grandfathering or a cap on the amount. For SMSFs, neither will work.

For example, two days after the election, on 20 May, the AFR wrote:

"Surely some sort of compromise position – a cap of say $15,000 on franking credit refunds – would have defused the issue in such a way that showed Labor wasn’t being harsh or unfair, but also allowed it to keep some of the budget savings."

They are overlooking that the SMSF, not the member, is the taxpayer. The cap would need to be on the SMSF, and anyone could manage the cap by opening multiple SMSFs. Grandfathering the impact is also flawed because a fund can change members. Trustees can enter (or leave) a fund when they wish, allowing new members to benefit from the grandfathering. Any revised proposal must address the inequity between SMSFs and APRA funds of the previous policy.

Which brings us to Treasurer Josh Frydenberg's support for the Productivity Commission's proposal to review the retirement incomes system. This is a big deal. The Commission made 31 recommendations, including the 'Best in Show' super fund shortlist. Although during the election campaign, Scott Morrison ruled out changing taxes on superannuation, the opening of a formal review puts everything back on the table - pension rules, the role of the family home in the assets test, taper rates, industry fund governance, fees. Forget keeping superannuation policy out of the headlines.

What super rules do you think are vulnerable in this review? Respond using Have Your Say.

Dozens of investing insights ...  

We continue our Interview Series with the CEO of Charter Hall, David Harrison. He identifies the major trends in property investing across retail, industrial and office, and while he likes diversity, he describes the sector he prefers and the one to watch carefully.

Two other investment products that should benefit from the clarification about franking credits are hybrids and Listed Investment Companies (LICs). On hybrids, Christopher Joye says the widening of spreads at a time when banks have improved their tier 1 capital strength is an opportunity. Then Norman Derham and Campbell Dawson describe the risk-adjusted returns of hybrids over equities, and their place in a diversified portfolio.

It's worth mentioning that both these papers are written by specialists who manage hybrid funds, and understand the complexities of these instruments. Hybrids may not suit the more conservative investor as they sit in a junior position in the capital structure, as shown below.



Many LICs saw their share prices fall by up to 10% since the start of the year amid the uncertainty created by franking, and some companies were considering converting to trusts. Dugald Higginsexplains which types of LICs are best suited to this structure.

Remember that we have extensive pricing and reports on hybrids, LICs and ETFs in our Education Centre, the place to go when you're researching for listed investments.

Investors came out of the election result with new-found optimism, especially for banks, but Jonathan Rochford sees warning signs for some tech shares and debt markets. Massive pools of liquidity have pushed up valuations in many asset types worldwide. It brings to mind advice Warren Buffett gave in 2006, just before the GFC hit all markets:

"Any asset class that has a big move, that’s based initially on fundamentals, is going to attract speculative participation at some point, and that speculative participation can become dominant as time goes by ... How far it goes, you never know. Some things go on to just unbelievable heights."

One way to invest is to watch major global trends and find companies that benefit from societal changes. David Sheasby and Will Baylis identify four food trends to whet your appetite.

Finally, two provocative articles take a critical look at 'value' investing. Jason Orthman and Mark Arnold debunk its reliance on share prices reverting to some normal or mean measure, while Graeme Shaw and Rob Perrone say the way value indexes are constructed is flawed. Both articles are bound to have opposing views, but that's what makes a market.

This week's White Paper from Fidelity International is an excellent one-pager on the different features of Active ETFs, passive ETFs, managed funds, LICs and LITs. They all perform a similar role but have unique characteristics which may suit certain investors.

Graham Hand, Managing Editor

 

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


 


 

Leave a Comment:

     
Firstlinks is sponsored by:
banner

Most viewed in recent weeks

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.

Latest Updates

Superannuation

Superannuation: a 30+ year journey but now stop fiddling

Few people have been closer to superannuation policy over the years than Noel Whittaker, especially when he established his eponymous financial planning business. He takes us on a quick guided tour.

Survey: share your retirement experiences

All Baby Boomers are now over 55 and many are either in retirement or thinking about a transition from work. But what is retirement like? Is it the golden years or a drag? Do you have tips for making the most of it?

Interviews

Time for value as ‘promise generators’ fail to deliver

A $28 billion global manager still sees far more potential in value than growth stocks, believes energy stocks are undervalued including an Australian company, and describes the need for resilience in investing.

Superannuation

Paul Keating's long-term plans for super and imputation

Paul Keating not only designed compulsory superannuation but in the 30 years since its introduction, he has maintained the rage. Here are highlights of three articles on SG's origins and two more recent interviews.

Fixed interest

On interest rates and credit, do you feel the need for speed?

Central bank support for credit and equity markets is reversing, which has led to wider spreads and higher rates. But what does that mean and is it time to jump at higher rates or do they have some way to go?

Investment strategies

Death notices for the 60/40 portfolio are premature

Pundits have once again declared the death of the 60% stock/40% bond portfolio amid sharp declines in both stock and bond prices. Based on history, balanced portfolios are apt to prove the naysayers wrong, again.

Exchange traded products

ETFs and the eight biggest worries in index investing

Both passive investing and ETFs have withstood criticism as their popularity has grown. They have been blamed for causing bubbles, distorting the market, and concentrating share ownership. Are any of these criticisms valid?

Sponsors

Alliances

Site Map

About Firstlinks

© 2022 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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.