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21 August 2026

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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.


 

  •   31 May 2019
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