Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

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 HallDavid 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:

banner

Most viewed in recent weeks

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.

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

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

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.