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Saturday, 18 September 2021
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It used to be Down, Down for prices but the new status quo is Down Down for emissions. Until now, the realm of ESG has been mainly fund managers as 'responsible investors', but companies are now pushing credentials.
The long current positive run for the Australian stock market is unusual but not a warning of imminent demise. Previous long positive runs were not all followed by corrections but this one may end this month.
Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.
It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.
There's an assumption that bond yields and share prices have a predictable relationship. The positive correlation means that when yields rise due to a strong economy, so should stocks. That's not what happens.
Dividend payments from listed companies, depended on by many in retirement, have lagged the rebound in share prices over the past year. Better times are ahead but sources of dividends will differ from previous years.
Best-in-class or ‘pure-play’ companies concentrate on one business really well, while companies with diverse operations lead to inefficient capital allocation and underinvest in the best opportunities.
There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.
The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.
The traditional single-period measurement tools such as P/E or EV/EBITDA do not allow for cashflows looking out many years, which are needed to value great companies of the future such as Xilinx, Nvidia and Qualcomm.
There are many reasons why 2021 has the potential to be a great year for equities. What are the themes and opportunities most likely to deliver, and how much is inflation a threat?
The 12 months ending 31 March 2021 saw the largest positive divergence in returns between global equities and bonds in nearly 50 years. To retain a target balance, investors need to sell equities and buy bonds.
Who knew? With some surprise results, the Government is on unexpected firm ground in asking people to draw on all their assets in retirement, although the comments show what feisty and informed readers we have.
Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.
Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.
The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?
Some high-quality companies have emerged even stronger since the onset of COVID and are well placed for outperformance. We call these the ‘COVID Opportunists’ as they are now dominating their specific sectors.