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Welcome to Firstlinks Edition 415 with weekend update

  •   8 July 2021
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The Weekend Edition includes a market update plus Morningstar adds free links to two of its most popular articles from the week, including stock-specific ideas. You can check previous editions here and contributors are here.

Well done to Ashleigh Barty, off to a flyer to win the first set, fighting hard after losing the second, then bringing home the Championship. And to Dylan Alcott for continuing the success in the wheelchair event. 

Weekend market update

From AAP Netdesk: Shares had their second week in the past three of losses on the ASX as investors fret that the coronavirus Delta variant may hamper economic recovery. The Aussie market fell by as much as 1.4% on Friday before a late climb trimmed losses to less than 1%. Technology shares fared worst and dropped 2.8%. The benchmark S&P/ASX200 index closed down 68 points or 0.9%. For the week, the index lost 0.5%, and it has shed 1.3% over the past three weeks. However, it remains on a nine-month winning streak and is little more than 100 points from a record close.

From Shane Oliver, AMP Capital: US shares managed a 0.4% gain for the week as 'dip buying' possibly helped by news of monetary easing in China drove a strong gain on Friday. However, Eurozone shares fell -0.2%, Japanese shares lost -2.9% and Chinese shares fell -0.2%. Consistent with the risk off tone, bond yields fell. Commodities were mixed with metals and iron ore up but oil down partly due to an output dispute amongst OPEC members. From their highs early this year, US 10-year bond yields have fallen 0.4% from 1.74% to 1.36% and Australian 10-year bond yields have declined by 0.5% from 1.9% to 1.33%. 

Eurozone shares rose 1.6% on Friday and the US S&P 500 gained 1.1%. The positive global lead saw ASX 200 futures gain 76 points or 1.1%, indicating a strong open for the Australian share market on Monday.

***

My undergraduate degree majored in economics, a popular subject in the 1970s and 1980s. It was my favourite HSC study and in the Randwick Boys High School hall (yes, folks, we don't all go to private schools) is an economics honour board with my name on it. What's not to like? Well, apparently, a lot, because economics is less popular in schools than ever. In NSW, of the 76,000 HSC students in 2020, only 5,072 sat the economics exam. Many drop out in year 11 due to the heavy emphasis on mathematics.

There's an easy fix. Judging by the number of young people in the sharemarket for the first time in FY21, call the subject 'Investing and Economics', update the syllabus and enrolments would go through the roof.

The authors of the study of 4,800 students in years 10 to 12 (15- to 18-year-olds), Tanya Livermore and Mike Major of the Reserve Bank, report:

"We find that high school students typically have positive perceptions of economics as a field; however, the perceptions of Economics as a subject tend to be negative ... students from a lower socio-economic background are more likely to believe that ‘it is a risk to study Economics because I don't know what it's about’".

Unfortunately, the students from lower socio-economic backgrounds who would probably most benefit from understanding economics don't know what it's about.

Some version of economics/finance/investing should be compulsory in schools, and it should be easy to make it interesting. One major trend from COVID-19 is the big increase in young people investing or trading on stock exchanges for the first time, which we have written about before. According to the ASX Australian Investor Study:

"The last two years have seen an influx of younger investors into the market. Among those who began investing on a securities exchange within the last two years, a quarter are next generation investors. And this trend looks set to continue, with 27% of intending investors (those planning to begin investing within 12 months) also under 25."

One concern is where these new investors find ideas. ASIC Senior Manager of Retail Complex Products and Investor Protection, Somer Taylor, recently admitted at the MarketLit conference that social media presents a "degree of risk" as a source of information and creates challenges for the regulator.

“There’s a fragmented nature when we’re talking about social media and the internet, there’s the scale of information that we have to monitor, there’s ease of access to that information and the rapid churn rate – these are all factors that make it a complex environment for us.” 

We know from the GameStop saga, the millions of new players on Robinhood and similar cheap trading apps in Australia, an NFT worth US$69 million, influencers such as Elon Musk driving up prices of joke cryptocurrencies like Dogecoin ... and on it goes ... that investors will jump on any fad. Robinhood recently informed the market that its Robinhood Snacks newsletter and podcast had 32 million subscribers, and it's a business based on options, leverage and selling its customers' orders to traders.

These new investors need reliable information or their investing will suffer, so let's rename the Economics subject, teach it in schools, add some investment content and bring everyone into the tent.

Each year, Hugh Dive of Atlas Funds Management looks at the worst performers of the previous year (in this case FY20) and checks how they went in the next year (FY21). Hugh says the average of the FY20 dogs rose 32.5% in FY21, ahead of the ASX200 Accumulation Index of 27.8%. Here are the dogs of FY21:

Hugh does not think much of their prospects in 2022: 

"Looking through the list of the underperformers of 2021, the key theme again is that the falls are from factors that are outside the company's control, such as Chinese import restrictions on Australian goods, falling electricity prices or the gold price ... the Chinese Communist Party gave little indication that investors can expect China to relax import restrictions on Australian goods in the near term. Similarly, it is difficult to see a significant increase in wholesale power prices for AGL Energy and Origin Energy in the face of government policies designed to drive down prices."

And yet the dogs often beat the index in the next year.

As we head into a new financial year, this edition is packed with good ideas for young and old.

Starting at the retirement end, former leading consultant to super funds, Don Ezra, provides a fascinating article on how he approached his own retirement spending. He walks through three steps to decide how much he could safely spend each year and not run out of money. 

After over 2,000 listens of our new podcast with Peter Warnes (Head of Equities Research at Morningstar), the next episode features the latest cash rate outlook, demographic change, debt serviceability and Peter's view on Telstra. Join our chat with a simple click.

Then Andrew Macken explains why the six leading tech companies of the world remain excellent investments, despite the US market pricing at all-time highs. They continue to change the ways we live and monetise their assets, and exposure to these companies has a role in every global portfolio.  

We expect the Your Future Your Super to have a profound impact on super funds, some of it undeserved, and Nick Callil and Tim Unger show the high proportion of funds likely to fail the performance test over time. A new era of fund consolidation is upon us.

Continuing our series of four articles on modern retirement products, the second piece is Emma Rapaport's check on Magellan's new FuturePayMagellan spent three years on the development to find a way to add support to its equity funds.

It was also notable that Magellan announced its intention to convert its High Conviction Trust (ASX: MHH) to an open-ended Active ETF from a closed-ended LIC. Another victory for the ETF structure. Robin Bowerman provides a primer on ETFs, LICs and managed funds to show the major features investors should know. Don't assume they are all the same.

The start of the FY is a good time to check the asset allocation of your portfolio as prices shifted over the year, and Sophie Antal Gilbert explains the importance of rebalancing. With sharemarkets rising, do you have more risk than you want?

Michael Collins writes on the switch to electric vehicles as he highlights some problems they face which are often overlooked. The move to this new power is inevitable but EVs face challenges.

And at this time of year, we remind our readers about the risks involved in the timing of investments in ETFs and unit trusts which must distribute earnings (income and capital gains) to investors. With some funds rebalancing and realising large capital gains, investors need to watch they are not incurring an unexpected tax bill.

Two bonus articles from Morningstar for the weekend as selected by Editorial Manager Emma Rapaport

A consortium of infrastructure investors has its sights on Sydney's international airport. Alexander Prineas thinks the acquisition will succeed but at what price? And Lewis Jackson surveys the managed fund performance numbers for the 2021 financial year. Not one of the over 300 funds finished FY21 in the red, even if many underperformed their benchmark.

Finally, as a counter to the criticisms LICs face, our Comment of the Week comes from Danny, in response to our article explaining when LICs have a role.

"I love LIC's. ETF's are my larger holding but LIC's are my fix for individual shares. They still keep spitting dividends and have done really well for me for many years. When I say LIC's, for me, its the grand daddy's (AFI, MLT, ARG etc.)"

 

Graham Hand, Managing Editor

 

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13 Comments
Michael Quinn
July 11, 2021

There is some good news. Many young people entering the investment market have figured out that many "advisers" are selling something so instead are looking for hard facts and education on companies in order to make up their own minds on a prospective investment. Over the last year subscriptions to Simply Wall St quickly roared past the 3,000,000 mark and other similar sites also reportedly blossomed. I personally learned more by participating with the pressure of committing cash than by completing a maths rich Economics degree. I expect most high school students would be better off learning accounting, coding and STEM subjects rather than economics taught by a (probably socialist) teacher with likely minimal investment experience. Depending on what alternative course the students are doing, the decline in Year 12 enrolments may be a good thing.

Kevin
July 11, 2021

Hiya Michael You do learn more by putting your arts on the line and see if it gets kicked.However this is a free educational service to teach the bare bones of investing.I like it.If I can pick up one or two things a year it is great. You don't need a degree in maths to solve financial things,but I wish I could do maths,sometimes it is so handy.


Investing is a case of do nothing in my experience.If you are young then if you put $40K into super today and they can grow it at an average of 9% over 32 years then in that period you will have $640K.Rule of 72.


It is very difficult to get people to do nothing, I don't like super,the fees annoy me. However facts are facts. The cost of doing nothing is those fees, I would not do that,I hate it,but for most people it is well worth it,they will have $640K.


They are not trying to cheat you. I sat back and let CBA compound for me since 1991 when it was sold. The govt wasn't trying to cheat me .Everybody I knew would not buy them, they were being sold because the govt was trying to cheat them. They still think the same today.


The rubber hits the road when you spend the money,it is not a case of "they all flock to simply wall street " When I bought those CBA everybody went in the opposite direction,would you not buy them if simply wall street said don't buy them,and everybody agreed. When you look in the mirror that is the person you are fighting,not the people on here .


Put $ 40 K into super,put $ 40k into 1 or two shares that you like,do both.You still have to knuckle down and pay back that 40 or 80 K loan.Leverage terrifies some people and it can cause proplems,I seemed to be able to just knuckle down and pay that money back every month.


I found investing easy,rule of 72 and do nothing,wait for 30 or 40 years.I like the different opinions,it sets me thinking sometimes. I like Roger Montgomery,he sets me thinking.He is 100% correct in what he says about NAB,I bought them decades ago.They were $25 at the turn of the century,they are $25 ( ish) now .However using the DRP that $25K is now $80K.I thought it would be around $150 to $200k.I made the wrong choice,my fault. Roger will make choices,if I buy in and it doesn't work out,it is my fault,not his,I made the wrong choice, it doesn't matter what simply wall street said or advised.


You have to make your own choices and take the blame or the glory for that.I think it is great how he puts himself out there,arts to be kicked.The first time I heard him,what a breath of fresh air, so different to the normal,I was amazed. We both have opinions, time will tell who was right .I hope he turns out to be the new Warren Buffett, I hope they all do, most people need that little bit of coaching/ help.


There is one or two shysters,that does not mean they all are.They all have a product to sell.If that product makes you wealthy it will be the best thing you ever bought,the fees will look ridiculously cheap.You still have to make that choice. The hard facts come from the annual report,the hard facts are sometimes you will be terrified.The education comes from the annual report,and you you thinking for yourself.The education doesn't come from what everybody on Simply wall street agreed on. If I have taken your post the wrong way my apologies.


I enjoyed Graham's piece on Afterpay when he made his $50k I think it was. Simply because I was thinking exactly the same thing, should I pump $15K into this 'lay by' company, something is going on here.


He pulled the trigger on it, I didn't. Some people will say it was luck, others will have other opinions.The facts are still the same, I made the choice,so did he. Well done Graham, I did the wrong thing.


University lecturers are not teaching socialism, that is your opinion.They are teaching a subject.Some of them are teachers,some of them are great and will always be remembered.They made a difficult subject easy ,and somebody that struggled suddenly saw the light. Life works like that.


If you are young then well done for starting young,time will be your best friend and quickly turn into your biggest enemy,not enough of it left .


Don't be afraid when the bad times hit,the experience can teach you a lot.Good luck, it is great fun.

William Morris
July 13, 2021

Economics was a great subject and should be made a subject that should be taught up to year ten. It gives the student a good bearing for the future. It doesn't have to be all about shares. The economy re supply and demand of goods and services thus Governments actions. I did economics from year 8 to year 11 at a state school in Queensland.

Trevor
July 08, 2021

Paul Coghlan : You remind me so much of the admirable teachers that MY GENERATION had !
There were standards to meet and you had to "lift your game " and succeed , otherwise you failed and were relegated to another area that "stretched you" but that you could actually handle.
[ Not without some soul-searching by one's self and some parental opprobrium though ! ]
But there were none of the cop-outs you describe: as a " course as being “a mile wide and a foot deep”. None of "our stuff" was shallow or "padded" to spare anyone's feelings or self-esteem !
Graham Hand : You , also , were indeed fortunate.

Paul coghlan
July 11, 2021

Thanks for your generous comments Trevor. They gladden the heart of an old chalkie! I might add that the class of 1975 at Randwick BHS was one of the most able and appreciative group of students I had the pleasure to teach. Graham, Alex and Anton were the three star scholars who went on to have very successful careers while remaining the same good people they showed as young men.

Kym Bailey
July 08, 2021

I also loved Economics and graduated in 1978 in the top 10% of the state (NSW) for the subject. However, when I opened the SMH careers section (this was pre-Seek, actually pre-computers generally), the first 10 were for Accounting roles, there was nothing under Economics except obscure roles in the government. If only I would have had the foresight to know where a degree in Economics could have taken me. It came of age somewhere in the eighties. My niece, 10 years younger did well at school economics and went into the ASX as an equities analyst. The sky was the limit for her career after that.
As to the dying interest, I agree with Graham's suggestion about re-branding but also think the curriculum should not include any Econometrics. That is way too techie to be of interest to teenagers although, it is probably largely run via smart applications rather than page long formulas these days.
The Macro side is a scene setter but the really interesting learning is the micro-economics and this part of the course could include building business plans and other real life type of projects.
Financial literacy is not all that high within the broader community and there are plenty of proponents of basic finances being taught at school. So here's the plan, start off in early high school learning the fundamentals of budgeting, savings principles and the like and graduate each year into more and more economics learning. Setting the base as something that is useful in real life would likely lead onto more sustained interest in the subject which, in my mind, should be compulsory or, at least in a group of subjects that the student has to select to undertake.

Karl May
July 08, 2021

Public servant schoolteachers giving investment advice. Now that's a great idea. Karl

George
July 09, 2021

Karl, there's a big difference between information/education and investment advice.

Keith Suter
July 08, 2021

Maybe the high drop out rate is not due to mathematics but to students realizing how the way high school economics is taught has little relevance to their everyday lives. Business studies seem a lot more relevant!

Leisa Bell
July 08, 2021

Proving your point Keith, this chart (comparing Economics and Business Studies enrolments for NSW students) is quite telling. https://www.rba.gov.au/speeches/2017/images/sp-so-2017-07-29-graph3.gif

Paul Coghlan
July 08, 2021

As the teacher who taught you Economics at Randwick BHS back in the mid 1970s, I offer a few observations based on teaching the discipline for almost fifty years. Before the introduction of Business Studies, Economics was the most popular Social Science of the HSC offerings. Prior to this, it became apparent at the HSC marking centre that there was an increasingly long tail of students who simply could not attain a reasonable level of economic literacy. For many students and probably some teachers, Economics had become too challenging. Rather than dumb down Economics, the new easier and more descriptive Business Studies course was offered. A fellow teacher described the new course as being “a mile wide and a foot deep”. Students soon flocked to it with many schools actively dissuading less able students from taking Economics. The fact that a diminishing, though more able cohort was studying Economics, meant that it was far more favourably scaled for the UAI was sometimes overlooked by teachers advising students on course offerings in Years 11 & 12. Economics requires teachers to keep up to date with current economic issues and policies and I suspect that a number of teachers found it easier to teach the less intellectually demanding course although in fairness Business Studies can be enlivened by searching out interesting Case Study material to heighten its relevance. A further observation is that with diminishing Economics numbers in the schools, it is the older and more experienced teachers who teach the course leaving younger teachers with fewer opportunities to start teaching the course. Finally, your suggested title for a revised course in HSC Economics is one that make the current PM very proud of you Graham. I might add that he studied Geography rather than Economics when at my alma mater Sydney BHS.

Graham Hand
July 08, 2021

Hi Paul, thanks for the comment, and thanks for helping me on the way into economics and then banking and finance and wealth management and investing and capital markets and all the interesting things economics can lead to.

Paul Coghlan
July 09, 2021

Graham, I also add that the second part of this podcast includes an interesting discussion on the declining HSC Economics candidature. Cheers, Paul
https://www.abc.net.au/radionational/programs/the-economists/rename/13437000

 

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