Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 355

Welcome to Firstlinks Edition 355

  •   30 April 2020
  • 3

May Day in Australia delivered a harsh reality check with a fall of 5% in the S&P/ASX300 after rising 8.8% in April. In six weeks, over 30 million Americans have registered as jobless. The US economy shrunk by 4.8% in the March quarter but the bigger impact is expected in June. By Friday's close, the S&P500 was down nearly 3%.

The market had been buoyed earlier in the week by progress with a vaccine, but then came warnings that eradication of Covid-19 depended on equitable distribution of drugs to seven billion people around the world.   

Hopes of a V-shape recovery are optimistic but Australian investors are reacting to market volatility with polar opposite portfolio changes. While one cohort has rushed for cash and safety in the crisis, another large group has seized a share-buying opportunity. The S&P/ASX300 bottomed on 23 March at 4,500 and has since risen to about 5,200, but whether those brave enough to buy equities will be rewarded, only time will tell.

Last week, Calastone (which administers funds flows for 95% of platforms and 75% of fund managers in Australia) reported the largest-ever monthly redemptions from funds, at $12 billion for March 2020, versus applications of only $8 billion. Surprisingly given the stock market falls, the largest outflows were from bond funds.

Similar results were seen in the dramatic increase in turnover in Exchange-Traded Funds (ETFs) in March, as reported by BetaShares. Australian equities and gold ETFs saw strong inflows while bonds and cash were the losers.

Contrast this with reports from large superannuation funds that members were switching to cash from growth or balanced options, in addition to the billions withdrawn under the new access rules. National Bank also reported a surge in cash and term deposits in March, despite the miserable rates on offer.

One prominent listed fund, MFF Capital Investments (ASX:MFF) with a market value of over $1.5 billion and managed by co-founder of Magellan, Chris Mackay, has significantly moved into cash since the start of March, as shown below in a table from Bell Potter.

All this at a time when Treasury Secretary, Steven Kennedy, told a Senate enquiry that many jobs and businesses will disappear forever, and:

"We have never seen an economic shock of this speed, magnitude and shape, reflecting that this is both a significant supply and demand shock."

Howard Marks, always one to offer a quotable quote, said on 20 April:

"We’re only down 15% from the all-time high of February 19, and it seems to me that the world is more than 15% screwed up."

The divergence of views is because some investors are looking 'over the valley' and picking up shares at marked-down prices, while others believe the market is expensive in the face of poor economic conditions. All the while, most people are watching from the sidelines. Whichever view you take, you have plenty of company.

In this week's packed edition ...

For those more interested in 'full-cycle' investing, not chasing highs and lows, patience in equity investing is usually rewarded. Six charts show how often investors will lose capital in any year in Australian equities, but also how the long term usually delivers good outcomes.

Peter Thornhill is a long-time favourite of our readers, especially his unconventional position to remain fully invested in shares at all times. In this update, he reproduces a 2008 article to prove this crisis is not unprecedented from an investing perspective.

While many have taken the plunge into shares, Robert Almeida and Erik Weisman argue there are too many uncertainties for an all-out commitment to the price recovery. Nick Griffin says it's reached the stage where some investors are driven by FOMO, which should never be a buying motivation.

Pity the traders of oil futures contracts for May, facing the prospect of taking delivery of barrels of crude. They drove prices negative for the first time ever, and Peter Zeihan explains demand and supply dynamics and the extraordinary geopolitics at play. We have seen some major historical moments in financial markets in the last month, so this chart is for posterity with oil at minus US$38 a barrel.

As Australian politicians look towards exiting the lockdown, Douglas Isles outlines four major ethical, social and political decisions, plus a massive opportunity for change. And with so much doubt in markets, Jonathan Gregory suggests different ways to invest in bonds.

A change of pace with a review of aged care alternatives, as Jemma Briscoe shows the accommodation choices and how to do the numbers.

Jonathan Rochford's quirky monthly look at the overseas news you missed throws up even more intrigue than nromal.

Despite the recent stock market rally, the bears are not yet hibernating. There are not many readily-available funds where investors can profit when markets fall, so this week's White Paper from BetaShares explains how 'bear ETFs' work. Ensure you understand how you can lose money if the stock market rises.


Graham Hand, Managing Editor

Latest updates

PDF version of Firstlinks Newsletter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website



Most viewed in recent weeks

Easy money: download Robinhood, buy stonks, bro down

Millions of inexperienced traders have entered global equity markets since the end of March, fuelled by hype in a rapidly-rising market. What is happening and how are they having an impact?

Warren Buffett's letter about new investors and speculation

A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: speculation is most dangerous when it looks easiest.

10 reasons to sell your dud stocks for EOFY

Anyone with capital gains from property or shares should take this EOFY opportunity to find offsetting capital losses. There are many benefits from cleaning out the portfolio stuff-ups.

How much bigger can the virus bubble get?

Stocks have rallied hard creating a virus bubble, but will this run for years or collapse in a matter of months? The market is giving a second chance to leave so head for the exit before there's a rush.

Share trading is the new addiction

The ability to buy and sell cheaply and quickly in small parcels is both the biggest drawback and benefit of shares. But it encourages people who should not go near the market to use it as a casino.

The populations of key countries are shrinking

Population decline is a new, yet largely ignored, trend with underrated economic and social costs. Much of the growth that drives economies, especially in Australia, comes from population increases.

Latest Updates

Howard Marks' anatomy of an unexpected rally

Markets can swing quickly from optimism to pessimism, and while there are more positives now than in the bleak early days in March, the market is ignoring many negatives. Risk is not rewarded at these levels.  

Why are we convinced 'this time it's different'?

Investors tend to overstate the impact on investments when something significant happens and they assume the future will be different. COVID-19 has been dramatic, but is it really that unusual?   


Super fund performance and rank depends on risk

APRA's heatmap has profound implications as it shows which super funds are underperforming in a period. But when good markets are compared with poor markets, one in five of funds changes its assessment.    

Investment strategies

Why women are most hurt by financial pandemic

Many people were financially unprepared for a pandemic, but it is women who are suffering most because they earn less, have interrupted careers and have less risk-taking capacity.


What is happening with SMSFs? Part 2

The latest SMSF data shows retirees favour listed shares and cash to maintain liquidity. SMSFs continue to grow, and the new super rules led to changes in contributions, payments and lump sums.


Retirement dreams face virus setback

A new survey of over 1,000 people near or in retirement found three in four are not confident how long their money will last. Only 18% felt their money was safe during a strong economic downturn.


Common confusions with death benefit pensions

Awareness of common misunderstandings in relation to the payment of death benefit pensions can assist in estate planning matters. Given the large amounts involved, seeking professional advice helps.



© 2020 Morningstar, Inc. All rights reserved.

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 class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. 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.