Building an investment portfolio is not an easy task. Whether you’re a novice or a skilled adviser, picking the right funds takes time and research and, despite that, many times we all get something wrong. One approach investors can take is to build a core and satellite portfolio.
COVID-19 has turned many lives upside down. For some, avoiding the daily commute is a joy, while for others, isolation is a struggle. Are the impacts permanent or will we move on? We ranked a few behavioural changes induced by covid-19 containment measures, finding that working from home, online shopping and exercising from home may be best positioned to persist after the crisis in the form of habits.
Relatively flexible, or unconstrained, fixed-interest strategies have touted their capacity to handle higher-bond yields better than more-traditional options. Our prior research has found some validity to these claims, albeit in a limited sample size. There were more opportunities to test this in 2018. We consequently investigate whether this has remained true and discuss the implications for using these vehicles in portfolios.
The 2019 Australian Morningstar Awards took place last Friday evening at the Establishment in Sydney. Congratulations to Vanguard for taking out the overall Fund Manager of the Year, and all our category winners. All winners in the Morningstar Awards have demonstrated themselves to be good stewards of investors’ capital.
In our recent Reader Survey, about 40% of respondents reported portfolio losses of over 20% between January and March 2020, although the market rise since the lows has pared back some of the pain. We opened the Morningstar Direct data base for the Australian All Ordinaries Accumulation Index to measure the total returns (including dividends) over one year, three years and five years since 1983. There are good reasons to take comfort from the charts, and the pictures ‘tell a thousand words’. Of course, Covid-19 is a unique threat, and only time will tell whether ‘this time is different’.
Call it Robinhood traders, the corona generation, YOLO (You Only Live Once), TINA (There is No Alternative) or simply retail investors, but trading by individuals has hit global equity markets in massive numbers. Some daily moves are called a battle between the smart professional sellers and the dumb retail buyers, but since the 23 March bottom, the dumb money has been right. So far.
We’ve heard questions from many clients about why the market is doing so well right now given how bad the economy is, and whether we will see the lows of March 2020 retested. They’re good questions, but there might not be clear-cut answers for those who want certainty. We’ll discuss three points embedded in investors’ questions.
One should never say never, but I have never nor will I probably ever again experience the level of uncertainty that currently exists. Everywhere one looks, uncertainty abounds. How can anyone predict the outcome of something that has never been experienced? Risk escalates. No one knows what the future holds and personal biases only muddy the waters. Objectivity should be key, intellectual humility its companion.
The circumstances of the current market crash might be unique to the coronavirus pandemic, but they lead investors to wonder: Are such drops normal for equity markets, or is this different? The regularity of market crashes is a reminder that patience is key to investing in equity markets.
As the market pendulum continues to swing back and forth, many investors may be struggling to rein in their emotions. During these troubling times, financial advisers can use behavioral coaching tactics to help their clients manage their emotions and avoid making rash decisions.
There is widespread optimism around the move to independence and the professionalisation of financial advice, yet the immediate uncertainty and unravelling of the landscape following the Banking Royal Commission, is causing many advisers to rethink their business models and even their careers.
The severe shock brought on by COVID-19 brought unprecedented volatility and repercussions that have reverberated through our daily lives. How can we make sure our clients’ emotions don’t get in the way of their better judgement when making financial decisions?
Advice is evolving at a rapid pace—shifting from a world of product distribution to true client-centric advice. Today, the conversation is focused on the clients’ goals and aspirations. Advisers will spend less time selecting products and building portfolios and more time supporting their clients through the inevitable ups and downs of markets, helping them stay the course to meet their goals.
After a long period of growth, both performance and assets have tailed off for real listed assets since 2016, raising the question of whether they’ve seen their best days for the time being. Recent analysis from our Manager Research Team reveals some significant shifts worth noting for clients with portfolio exposure to this sector.
Afterpay has taken thousands of retail investors on a ride few will experience again, leaving behind the most astute professional investors in the country. Relatively few fund managers believe in the value and it’s not possible to value this company on normal metrics. Graham Hand says whether it is worth $10 or $100 depends on the market’s ongoing belief in the growth story.
While well-intentioned, the industry’s current approach to matching investors to appropriate investments is incomplete. To help, Stephen Wendel, Head of Behavioural Science at Morningstar, outlines how you can better manage your risk-averse clients during times of market volatility.
Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry serves as a stark reminder of the importance of stewardship in evaluating a managed investment product. See how we rate the “big 5’s” stewardship of their funds management business’.
Investors in shares must expect market shocks as part of the long-term benefits of owning part of a company, and on average over time, stock markets fall one year in every five. We have put together some graphs which show some fundamental principles of investing, and how markets have recovered from previous shocks, with supporting commentary.
Jane Hume and Paul Keating are kicking around a favourite political football, superannuation, but what’s the score at half time? Treasury initially estimated that $29 billion would be withdrawn from super when the early release was announced in response to COVID-19. With the scheme now extended until the end of 2020, the estimate has been revised to $42 billion.
This year’s turbulent market was yet another reminder of the power of portfolio rebalancing for risk reduction. In this article, I’ll look at how different rebalancing frequencies have paid off in 2020’s turbulent market, as well as during other market drawdowns. In a nutshell, any rebalancing strategy works far better than none at all, especially when it comes to risk control.
Investors want more information and further education to help them effectively use ETFs. It’s worthwhile revisiting the 10 rules of thumb for ETF transactions that we published in 2015. Every rule remains just as relevant in 2019, and we wouldn’t be surprised if these rules remain relevant for years to come.
On 3 November, we announced our plans to acquire AdviserLogic, an Australian financial planning software platform that will broaden our product suite and expand our set of capabilities for independent financial advisers.
Contributor Michael Pompian introduces a new series that examines the relationship between the “Big Five” personality traits and the behavioral biases of investors. The “Big Five” model is a classification scheme that attempts to cover the major aspects of one’s personality.
There’s a huge need for great investing advice, and great advice begins with us. Not just with Morningstar, but with the institutions building investment products; with the plan sponsors trying to help a workforce unlock the power of their retirement plans; and with the advisers who face the push and pull between serving clients and building successful practices.
We believe bond yields will eventually trend higher and revert to our estimate of fair value, but no one can predict the path or timing. The danger here is trying to time the market by exiting bonds in an attempt to re-enter when interest rates normalise. Find out how we’re currently thinking about bonds and positioning our portfolios accordingly.
The federal leadership spill in August has shortened the odds of Labor gaining office next year. And that prospect has sparked concern with Labor’s vow to axe cash refunds for excess franking credits. But what action, if any, should you take to prepare for the possible impact to your clients’ portfolios?
Strategic-beta fixed-income funds attempt to deliver better performance than traditional market-capitalisation-weighted index funds, or a specific outcome like a constant duration. These strategies often seem more intuitively appealing than the alternative of owning a broad market-cap weighted portfolio but there are 6 key factors that advisers need to consider before deciding whether to include these strategies into a client’s portfolio.
Well, that was quick. Despite bleak global economic outlook and the continued uncertainty brought on by the coronavirus pandemic, as of August 6, 2020, the US market recovered to its pre-pandemic high. The covid-19 bear market goes down in history as one of the least painful on record, lasting a total of about 120 trading days with a maximum drawdown of about 34 per cent.
History will record that the few years until 2019 were halcyon days for Listed Investment Companies (LICs) and Listed Investment Trusts (LITs). The main listed competitor for the LIC/LIT structure is Exchange Traded Funds (ETFs). While LICs/LITs have failed to launch any primary transactions in 2020, ETFs have gone from strength to strength, reaching a record $70 billion in August, a lead of $25 billion over their rivals.
Gold has hit a record high and investors have poured billions into gold tracker funds. But should you invest? Despite its allure and popularity, some experts say that holding gold is not a sensible investment move – particularly after its recent climb. Here are just some of the reasons not to invest in gold.
Many of your clients may be financially stable or very well-off but are still tormented by their finances. As advisers, how can you help these clients reduce their financial anxiety and even improve their financial well-being? To answer this question, we explored the power of social comparisons and identified a few ways that you can use this natural tendency to help clients.
Active ETFs are the latest phase of a passive revolution in the Australian investment market. Last year assets under management in Aussie-listed ETFs grew by more than 30 per cent; proving low cost options are gaining popularity fast. Australia’s ETF sector broke through the $40 billion barrier in August to reach another new record of $41.5 billion.
Financially, more serious than the outbreak of coronavirus would be an outbreak of investor complacency. Unknowns like the coronavirus are a compelling reason for investors to always be prepared and vigilant, even more so with markets near record levels.
At the heart of the challenge facing the industry today is rebuilding trust. Trust is the foundation of every relationship. None more so than between financial adviser and client. And in the wake of the Royal Commission’s Interim Report, Morningstar is playing a key role in helping the industry and advisers regain trust through full transparency.
When was the last time you checked in on your clients’ top financial goals? This steps on this worksheet can set advisers on the right path for showing investors how to avoid behavioral biases, establish strong financial goals, and implement behaviors to help meet these goals.
Did you know 25 Australian ETFs have been terminated since 2013? That’s a big number and it means about 12% of Australia’s ETFs have shuttered in that time. In this article, we examine what a termination really means for investors and how to avoid getting caught by ‘Terminator’ ETFs.
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