Adviser Spotlight

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.

Sustainable investing can offer tremendous opportunity for financial advisers and asset managers, alike. Interest in the field is significantly growing among investors – particularly investors who are young, female, or more affluent.

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’.

The Retirement Income Review (RIR) noted that many retirees leave large bequests and they would have enjoyed a higher standard of living in retirement if only they had spent some of their capital, not just the income from their investments. Planning cash flow in retirement is extremely difficult because of the uncertainties about expenditure, doubts about investment returns and unpredictability about how long we are going to live.

Most Australians hold their superannuation in a balanced fund, often 60 per cent growth/40 per cent defensive or 70 per cent/30 per cent. Lifecycle funds are also popular, where the amount in defensive assets increases with age. Employees who are not engaged with their super (and that’s most people when they start full-time work) simply tick a box for the default fund selected on their behalf by the employer.

ETFs had a slow start, making little progress by the time the GFC came in 2008. LICs flourished while they had the support of financial advisers and handsome stamping fees paid by issuers. It was not until the end of 2018 that ETFs finally took over LICs. ETFs have since become the avengers, sweeping LICs aside with the inclusion of a wide range of indexes, sectors and niche products, and a big boost from the Magellan active funds.

The mantra “buy the dip” started as a chorus to the gyrations of Bitcoin’s price. Since then, it has cemented a place in the investor’s glossary thanks to an age-old fear: trying to time the market. Investors can be especially prone to this kind of fear and regret. Whether buying Bitcoin in 2015 or mortgaging the house to buy stocks in late March 2020, it’s easy to lose sleep over market timing.

With or without COVID, investors want businesses with predictable earnings and recurring revenues, especially disruptive businesses benefitting from change in the global economy, with a large addressable market. Here are some examples of what happened during COVID.

Buying a property off-the-plan starts as an exciting dream created by the visions of architects and designers, but it’s often a world away from the harsh reality of living there a few years later.

This is an interview with Bill Bengen, who is widely known as the father of the 4% ‘safe withdrawal rate’ that he put into practice. Bill discusses how he first developed the safe withdrawal rate research, the retirement problem in the early 1990s that he was trying to solve, how Bill integrated his 4% rule into his financial planning business, and why he didn’t actually use the 4% safe withdrawal rate with his clients.

The COVID-19 outbreak has created a large dent in near-term oil demand and triggered spiralling energy prices. However, local oil & gas producers are some of the best placed to weather the COVID-19 meltdown and emerge comparatively stronger. In this article, we dive deeply and explore the four major Australian E&P companies which have 5-star recommendations.

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.

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.

Bear markets typically have four stages, John Rekenthaler says, drawing lessons from
Black Monday, and the global financial crisis to explain the coronavirus crisis.

Morningstar head of behavioural science Steve Wendel on why we don’t just owe it to ourselves
to stay calm as we weather the storm. We owe it to one another.

Hear from Jamie Wickham, Morningstar Australasia Managing Director, as he discusses the ever-growing importance of Morningstar’s values and what we stand for.

Jeremy Grantham co-founded GMO in 1997 and is a member of its Asset Allocation team, serving as the long-term investment strategist. He was interviewed by Kunal Kapoor, CEO of Morningstar, at the Morningstar Investor Conference Australia on 2 June 2021.

It was a year of trials and tribulations, where patience was tested but those in for the long haul were ultimately relieved and rewarded. Late March provided some rare opportunities for those with cash. 2021 is unlikely to be a repeat. Markets could begin the year with an extension of the current upswing, but as it unfolds several questions will undoubtedly be asked about the progress of the economic recovery and the relationship to risk asset valuations.

To answer the headline’s rhetorical question, Mr. Buffett can indeed predict the future of the stock market, just as Glendower can call spirits from the vasty deep. However, Hotspur’s response to Glendower remains salient: “Why, so can I, or so can any man. But will they come when you do call for them?”

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.

Investors priced out of the property market can still attend the ‘capital growth’ party via stockinvesting, writes Nicki Bourlioufas.

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.

The Morningstar Dividend Yield Index is a cross-section of the Australian economy, featuring wide and narrow moat names.

Several superannuation thresholds will be indexed from 1 July 2021. In this article we will review the thresholds that impact retirement pensions and contributions.

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’.

The year may have been unprecedented, but the best course for navigating a market dip stayed the same.

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.

Having a future-proof investment strategy is not only legally compulsory, but also one of the best ways to enhance retirement savings. Amid volatile markets, how can self-managed super funds get the right settings in place?

Recent market volatility suggests a review of investment strategy is advisable, particularly ahead of the approaching new financial year. The Australian Taxation Office says the strategy must be reviewed at least annually, and when “significant events” occur including a market correction.

The Federal Treasurer has announced a public consultation into whether advisers can accept selling fees on LITs and LICs to address potential conflicts and compliance with best interests duties.

Adding to the jargon that fills the superannuation industry and confuses most people, two common words have taken on new meanings. They sound innocent, but when a Morrison Government minister uses the words ‘efficiency’ and ‘flexibility’ in the super debate, they now have particular definitions. And in neither case is it the way we previously understood superannuation.

The actions of central banks around the world are well known—they are undertaking substantial quantitative-easing programs to support their economies. While they have control of cash rates and their bond purchases at the shorter end have been more effective at keeping rates low, further out the curve, they have not. And even in the face of central bank purchases, investors have sold longer-dated bonds and quickly driven up rates in early 2021. Unsurprisingly, this has had flow-on effects in other markets, too, particularly equities. This article explores what is going on in the bond markets now, how our fixed-interest managers have fared, and what it means for equity markets.

The recovery of US stocks and the profusion of new trading platforms drew huge numbers of novice traders.

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.

From the SARS outbreak in 2003 to the twin strikes of ebola in 2014 and 2016, and a bout of Zika in between, disease has made headlines and jostled markets. In this article, we take a look into the impact and opportunities created by the coronavirus.

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?

It was a rough year for some of Australia’s biggest companies as covid a toll and low rates inflated asset prices. For the year 2020 only two of Morningstar’s 11 wide moat stocks posted positive returns. At the end of the year Australia’s top stocks were in general back to square one, with the benchmark S&P ASX 200 posting a return of -0.36 per cent.

COVID-19 has produced big winners and losers on the Australian stock exchange, and this month, we focus on Morningstar research to find the opportunities. A Morningstar stock screener reveals a cross-section of companies with competitive advantages that are trading at material discounts. We invite you to explore these stocks to get a fuller picture of Morningstar analysts’ take on the pros and cons of each.

A slew of asset managers and Australia’s oldest company are among the nine stocks Morningstar analysts forecast to deliver dividend yields above 5% this financial year.

As Election Day nears and the coronavirus vaccine trials continue, headlines may lead to volatility, but we expect economic rebound to keep on. While the consensus from market forecasters on Wall Street is that the market will be especially volatile come this November, it could also be relatively mundane.

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.

Benchmarking is a concept used to help define whether an investment proposition is delivering value. It is well intentioned; however, we should acknowledge the shortcomings. In this article we discuss the importance of benchmarking to your financial goals.

It’s important to understand where your edge comes from. We believe ours is analytical, organisational, and behavioural – and this explains why we’re compelled to be defensive in the current market. And, by sticking to our strengths, we believe we will help end investors and those we serve in the long run.

Retirement researchers have been sounding the alarm about the 4 per cent guideline for a while. A combination of very low bond yields and not-inexpensive equity valuations mean that a starting withdrawal of 4 per cent, could cause a retiree to prematurely deplete his or her funds over a 25- to 30-year horizon. In this interview Wade Pfau and Christine Benz give new ways to avoid money running out in retirement.

If your goal is to look out for your loved ones, you should consider tackling these estate-planning additional jobs. Estate planning is the easiest financial planning to-do to put off. It’s certainly not fun to ponder your own mortality, and yet that’s the very nature of estate planning. In this article, Christine Benz explores seven aspects overlooked by many.

Bonds have been a beautiful thing over the past couple of decades, compounding returns at a decent clip while faithfully filling their traditional role as buffers in down markets. But now that interest rates are close to all-time lows, their future return prospects are much lower. In this article, we explain why investors saving for retirement should consider shifting their asset allocations to lean more heavily on stocks.

Despite the pressures in the industry right now, we continue to believe in the future of financial planning. This is not just wishful thinking. For five years now, our most senior researchers in the US and Canada have been able to quantify the benefits of good advice – and they are significant.

On 24 May, the curtain was raised at the 2018 Morningstar Investment Conference with an enthralling keynote presentation from two of our industry’s deepest thinkers. Dr Michael Hasenstab and Kerr Neilson captivated the full house of advisers by outlining their predictions and positions for the years ahead.

Jody Jonsson, portfolio manager at Capital Group and Jacob Mitchell, Chief Investment Officer and portfolio manager at Antipodes Partners shared their thoughts on global opportunities in the “Scouring the World for Opportunities in an Aging Bull Market” session at the recent 2018 Morningstar Investment Conference.

Hear from Brad Boyd, Senior Vice President at Payden & Rygel and Brett Lewthwaite, Co-Head of Fixed Income at Macquarie Investment Management, who shared their thoughts at our recent Morningstar Investment Conference on the impending economic and financial risks impacting the global fixed income market.

Kate Howitt, portfolio manager at Fidelity International, and Vince Pezzullo, Perpetual’s deputy head of equities, discuss the expensiveness of the Australian market, potential value traps, and the difficulty in defensively positioning portfolios – outlining the case for active management in the current market environment.