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.
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 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.
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.
The impacts of the coronavirus pandemic have reverberated aggressively across the globe. Immediate term societal priorities are on protecting public health and stabilising financial and employment markets. This period also serves as a reminder of global interconnectedness, systemic risk, and the vulnerabilities and tensions between economic, social, environmental, and governance considerations.
Retirement planning should start decades before the end of full-time work. In a wonderful world of returns well in excess of inflation rates, driven by compounding over long periods, bond and equity markets will provide the financial resources for a comfortable retirement far quicker than if returns struggle to beat inflation. But is all that in the past? Super balance calculations default to earnings rates of 7.5%, but that’s in the past. Planning needs a more realistic view.
It has been difficult to keep on top of the rapidly shifting environment, but collectively we find more opportunities to buy than sell shares at the current level. There are a number of moaty names that investors should consider adding to their portfolios as well as heavily sold-down stocks that could see a good post-virus bounce.
Advisers face many obstacles, but when we asked them what their biggest challenge was, we quickly found that many related to one overarching theme: financial adviser value. In this article, we discuss these challenges and how advisers can overcome them.
Public health outbreaks can quickly scare investors and, eventually, affect economies and businesses. The recent coronavirus outbreak has shut down airports, halted trade, and led to the rapid construction of new hospitals in China. The effects of the outbreak may push China’s economy into a period of slower growth, with stocks trading lower as investors seek protection.
Morningstar
