Adviser Spotlight

Deeper engagement can build an advantage with the next generation of investors.

Economists tell us with certainty that tariffs are always bad news and point to the 1930 Smoot-Hawley legislation that supposedly caused the Great Depression. The problem is that it didn’t cause the Depression and there’s genuine debate about how much it contributed to the depth and length of the depression that took place.

Some investors just want cash and they’re willing to liquidate at almost any price, and that’s where rational investors can take advantage.

Morningstar’s Chief Investment Officer for Asia-Pacific and Director of Personal Finance share their thoughts on the recent RBA rate cut.

Tune into this exciting webinar to hear Morningstar’s Mathew Hodge, Director of Equity Research, Adrian Atkins, Senior Equities Analyst and Lochlan Halloway, Market Strategist, present the equity market outlook for Australia.

People often marvel at Warren Buffett now getting 60 cents in annual dividends on every dollar he invested in Coca-Cola 30 years ago. What’s often overlooked are the secrets to how he achieved this phenomenal result.

We’ve upgraded our fair value estimate for 29 companies, or 40% of those that have reported thus far.

Small caps are currently trading at a substantial discount compared with their large-cap counterparts.

Getting clients to talk about their values can drive better understanding and fulfilling outcomes.

Morningstar Equity Market Strategist Lochlan Halloway discusses his view on what we can expect in markets in 2025.

Brian Han talks about Telstra’s cost cutting measures, the company’s dividend outlook and its “embarrassing” mobile margins.

While the overall dividend outlook is less than impressive, some pockets of the market still screen favourably.

With big share price swings on earnings ‘beats’ and ‘misses’, there is often undue focus on the noisy near-term.

Recents data suggests that Australia remains the lucky country.

Senior Equity Analyst for Banking, Nathan Zaia, on the ANZ-Suncorp deal.

Mining analyst Jon Mills discusses his new report – Industry Pulse on Mining for Q2 2024.

Are you lost in the retirement consumption puzzle?

Recovery continues in Europe, but redemptions persist in other parts of the world.

An aging population will drive policy decisions.

Having been through over 50 earnings seasons, here are three ways I recommend long-term investors to cut through the noise and make the most of this bi-annual bedlam.

Morningstar’s Michael Malseed interviews First Sentier’s Dawn Kanelleas and Maple-Brown Abbott’s Phil Hudak.

Here’s how Australia stacks up against seven other developed countries.

Benjamin Graham wrote that everyone should hold between 25% and 75% in equities, with the rest in bonds. The right level is the point where you sleep easy.

Why do people have trouble shifting from a saving to spending mindset in retirement? Researchers have plenty of theories though can’t identify an exact cause, nevertheless there are things that can enable the shift.

Ideas and business investment opportunities often present themselves as numbers.

Stocks can do well in inflationary periods, particularly companies with strong pricing power and reasonable financial leverage.

Near-term economic outlook points to subtrend revenue growth.

There’s been barely any questions asked about how the size of the super funds is essentially forcing them to diversify further into alternative and international assets, and the risks that this entails.

Morningstar Analyst Jon Mills on his top pick.

Our latest banking industry pulse explored the state of the industry.

Moynes, a former educator and financial adviser, wrote the short book after his own struggles in retirement and subsequent interviews with other retirees. He believes that there’s a predictable and identifiable pattern to retirement, and it involves four phases:

At the start of 2024, a stronger-than-expected run of economic data has unsettled markets, with concerns inflation is proving stickier than expected.

James Gruber chats with Andrew Francis and David Walsh from RQI Investors.

Morningstar Head of Equity Research Peter Warnes reflects on a 61 year career.

Growing population and wealth will create both demand for greater and improved infrastructure capacity.

Investor disgust, consolidation, de-listings, price discounts, activist investors entering – it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

We at Morningstar are indebted to the Berkshire dynamic duo, for the way we think about the sources of durable competitive advantages.

Inflation will head back towards central bank targets of 2-3% in the US and Australia over the next 12 months, according to bond manager, Pimco.

nabtrade’s Gemma Dale provides a snapshot into how investors are positioning their portfolios in a challenged investment environment.

Carbon offsets often get conflated with another instrument that shares a similar name: carbon credits. Both are the subject of increasing interest from investment firms.

This article provides important detail for “Phase 3” of the Morningstar Medalist Rating rollout. Please refer to the updates on “Phases 1 and 2”.

Unless there is a significant black swan event, investors should factor in interest rates and bond yields sitting around the long-term averages.

Morningstar analysts assess winners and losers from sectors including mining and energy.

In this quarter’s Morningstar Superannuation Survey, we looked at 291 options (including MySuper and Choice options, excluding Transition to Retirement options) across our superannuation categories.

The Sustainable Investing Flows Landscape for Australasian (Australia and New Zealand) Fund Investors provides a high-level view of the trends in asset flows across the sustainable fund universe, and any corollaries to the rest of the Australasian fund universe.

The many reports and reviews issued recently are giving greater understanding about retirement and attempting to improve the outcomes for Australians living on their savings.

Figure out what something is worth, then invest with a margin of safety. Keep this front of mind.

Watch this webinar to hear from members of Morningstar’s manager research team including, Annika Bradley, Michael Malseed and Steven Le, following their sector review of global equity strategies.

As super funds increasingly bring their investment teams in-house, what happens when funds underperform? Morningstar asks AustralianSuper.

A new analyst report from Morningstar highlights three ETFs for investors hunting for tech exposure but cautions against “jumping on the bandwagon” too quickly.

New tools, enduring goals, and well-known pitfalls.

While the trend is certainly encouraging, the core reading is still too high and remains well above the Fed’s desired level.

For financial advisers to use with clients. Feel free to copy, paste, then edit as desired.

Johanna Englundh talks to Morningstar’s Jose Garcia-Zarate on how to identify managers that can help you on your investing journey.

AustralianSuper CIO Mark Delaney says it’s in the best interest of industry super funds to ensure private asset valuations are up to date.

Four investors walk into a bar and start having an active discussion about the state of the global economy and markets. The debates were almost as noisy as the group playing a game of darts next to them.

With negative gearing, where costs of owning a rental property exceed revenues, the ‘loss’ can be charged against other personal income. Some people seem to think the loss itself is a good thing because it reduces their tax, but the tax savings only reduces the loss: it is still a loss.

Despite many companies pledging to decarbonise their businesses and achieve net zero emissions by 2050, current data reveals that we are not projected to make this milestone.

We outline what we believe investors should look for in a fund manager and examine the differing funds management models in Australia.

Morningstar’s Jon Mills on the outlook for gold, and why the world’s largest gold miner wants to buy ASX-listed Newcrest.

The key takeaways from the Big Four Bank results, and why dividends could see some growth in the second half – even if earnings are weaker.

Are absolute return managers exhibiting the skill to consistently deliver on all their objectives, and are these strategies worth the additional cost for investors? Should absolute return bond managers be expected to protect the downside as well as meeting absolute return objectives?

Borrowing short, lending long” and having capricious depositors sank SVB, but there are parallels in equity markets investors can take advantage of.

The Australasian (Australia and New Zealand) sustainable funds universe inflows plummeted this quarter, down 91.97% in the previous quarter, or 78.30% adjusted.

We take a look at the liquidity profile of five large superannuation funds.

The budget includes cost-of-living support for retirees yet indicates the Government won’t change the way it calculates the new super tax.

Holders of low-ranking Credit Suisse debt are getting wiped out, but its shareholders aren’t. Does this change everything?

Around 800,000 mortgages will roll onto a sharply higher interest rate this year as their fixed term ends. Here’s what it means for the banks.

Exchange-traded funds’ growing popularity among retail investors continued to drive growth in this sector, albeit at a slower pace in 2022. Net new flows declined compared with 2021 as investors remained cautious amid volatile global markets. Asset growth was, however, supported by multiple successful new launches in 2022.

To celebrate International Women’s Day we showcase three funds with Morningstar Analyst Ratings that are among our top picks.

Vanguard’s recently launched superannuation offering allows it to go head-to-head with the large superannuation funds, but will it really be able to compete?

When engaging with asset managers, Morningstar has recently seen a softening of language around green claims. An unintended consequence of the focus on greenwashing has likely contributed to the rise of greenhushing, which is the antithesis of greenwashing.

Although holders of large super balances will be hit by the higher tax, the fears of a hard cap forcing the removal of money from super, or the imposition of tax at the top personal marginal rate, have not been realised. The delay until after the next election also gives time for consultation and modification.

In our February 2023 edition, we present a list of 22 strategies that we believe are worth investors’ consideration. Since our last edition, we have added one strategy and have seen two strategies graduate into full coverage for our 2023 review cycle.

Sustainable funds have faced a challenging 12 months, with only 35% outperforming their respective category peers over the calendar year. Yet despite these performance headwinds, Australian investors have continued to support sustainable investing with fourth-quarter inflows up 311% over the previous quarter.

Much has been written in 2022 about the death of the so-called 60/40 portfolio. Many suggest it isn’t an appropriate solution for future portfolio construction. This paper will explore these concerns and also explore whether the 60/40 portfolio may now be even better placed for the future.

The Netflix series serves as an opportunity to reflect on the immense responsibility placed on the Australian superannuation industry to protect investors.

If a meaningful downturn happens and investors can be both picky on quality and price, now is the time to do the work.

This episode of Dividend-Stock Deep Dive explores how dividend stocks have performed in 2022’s bear market and their prospects in a recession.

Drive to Survive, the gripping and successful Netflix series on Formula 1 racing, is also a very fitting motto for investment management, as it captures the fierce and innovative competition for survival of the fittest. The parallels are clear, with storied histories, narratives, and defining brands, teams both large and boutique, strong leaders, and never-ending battles for success. The Formula 1 teams and fund managers are both trying to achieve a singular objective: win.

The momentous rise in government-bond yields since the second half of 2021 has had one unexpected effect: shrinking income distributions. This may be particularly surprising given bond managers have been able to reinvest at progressively higher yields, and presumably they are able to distribute more income.

When it comes to sustainable investing, climate change has never been higher on the agenda. This work is critical, but the scale of capital needed for the transition is significant. According to the COP27 agreement, a global transformation to a low-carbon economy is expected to require an investment of at least USD 4-6 trillion per year.

2023 should be more settled, but uncertainty will remain the investor’s constant companion. It could be a year where markets finish near starting points.

Equity Analyst Nathan Zaia on what the Medibank selloff means for investors

Graham Hand in conversation with Jody Fitzgerald, Head of Institutional Portfolio Management and Solutions, Morningstar Investment Management

Sustainable funds have faced a challenging 12 months, with only 33% outperforming their peers within their respective categories. The longer-term picture remains more positive, with 52% of sustainable investments with five-year track records outperforming peers within their respective Morningstar Categories. This quarterly paper highlights recent trends within sustainable retail investments in Australia.

Over the second half of October, we reached out to some of the asset managers under our qualitative coverage to collect their views on the current market environment and recent changes to their positioning.

Investors often overweight new events or information without looking into the objective probabilities of those events occurring in the long run.

Investment style is a key beacon in assisting investors to  apportion expectations around the risk and performance prospects of a strategy.

Bulls and bears look for indicators to justify their hypotheses, that the good times will continue, or the bad times have further to run.

Market underestimating earnings resilience coming via growth projects and earnings stability from domestic gas.

Morningstar’s latest quarterly market outlook test times ahead including on the economic front, but we have uncovered opportunities for investors.

Magellan is the latest provider to unsuccessfully attempt to solve one of finance’s perpetual challenges: income in retirement.

Volatility is in full swing and it will be some time before any semblance of certainty prevails.

If adopted, Quality of Advice Review – Consultation Paper – Proposals for Reform will have a profound impact on financial advice.

Welcome to Morningstar Australia Prospects, a list of promising investment strategies that we believe may be worthy of greater investor attention but which are not yet covered by Morningstar Manager Research.

Rebalancing, tax-loss selling, and buying on the dip are among the productive moves to consider. (8 mins)

Director of manager selection Aman Ramrakha and director of research products Rick Di Cristoforo provide the quarterly update. (35 mins)

Sustainable funds have faced a challenging six months, with only 31% outperforming their peers within their respective categories. The longer-term picture remains more positive, with 55% of sustainable investments with five-year track records outperforming peers within their respective Morningstar Categories.

Morningstar’s monthly Best Stock Ideas highlights high-quality Australian and New Zealand companies, which are currently trading at discounts to our assessed fair values. The ideas, chosen from our coverage of nearly 200 companies, are intended to have broad application in a variety of equity strategies, but individuals should consider their personal investment goals and positioning before investing.

No single Australian’s retirement is the same—the notion of the “average” client simply doesn’t exist. But advisers know that. After all, the advice industry has been providing personalised strategies for years and helping retirees answer the big question: How much should I spend each year? But if personalisation is the way forward, is it time to consider the role of minimum drawdown rates in superannuation?

At a time when the Australian Prudential Regulation Authority is calling on Australian super fund trustees to improve the frequency and methodology used in unlisted asset valuations, perhaps we should also remind ourselves how abysmal Australia’s portfolio holdings disclosure requirements are when compared with other countries’.

“Fingers Crossed” read the headline of The Australian Financial Review last weekend. Two words investors should never rely on. Appeals to hope should be a wake-up call in the current environment. They should shake up the complacent and reinforce the need for capital preservation. Luck is not a sustainable investment strategy. There is likely to be much more economic pain ahead before greener pastures emerge.

Video: BondAdviser-Morningstar Adviser Webinar (33 mins)

Video: Growth jitters and the possibility of reduced iron ore demand in China have swiped the heavyweight banking and resources sectors. (6 mins)

Consensus has shifted overwhelmingly towards expecting higher interest rates to address burgeoning inflationary pressures—it wasn’t too long ago that the Reserve Bank of Australia was maintaining a yield-curve-control policy and projecting to keep interest rates on hold until 2024. Changes in the shape of the Australian yield curve over this period tell the story—it’s risen and steepened significantly, particularly at the front end and intermediate maturities.

In the past year, inflation has risen to high levels in many Western countries including Australia, driving interest rate expectations up and bond and equity markets down. Cost-of-living concerns and fears of recession are growing, but Australian equity investors shouldn’t panic.

Many Australian investors, including the large superannuation funds, are allocating assets to private markets such as private equity, unlisted infrastructure and private debt. In the right  structure, private markets have positively contributed to portfolio return outcomes. However, financial advisers often cite liquidity and transparency of the underlying investments as the biggest challenge to allocating more to private markets. But is it the Australian retail platform infrastructure that constrains advisers from allocating private assets to client portfolios? Or is liquidity more crucial for investor needs when constructing portfolios for the retirement income phase?

Market conditions have shifted dramatically in 2022, driven by an outbreak of global inflation to the level not seen in four decades. The easy monetary policy era appears to be over, and markets are adjusting to the reality that central banks may not be prepared, or able, to step in and support asset values with stimulatory settings. Against this backdrop, the selloff in global equities has been sharp, but it is noteworthy that there has been a large dispersion in manager performance particularly when differentiated by style.

Bringing inflation under control will probably require a meaningful contraction in economic activity. The nightmare scenario would be stagflation, where central banks do not kill growth, but inflation escapes unscathed.

The threat of higher interest rates, slower economic growth, rising inflation and deteriorating credit is making investing scary at the moment, especially in equity markets.

Market expectations for the tech sector are fading fast as rate rise fears mount. It’s time for investors to consider sinking their FAANGS into moat-rated tech bellwethers

Last week the future for banks looked bright. Rising interest rates would nourish emaciated margins. A red-hot economy would keep new borrowers coming through the door and credit growth strong. The $200 billion Australians had squirreled away in savings and offset accounts would ward off defaults or an economic slowdown.

Value appearing in technology and healthcare as markets ditch the once-favoured sectors.

The 50-basis point increase in the official cash rate shows the hawks are finally ruling the roost at the RBA.

The following user guide is for Morningstar Direct users to be able to download their model portfolios that can be easily imported into Morningstar’s Portfolio X-ray tool on Adviser Research
Centre and AdviserLogic.

Asset Flows to Australian Sustainable Investments Slow in First Quarter 2022

Oil and gas, and to a lesser extent wheat, have dominated the headlines and financial markets since the invasion in February.

By the time retirement savers realise the error of their ways, it may be too late

As central banks move to wrangle inflation, market fears shift to risk of a growth slowdown.

The first quarter of calendar year 2022 represented the worst quarter on record for the AusBond Composite Index, returning -5.88%. It was also the worst month on record, returning -3.75%. Commodities continued to benefit from de-globalisation, while interest rate expectations hammered fixed-rate investors.

Shares in Ryman Healthcare are 40% below our NZD 15.20 fair value estimate, with shareholders penalised for transient issues, or industry problems not shared by Ryman. Rivals struggle with old facilities and declining occupancy, and one third of Australia’s care homes lose money. The industry is consolidating and Australian providers exiting, despite demographic tailwinds. Meanwhile, Ryman’s demand is underpinned by the ageing population, its brand, and track record of care.

In our recent article, “Australian Equity Performance: What’s Driving Markets,” we looked at return drivers in the domestic market that had begun to soften following a strong pandemic-rebound period. We decided to see how variability in return profiles between styles and sectors can be managed within a portfolio’s Australian equity allocation. One key observation lately has been the variance in fortunes between value and growth investment styles driven by divergent sector performance.

Should a meaningful economic contraction ensue, what tools are at the ECB’s disposal to launch effective stimulatory action with the official interest rate at zero?

Over the past seven years, cryptocurrencies have rocketed from about $5.2 billion in market capitalization for the top 100 coins to nearly $1.7 trillion as of January 2022. Cryptocurrencies now represent the fourth-most popular type of investment among investors, behind only stocks, mutual funds, and bonds. Bitcoin alone has a market cap that would rank in the top 10 largest companies in the S&P 500.

The 2022/23 federal budget has delivered the third round of significant fiscal stimulus in as many years. While most of the stimulus was necessary, at some point the piper must be paid. Would the budget have been any different if it wasn’t an election year?

Your Future, Your Super and its performance test is set to be applied from July 2022 to some multisector choice products. Some of these choice products are available on retail super platforms, and there will almost certainly be a barrage of questions when the next round of “underperforming” letters reaches members. There will also be implications for the advice sector. Advisors need to prepare themselves and work out how to balance best interest duty with the guidance from the regulator.

The recent stock market sell-off sees the shares of all of the listed ANZ asset managers we cover trading at substantial discounts. With such fertile hunting ground, we think the market is underestimating the key investment strategies of these asset managers, and their ability to deliver
positive alpha and attract money. We think the outlook for asset managers is better than what’s currently being priced in. Recent market declines suggest future investment returns will likely improve. Their strong fundamentals, such as having solid operating cash flows and relatively low capital intensity support our conviction.

Monetary policy tightening needs to tread lightly amid rising inflation, a stock market moving into bear territory and war in Eastern Europe.

Government bonds present tricky questions for fund managers to address when applying ESG principles.

Uncertainty, inflation expectations, interest-rate forecasts, geopolitical risks, and the global pandemic are all presenting investment considerations.

Compilation of published notes of implications across sectors and companies under our coverage regarding the conflict in Ukraine.

Annual Asset Class Returns – Calendar Year

But funds from Magellan, Vanguard, and Dimensional were some big exceptions.

We looked at the funds that had significant exposure to Meta within their portfolios, and those whose positions held the highest market value. Below is a list of actively managed funds where managers have opted to hold a hefty stake in the social-media company.

Australian investors need to brace for higher rates after consumer prices soared past market forecasts to hit their highest level in eight years, ratcheting up pressure on the Reserve Bank to begin winding back its pandemic-era easy-money policies.

Despite some extreme stock market moves, recent market performance hasn’t been that far outside the norm, says Morningstar’s Amy Arnott.

You need to find the balance between risk tolerance and a good night’s sleep.

Long-term returns across key asset classes over a 30-year horizon up till 31 December 2021.

If you are one of the many individual investors or financial advisors considering adding a sustainability lens to your investments in 2022, here are four things to keep in mind about sustainable investing.

Today’s ten charts bring new twists to some of the year’s biggest stories, from the impact of age on inflation to covid’s effect on influenza.

The age pension is a major source of income for the majority of Australian retirees. But the system is complex, and many people find it hard to work their way through the labyrinth of regulations. As a result, they may fail to qualify for a pension, lose their pension, or receive less than they would if they took advice.

Here are some of Morningstar analysts’ best ideas across eleven sectors for 2022. Around 45 stocks (or 25%) under coverage screen as ‘undervalued’ rated four or five stars, with standout sectors including energy, financials, and industrials.

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.

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’.