Adviser Spotlight

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’.