Investing basics
5 Things to Do in a Bear Market
Rebalancing, tax-loss selling, and buying on the dip are among the productive moves to consider. (8 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.
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.
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.
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.
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.
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.
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.
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.
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’.