Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn


Firstlinks newsletter - 20 February

Graham Hand  |  20 Feb 2020Text size  Decrease  Increase  |  
Email to Friend

Morningstar acquired Cuffelinks (Firstlinks) in October 2019. Join 60,000 unique users and receive the Firstlinks weekly editorials and free investment ebooks.

Investment returns in 2019 were wonderful. With growth super funds delivering around 10% a year for a decade, it's tempting to expect similar good returns in future. The Morningstar Gameboard below shows only one negative asset class result over the last five years.

It's as good as it gets. RBA Governor Philip Lowe delivered a warning for those who hope their retirement savings will enjoy a similar tailwind in the next five years. As well as saying the economic effect of climate change would be 'profound', he said the coronavirus will have a major impact on education, tourism and business generally. But the statement that really stood out was this on low interest rates:

“We’re going to be in this world for a long period of time,” and low interest rates could be around “for years, possibly decades”.

The big question is, how much will investors fleeing these low rates continue to support the equity market, even as it looks expensive on historical earnings measures?

Mstar asset class returns CY19

Which leads to another question. Do you want your equity manager allocating your money to cash? In my case, I want fund managers to invest in the asset class of the fund selected, not make allocation decisions to go into another asset class. Our one question survey checks your opinion.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

It's also timely to deep dive into where the strong share returns of 2019 came from. Ashley Owen shows that price rises were not matched by profit growth. The market is simply far more willing to pay more for each $1 of profit.

Faced with these doubts about shares and interest rates, both retail and institutional investors are turning more to alternatives. Simon Scott surveys the landscape and shows which diversified funds are allocating to alternatives, and the significant difference in results.

There's no doubt the big US technology companies are fantastic businesses and deserve a place in most portfolios. The table below shows the weight of the Top 5 in the S&P500, now at a record 16.5% of the entire S&P500.

Sp 500 top 5 stocks

But as Charles Dalziell explains, most of what we call 'disruption' is simply a variation on a long-term development, and few of the so-called disruptive companies have a genuinely innovative technology that will create a great business. Of course, all companies must move with the times, and it's only 15 years ago when Holden was selling over 150,000 vehicles a year. In 2019, it was only 40,000, none assembled in Australia.

Rob Prugue has spent decades in senior positions around Australian wealth management, and he believes the push for a mega national super fund accepting default contributions will not end well if implemented.

The arguments between industry fund, retail fund and SMSF peak lobby groups sometimes undermines confidence in super, so it's good to hear John Maroney say SMSFs are not for everyone. And still on SMSFs, Graeme Colley shows new reporting requirements facing all SMSF trustees, and why they matter.

is the editorial director of Morningstar Australia.

© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend