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Morningstar runs the numbers

Lex Hall  |  23 Dec 2019Text size  Decrease  Increase  |  
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We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended 20 December.


That’s the amount you can expect in brokerage fees when you sign on to an online broker, writes Emma Rapaport in ‘How to give the gift of wealth’. “If you want to give someone a gift of money that’s also meaningful, a handful of shares in a blue-chip company or well-known brand can be a great way to show them you care,” writes Rapaport. “For example, instead of buying someone an Apple watch, you could gift them part-ownership of Apple Inc. If you've never bought a stock before, let these quick reads What is a share where can I buy one? and How to buy shares on the ASX guide you. Similarly, you can give someone a gift card for US stocks via the company Stake, allowing them to choose their own shares.”

35.6 per cent

That’s the year-to-date return for ASX Ltd, the monopoly-like securities exchange, as at the close on 19 December. ASX topped the Morningstar Eleven - the 11 stocks under Morningstar Australia coverage that boast a wide moat, or sustainable competitive advantage of up to two decades. ASX beat the benchmark by about 14 per cent. That said, past performance is no guarantee of future success, of course, and as Morningstar director of equity research Adam Fleck notes, the top three names on the list – ASX, Cochlear, and Transurban – are currently overvalued. Among the big four banks, the average return was 4 per cent. CBA did best with a return of 12.9 per cent. Westpac, on the other hand, returned -2.6 per cent. That said, it is a four-star stock.

33 per cent

According to Morningstar Direct data, the strongest funds under Morningstar coverage with investments in large Australian companies have delivered returns of up to 33 per cent year to the end of November. Even the worst performing funds are in positive territory, with the weakest performing returning 15.5 per cent. However, Morningstar manager research analyst Ross MacMillan says it's been another difficult year for value managers, who seek out for long established, quality companies, with low price-to-earnings ratio. Only one large-cap Aussie equity value fund under Morningstar's coverage delivered above-index returns. "It's just not what's been chased by markets now. The market is chasing yield and growth, so very few value managers outperformed in 2019," Macmillan says.


The amount of money a single would need to live a “comfortable” retirement, writes Graham Hand. For a couple, the amount is $61,786. Most retirees fear running out of money. Recent research by AllianzRetire+ reveals only 44 per cent of Australian retirees feel secure in their current financial position, and two-thirds spend only on necessities, worried about unexpected costs and illness. “A simple calculation shows the challenge for retirees in the current low rate environment,” writes Hand. “If a couple has $1 million in two pension accounts earning say 3 per cent per annum, the income is only $30,000 a year. This is far less than the $61,786 a year required for a comfortable lifestyle if their only source of income is the pension account. They will therefore need to draw down their capital to meet expenses. Moreover, the average combined superannuation balance for a couple aged 65 to 69 is about $418,000 (men $247,000, women $171,000).”


The forecast price of iron ore for 2020-21, according to Mathew Hodge, director of equity research resources at Morningstar. He expects China's steel consumption to trend down, which will put downward pressure on the iron ore price from its current levels around US$90 per tonne. The price rallied to as high as US$123 a tonne this year after the Vale mine disaster in Brazil in January reduced supply, before easing in recent months as iron ore production has normalised. Hodge has a 2019 forecast for iron ore of US$95 per tonne, US$70-80 in 2020-21, then declining to US$55 per tonne in 2022 and US$41 per tonne from 2023. He notes that China’s urbanisation is past its peak, and while there is still a long way to go, the need for new residential construction is slowing, which is key for steel demand.

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