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Morningstar runs the numbers

Lex Hall  |  28 Jan 2020Text 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 24 January.


The number of “vital signs” of your financial independence. “Financial vital signs are a quick and (relatively) simple way to monitor your overall financial health, ensuring that you are in a position to be a successful long-term investor,” says Morningstar behavioural economist Sarah Newcomb. Establishing your net worth over time is the first step. Are you making enough to cover your payments and debts? Similar to net worth, the debt/income ratio is a measure of how much your debt load is weighing you down. Third, the months of safety metric tells you how long you could afford to spend looking for a new job, should you ever want or need to. Fourth, your financial independence quotient is the proportion of your current income that you could sustainably replace if you stopped all work today. And finally, financial stress, or how often you worry about your financial situation. Lowering that number over time is good for your psychological health--and your blood pressure.

51 per cent

Reflecting the global appetite for yield, some 51 per cent of the US$271 billion in net cash inflows into US-listed exchange traded funds have been into fixed income ETFs, a trend unlikely to be interrupted in 2020, writes Morningstar head of equity research Peter Warnes. Fixed income ETFs attracted US$135.4 billion against US$130.2 billion for equity ETFs. The US$271 billion net inflows took total assets under management in US-listed ETFs to a record US$4.4 trillion, up US$1.1 trillion, year-over-year. “According to ETF.com, much of the increase favoured high-yielding fixed income investments—read corporate bonds with credit ratings below BBB or junk. There has been a preference for ETFs which provide immediate liquidity and lower fees than mutual funds.”

7.9 per cent

Australian super funds delivered a record-breaking eighth straight year of positive returns to members in 2019, bringing the average annual return over the decade to 7.9 per cent, says superannuation research house Chant West.  Industry super fund Hostplus topped Chant West's best performing growth funds of the decade. Its Balanced fund returned 9.2 per cent a year against the survey median of almost 8 per cent. AustralianSuper Balanced came in a close second, returning 9 per cent to members, followed by UniSuper Balanced (8.9 per cent) and Cbus Growth (Cbus MySuper) (8.8 per cent). Chant West says 2019 was a record-setting year for growth funds. The median fund returned 14.7 per cent, representing the best calendar year for growth funds since 2013 and the seventh best in compulsory super's 27-year history.

3.3 per cent

That was the size of the share price jump in Woolworths and Coles on news that German discounter Kaufland was aborting plans to set up in Australia. Kaufland justified the decision by saying it would sell more groceries in Europe. Morningstar analyst Johannes Faul said the decision took analysts by surprise, particularly as Kaufland had already acquired store sites, hired some 200 employees, and begun work on a distribution centre. "We had expected Kaufland to open its first stores before Christmas 2020, competing with both the major supermarket chains and discount department stores Big W, Kmart, and Target in general merchandise," he said. "We maintain our fair value estimates for narrow moat Woolworths at $27.50, no-moat Coles at $12.50 and no-moat Metcash at $2.30," he says.

30 minutes

That’s the amount of time you should wait after the opening bell to trade an ETF. You should also avoid trading during the half hour leading into the market's close. That’s according to Morningstar’s Ben Johnson, who offers several key tips for trading exchange-traded funds. Perhaps the most useful tip, says Johnson, is to use limit orders. “If I had to provide just one tip, this would be it,” he says. “Investors tend to use market orders in instances where time is of the essence and price is of secondary importance.” In all cases, using limit orders is good practice. Limit orders will ensure favorable execution from a price perspective. “A buy limit order will fetch the buyer a price less than or equal to the limit price, while a sell limit order will transact at a price greater than or equal to the limit price.”


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is senior editor for Morningstar Australia

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