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
About

News

Morningstar runs the numbers

Lex Hall  |  25 Jan 2021Text size  Decrease  Increase  |  
Email to Friend

We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended 22 January.

4 per cent

In its January 2021 “Global Economics Prospects” report, the World Bank predicts a global recovery this year from the deep recession caused by COVID-19, reports Morningstar contributor Anthony Fensom. Nevertheless, the recovery is expected to be subdued, with a projected expansion of 4 per cent after last year’s 4.3 per cent contraction—“the fourth most severe global recession in the past 150 years.” “The recovery this year assumes that control measures reduce infection rates and that the vaccination process gathers pace so that vaccine coverage is widespread around the world by the end of next year,” the Washington-based institution says.

300

The number of oil rigs the shale industry must bring back during 2021 just to maintain a comfortable supply deficit and prevent inventories from drawing down too quickly and perhaps collapsing below normal levels after the recent success. The industry is attempting to shed its reputation for profligacy, and as a result, firms are allocating capital extremely cautiously, says Morningstar analyst Dave Meats. “So, higher crude prices are needed. Our midcycle forecast is still US$55 a barrel for WTI crude, and if that isn't enough of an incentive, we wouldn't rule out prices rising even higher in the short run. Higher prices bode well for energy stocks. The sector has dramatically outperformed the broader market since the Pfizer announcement on November 9, but the recent rally has not closed the gap with our valuations. Stocks still look cheap across all subsectors, especially oilfield services and refining. In those groups, our top picks are Schlumberger (SLB) and Valero (VLO), respectively.”

More than 50 per cent

The year-on-year jump posted by the Australian ETF industry. Beginning the year at $62 billion, the industry ended up by more than 50 per cent at a record $95.2 billion, BetaShares reports. This did admittedly include a large conversion event by Magellan which immediately added about $13 billion to the industry. “Excluding this event the industry grew by a still-rapid 32 per cent a year,” says BetaShares’ Ilan Israelstam. “The change in total industry size for the year was $33 billion, which is by far the highest annual change on record. Perhaps the most striking feature however, of the industry’s growth in 2020, is that it was entirely driven by net inflows rather than asset value appreciation, with $20.5 billion of new money flowing into the industry over the course of the year. This represents by far and away the highest annual inflows on record, a 59 per cent increase in flows from the previous year’s figure. Our internal analysis also indicates that a higher proportion of these flows than ever came from direct individual investors, with hundreds and thousands of new, often young investors entering the sharemarket for the first time via ETFs in 2020.”

Keep 100 (or 120) minus your age in stocks

For decades, investors have relied on this simple formula for basic asset allocation guidance, writes Morningstar's Amy C. Arnott. Using 100 as a starting point effectively means targeting a bond weighing equivalent to your age, with the remainder in stocks. "This guideline is based on the notion that younger individuals can afford to take on more investment risk because of their longer time horizons," writes Arnott. "As investors get older, their time horizons shorten, making an increasing fixed-income allocation more prudent. More recently, 120 has been showing up as a more common starting point, partly because average life expectancies have gradually increased. Before his death, Vanguard founder John Bogle advocated using 120 minus one’s age to determine equity allocations, explaining that the previous guideline came to fruition in an era of much higher bond yields. However, now that bond yields are even lower, fixed-income allocations are likely to generate lower total returns than in the past. That argues in favor of increasing savings, decreasing planned spending, or increasing equity exposure to boost long-term returns."

500 per cent

A World Bank Group report, “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition” finds the production of minerals, such as graphite, lithium and cobalt, could increase by nearly 500 per cent by 2050, reports Morningstar contributor Nicki Bourlioufas. This aims to meet the growing demand for clean energy technologies to limit global warming to well below 2C, compared to pre-industrial levels—a target set by the Paris climate accord. The World Bank report reveals that some minerals, such as copper and molybdenum, will be used in a range of technologies, while others, such as graphite and lithium, are needed for battery storage. “Prices for commodities used to create renewable energy systems have rallied and several Australian companies could benefit over the long term,” writes Bourlioufas.

Most popular articles

Top videos

 

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

Prem Icon Morningstar's Global Best Ideas list is out now. Morningstar Premium subscribers can view the list here.

Prem Icon See also Morningstar Guide to International Investing

is content editor for Morningstar Australia

© 2021 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