Don’t abandon stocks amid rising market risk

--  |   11/12/2019 Text size  Decrease  Increase   |  
email_fwd
<p><strong>Glenn Freeman</strong>: In this edition of "How We Invest Your Money?" I'm speaking to Hugh Giddy, who's a Senior Portfolio Manager with Investors Mutual.</p> <p>Hugh, thanks very much for your time today.</p> <p><strong>Hugh Giddy</strong>: You're welcome.</p> <p><strong>Freeman</strong>: Now, Hugh, interest rates are at historic lows at the moment. What does this actually mean for investors?</p> <p><strong>Giddy</strong>: The reason interest rates are so low is because growth is quite weak. Although, interestingly, if you look at unemployment, it's low in the U.S., it's pretty low in Australia. The reason it isn't lower is there's more participation in the labor market. But if you think about why interest rates are low, it's because central banks have lowered them. Now, Australia has lowered them along with our central banks. But in free market economies, interest rates is one of the things where the price is actually controlled by the government. It's not a free market. It's not a capitalist system in full because interest rates aren't set by the market, they are set by central banks.</p> <p><strong>Freeman</strong>: So, it's not something that happens by mistake or just by pure virtue of the market?</p> <p><strong>Giddy</strong>: It's not the guiding hand of the market, sort of, of Adam Smith. It's the government says we want to interfere. And people don't challenge that consensus that much. And they tend to believe and there's this belief that lowering interest rates stimulates growth. So, asset prices have gone up a lot because of the low interest rate environment. But that only benefits really the rich who own assets. If you don't own assets, if you are poor, you've been left behind. And so, that's why you got a lot of the social discontent where people look at the inequality. In the U.S., it's very extreme, but in Australia, I think the inequalities is quite significant because asset owners have benefited at the extent to the detriment of people who don't really own assets. You think of young people who want to buy a house, it's a struggle, because house prices are very high in Australia. And it's interesting, if you go back in time, the last time that income inequality and wealth inequality was so large was actually in the late 20s, at the time of the of the crash and the Great Depression.</p> <p>I was at a dinner on Tuesday, the Australian Business Economists dinner where the Reserve Bank Governor of Australia, Philip Lowe, was presenting and he acknowledged that low interest rates keep companies alive, zombie companies who would otherwise maybe go bust and that creates competition for people who are making money and have a solid balance sheet, but that also keeps the price down. But one of the things he was talking about was the inflation target, which in Australia is between 2% and 3%. And he was asked about the inflation target and he dodged the question, he just said, "Oh, I met with Josh Frydenberg, the treasurer, and we agreed on the contract of monetary policy and the inflation target. The fact that they agreed on it doesn't mean that it's the right target. And I think that target was set a long time ago when inflation was quite high, when inflation was in the double digits, 15% 17%, then it seems fantastic. If we can only get inflation under 2% to 3%, bonza, that's fantastic. But now, inflation is below 2% to 3% and why should we be trying to get it up? What is the benefit of higher inflation? It's not clear to me. 2% to 3% means prices will double in 25, 30, 40 years depending on the rate of inflation. Is that a good thing? Why should we have that? And nobody's really offered an explanation why zero inflation isn't a decent thing.</p> <p><strong>Freeman</strong>: And obviously, that lever of interest rates is one thing that central banks will pull on. They're trying to do this to get consumption to pick up and to get inflation to pick up, but it hasn't worked, has it?</p> <p><strong>Giddy</strong>: Well, you think about it, -- you know, if interest rates are very low, it's partly growth is low. So, maybe you've got less to pay on your mortgage because of the lower interest rate. Do you use, "oh, let me guard and spend." Now, you're sort of a little bit worried that, well, A, you might not be getting a salary increase anymore because inflation and growth are low. B, maybe you're going to lose your job because we've had an expansion in Australia since 1991, which is a very long period of time. And there are signs of vulnerabilities in the economy. So, maybe, you know &ndash; and you also are under a mountain of debt. We've got one of the highest household debt levels in the world. So, maybe when interest rates go down, and people are doing this, you pay off some of your debt. So, you actually haven't seen a rise in consumption. And interestingly, in in Europe, where interest rates are even negative, they have found that the savings rate has actually gone up instead of simulating consumption. Why? Because people are thinking, "Well, I'm going to stop working and retire some day and I'm going to have to save more because look at these dreadfully low interest rates. So, it's actually having the reverse effect. It's not having an effect or the intended effect. Cutting the interest rates is actually hurting spending.</p> <p><strong>Freeman</strong>: But how should sort of more conservative investors think about how they're investing now in this lower rate environment?</p> <p><strong>Giddy</strong>: Well, it's an interesting thing. Obviously, cash is very unpopular, because it earn such a low yield and people are used to earning rates on term deposits of maybe 5% or 6%. We believe, and I believe that as far as equities go, you obviously do take on more risk because the stock market is volatile, it is going to go up and down. But within the stock market, you should invest in quality, solid defensive companies that you feel confident are going to be around and in a better state in five years' time. If the companies are speculative and being driven by the sort of mania for assets that aren't cash, then trouble could lie ahead. But if they're solid companies that generate steady cash flows, sure they will go up and down, but in five years' time, you will probably not have done too badly.</p>

Video Archive...

February Reporting Season Wrap Up with Peter Warnes: Webinar
04/03/2021  Special guest Peter Warnes, our head of equities research, joins the Morningstar Foundations of Investing Webinar series to give his unique take on February Reporting Season and answer subscriber questions.
One year after the market crash, through the ETF lens
03/03/2021  The growth and adoption of exchange-traded funds has only accelerated as a result of the latest market crisis.
Brighter picture for big four banks
01/03/2021  Morningstar's Nathan Zaia on the outlook for the banks, dividend payouts and the move by the Bank of Queensland to acquire ME Bank.
One year on: lessons learned from the 2020 bear market
25/02/2021  The biggest takeaway from that period is not to panic when the market tumbles.
What if...I want to buy a gold ETF?
23/02/2021  From ETFs backed by bullion to miners with more upside potential - here's how to get yourself some gold.
'Full return to normal in 2021'
23/02/2021  If the US is to stage a recovery by mid-year, it will need the consumer services sector to fire, says Morningstar's head of economic research Preston Caldwell.
Google, Facebook versus Aussie news stocks
19/02/2021  Morningstar's Brian Han weighs up News Corp's deal with Google and examines the effect of Facebook's decision to block content from Australian media outlets.
Global real estate as a store of value
18/02/2021  Quay Global Investors' Chris Bedingfield explains how self-storage, data centres and industrial property can offer diversification and growth.
Spotting the 'covid winners'
16/02/2021  Uniti Group and Nextdc are among the companies that SG Hiscock's Hamish Tadgell says have flourished during the pandemic.
The transition from hope to growth
15/02/2021  Hamish Tadgell of SG Hiscock explains the portfolio changes he’s made in a bid to capitalise on the shift.
The future of the US economy
10/02/2021  Which pandemic-related trends have already passed, and which ones might be around the corner?
GameStop frenzy is history repeating
05/02/2021  The battle between the Reddit army and hedge funds is nothing new—the question is will regulators be willing to step in, says Morningstar's John Rekenthaler.
Who are the fast fashion winners?
03/02/2021  Competition is fierce for fast fashion retailers such as Asos, H&M, Zalando and Inditex. Morningstar analyst Jelena Sokolova takes a look at the sector.
Can your portfolio withstand volatile times?
01/02/2021  Volatility can be around any corner, says Morningstar director of personal finance Christine Benz.
How much equity exposure is too much in retirement?
28/01/2021  Retirees require stocks' growth potential, but they need a cash and bond buffer, too.
Key trends for China investors
27/01/2021  Rebecca Jiang, manager of the JPMorgan China Growth & Income Trust, looks at why Chinese stocks soared in 2020 and whether the trend can continue.
Redpoint's 3 top picks in industrials
25/01/2021  Redpoint's chief executive and portfolio manager Max Cappetta tells Lex Hall why he's got his eye on JB Hi-Fi, Goodman and Reliance Worldwide in 2021.
Looking for growth and income among industrials
21/01/2021  Redpoint CEO and portfolio manager Max Cappetta looks at the dividend potential of large-cap names, the resilience of Qantas, and the local tech landscape.
What we expect from oil prices
19/01/2021  Stocks still look cheap across all subsectors, especially oilfield services and refining, says Morningstar analyst Dave Meats.
What’s app-ening: investing from your phone
19/01/2021  What are the rewards and risks of using this technology?
A Democrat clean sweep and corporate America
15/01/2021  Morningstar's head of policy research Aron Szapiro explains what sort of changes a Biden government will make and how they will affect company valuations.
3 stocks for climate transition
14/01/2021  Freight-rail, building temperature efficiency, and carmaking are among the sectors Aviva Investors' Jaime Ramos Martin has his eye on.
The outlook for dividends
13/01/2021   Dividend investors had a hard time in 2020, but Morningstar analyst Dan Lefkovitz think the outlook is brighter for the year ahead.
3 themes for fund investors in 2021
11/01/2021  Morningstar Investment Management's Dan Kemp reveals the three investment themes on his mind for the year ahead.
What next for oil and gas companies?
06/01/2021  Morningstar equity analyst Allen Good looks at the prospects for oil and gas giants in the year ahead. 
China outlook 2021
05/01/2021  China had a strong year after a rocky start, but can it continue—and what does a US President Biden mean for the region? Morningstar analyst Lorraine Tan explains.
Tech, travel and trends for 2021
04/01/2021  Morningstar equity director Alex Morozov considers the outlook for tech, travel and beyond for the year ahead.
Money and investment lessons of 2020
01/01/2021  How to plan for things you can't plan.
Morningstar Year in Review 2020
25/12/2020  2020: we look back at the highs and lows of an unprecedented year in financial markets and explore the themes shaping 2021.
Are music streaming companies a big hit with investors?
22/12/2020  Music streaming companies have seen stellar growth in user numbers. We ask Morningstar equity analyst Neil Macker if the trend can continue.
What Tesla's inclusion in the S&P 500 means for investors
21/12/2020  While it stands as the largest addition in the index's history, this likely won't impact everyday investors all that much. 
Peter Warnes and the 2021 Forecast
18/12/2020  Will there be opportunities to deploy cash in the new year? Will there be a reprieve from covid? And what will the incoming Biden administration mean for markets?
Investing in the climate transition
18/12/2020  Companies that specialise in solar, building efficiency and renewables underpin Aviva Investors' Climate Transition Global Equity Fund, says Jaime Ramos Martin.
Why does liquidity matter?
16/12/2020  Why does liquidity matter to investors, and how can it affect your returns? Morningstar equities director Tom Whitelaw explains.
Introducing the Morningstar Capital Allocation Rating
14/12/2020  Learn what we look for when rating a company.
Incorporating ESG into our equity research process
14/12/2020  Morningstar's new approach unpacks the environmental, social and governance risks that companies face.
Tagliaferro: yield ideas for your portfolio
10/12/2020  Industrial companies typically generate better cash flows and can offer a steady income stream, says the IML founder.
Anton Tagliaferro on value versus growth
09/12/2020  The lofty valuations of Tesla and Afterpay typify the effervescence and speculation in the market, says the IML founder.
Can car companies be ESG investments?
08/12/2020  Car makers may not be an obvious investment choice for ESG-conscious investors, but Morningstar analyst Tancrede Fulop says some of the largest companies score highly in some measures such as safety and human capital.
The US and China under president-elect Biden
07/12/2020  Janus Henderson's Matt Peron considers how the relationship between the US and China will evolve under a President Biden.
Investing basics: what is active and passive investing?
04/12/2020  What is active investing, and what is passive investing? We're at the whiteboard to explain the pros and cons of each 
Why we still like Treasury Wine
04/12/2020  Treasury Wine Estates remains an undervalued stock in spite of China's demand-destroying tariff on Australian wine. Morningstar director of equity research Adam Fleck explains why.
What is gold worth?
03/12/2020  And do any other assets currently compare?
Why now is the time for ESG investing
02/12/2020  We're at an inflection point in ESG investing, says Sustainalytics founder Michael Jantzi. Here's why. 
10 stocks retail investors bought in covid sell-off
01/12/2020  Beaten-down travel stocks and BNPL providers featured heavily, says nabtrade’s Gemma Dale.
How retail investors seized on covid sell-off
30/11/2020  Many people were waiting for the opportunity to buy shares at historic discounts, says nabtrade’s Gemma Dale.
AMP: difficulties now, but dividends later
27/11/2020  The 171-year-old wealth manager has had its scandals but there's merit to its turnaround strategy and the quality of its other assets, says Morningstar's Shaun Ler.
'Be careful using buy now pay later'
27/11/2020  BNPL products such as Zip Co help boost consumer spending but they come with risks and are overvalued, says Morningstar analyst Shaun Ler.
Hamish Douglass: Winners and losers in the covid era
26/11/2020  The Magellan co-founder argues the ecommerce acceleration is here to stay and ponders the effect it will have on other sectors such as travel and commercial real estate.
A 'wonderful hunting ground'
25/11/2020  Greg Dean of Cambridge Global Asset Management explains why the consumer services sector has yielded healthy returns.
Hamish Douglass and big tech
25/11/2020  Magellan's co-founder explains which tech behemoth the Magellan Global Fund no longer owns, why one was too tricky to value, and why regulation is no threat.
Hamish Douglass: 'We're lucky this pandemic hit when it did'
24/11/2020  Magellan's co-founder on why 2020 resembles 2000 and why covid-19 is a dry run for something that could be much worse without proper planning.
Should you beef up your exposure to meat processors?
23/11/2020  Their shares have gotten hammered this year. Are they opportunities or value traps?
What is the Morningstar ESG Commitment level?
20/11/2020  Our new rating highlights the degree to which a fund or asset manager considers environmental, social, and governance issues.
What's driving the flows into ESG funds
19/11/2020  Morningstar's Grant Kennaway explains why sustainable funds are increasingly popular and why they're performing well. 
Too much upside baked into Bunnings: Morningstar
17/11/2020  Morningstar director of equity research Johannes Faul looks at home improvement retailer Bunnings.
What is ESG?
16/11/2020  From climate change to workers' rights, ESG is a big part of the investing world. We're at the Morningstar whiteboard board to explain what it means and why it matters.
"I'm still cautious": Peter Warnes' best ideas for income investors
12/11/2020  We're not out of the woods yet, says our head of equity research, as he looks for safety in businesses we can't live without and shies away from the banks. 
Is it time to get exposure to China?
11/11/2020  Perhaps it is time to have exposure to this economic powerhouse and its 1.4 billion population, says Morningstar's Peter Warnes.
Tapping into the contactless spending boom
10/11/2020  What happens when you buy something when your bank card? Morningstar analyst Niklas Kammer explains which companies are benefiting from your transaction.
Can luxury stocks recover from covid?
09/11/2020  With travel bans and economic lockdowns, the luxury sector has been hit hard in 2020. But there are still opportunities, says Morningstar analyst Jelena Sokolova.
US election scenarios and what they mean for investors
05/11/2020  A discussion of taxes, stimulus, regulation, and the likely market reaction as results from the 2020 poll come in. 
Don't try to time elections
03/11/2020  Why you should resist the urge to make predictions when there's a disconnect between the economy and security prices.
3 names on the alternative protein shelf
02/11/2020  Etoro analyst Josh Gilbert shares his thoughts on Beyond Meat and two other companies making inroads into the plant-based meat sector.
Hamish Douglass: I'd be super surprised if Trump won
30/10/2020  The Magellan rainmaker explains why he doubts the Republican leader will prevail and why investors should brace for volatility—and ignore it. 
Gauging the appetite for alternative protein
29/10/2020  The market for plant-based meat is worth $14bn today and is expected to grow massively, says eToro's Josh Gilbert.
Browsing the opportunities aisle in retailing
28/10/2020  Morningstar equity analyst Johannes Faul explores the flipside to the surge in growth in online sales.
3 top Asian picks on Longlead's radar
22/10/2020  China and Hong Kong have been a happy hunting ground, says Longlead Capital Partners' co-founder Andrew West, who singles out tech, pharmaceuticals and power tools.
3 undervalued travel stocks we like
22/10/2020  These names stand to benefit from a resumption of leisure travel - and are all trading below our fair value estimates.
3 reasons to like bonds
20/10/2020  Morningstar's Mark Preskett looks at three reasons why bonds are an important tool in your investment portfolio.
The monopoly asset that could boost Link
19/10/2020  A bigger stake in the online conveyancer PEXA could be the key to increasing Link Administration's revenue, says Morningstar's Gareth James.
How Longlead Capital defied the covid plunge
16/10/2020  Longlead Capital Partners co-founder Andrew West reveals how his Asia-focused fund managed to make gains during the historic covid-19 sell-off.
Investing basics: why invest in bonds?
16/10/2020  The investment board is back with an explainer on why you might invest in bonds.
Retiring during a pandemic
13/10/2020  How to handle this decision—even when it is made for you.
3 top picks in sustainability and software
12/10/2020  Nick Griffin of Munro Partners reveals why and where he sees opportunities in renewable energy, diagnostics and software. 
Investing basics: what's your personal inflation rate?
09/10/2020  Take stock of your spending to determine if inflation is an issue for you.
Ant Group IPO: What you need to know
09/10/2020  Morningstar analyst Chelsey Tam explains why investors are excited about the flotation of Ant Group and why it's different from Alibaba.
Spotting the winners of tomorrow
06/10/2020  Companies that address the growing demand for decarbonisation will have a 20-year growth opportunity, says Nick Griffin of Munro Partners.
An interview with Whitehaven Coal chief Paul Flynn
30/09/2020  EXCLUSIVE EXTRACT: Morningstar's Mat Hodge and Lex Hall talk to the CEO of the independent producer and exporter about the company's fortunes and its future.
How to get rich slowly
30/09/2020  Slow and steady wins the financial race.
3 top picks in global healthcare
29/09/2020  American Century Investments' low-turnover strategy invests in companies developing vaccines, treatments for neuro-cognitive diseases and innovations in telemedicine.
Investing in the healthcare needs of the future
25/09/2020  By 2050, almost 20 per cent of the global population will be over 65 and demand for healthcare will climb, says Michael Li of American Century Investments.
Morningstar's Mat Hodge on Rio's fortunes
22/09/2020  The destruction of an indigenous cave shelter was unforgiveable but there are other reasons why the iron ore heavyweight is overvalued.
Cannabis: the world in 2030
21/09/2020  Morningstar equity analyst Kristoffer Inton on the outlook for the seven producers under coverage.
3 top picks for the EV revolution
18/09/2020  Morningstar's Seth Goldstein singles out three undervalued stocks that span the entire electric vehicle supply chain.
The 2020 election and your portfolio
18/09/2020  The bumps and bruises of election time may tempt you to shift your portfolio strategy.  
'The tech rally has gone too far'
17/09/2020  UK-based Premier Miton's Simon Evan-Cook says the tech rally of 2020 is reminiscent of the dotcom boom, but inflation could be a bigger threat.
Why EVs will be a common sight on the roads of the future
16/09/2020  By 2025, the cost of batteries and manufacturing will fall and EV functionality will improve, says Morningstar's Seth Goldstein.
Using personal data to better estimate retirement savings
11/09/2020  Estimating the length of your retirement with personalized information will help you save the correct amount.
2 China stocks we like
09/09/2020  Morningstar's Chelsey Tam reveals which stocks and sectors have shone—and which have underwhelmed.
How to be a better investor: episode 3
28/08/2020  Products, services, what is what in the world of finance—and how to look out for yourself
Where to invest for income
24/08/2020  A raft of companies have cut their dividends this year, leaving income investors concerned. But Morningstar's Dan Lefkovitz says there are still plenty of options out there.
DNR Capital's eye for gaming, building supplies and software
18/08/2020  DNR Capital's chief investment officer Jamie Nicol profiles some of the top ten holdings in his Australian Equities High Conviction fund. 
The trouble on Telstra's horizon
17/08/2020  Morningstar's Brian Han explains why he has trimmed his fair value estimate for Australia's dominant telco and the future of its dividend payout.
Finding bargains the market overlooks
14/08/2020  DNR Capital's Jamie Nicol reveals how his Australian Equities High Conviction fund finds quality businesses that will endure difficult conditions.
How to be a better investor: episode 2
13/08/2020  Put your money to work if you're looking for financial freedom.
How to be a better investor: episode 1
10/08/2020  Learn how to picture your goals so you can better reach them.
3 undervalued names in childcare
05/08/2020  Morningstar's Gareth James identifies three sector names trading at attractive discounts in an increasingly 'essential' sector.
Is the 60/40 portfolio dead?
05/08/2020  Reports of the strategy's demise are greatly exaggerated, says Morningstar's Christine Benz.
Why you should ignore a fund's yield
04/08/2020  Investors may assume a fund's yield to determine how much income it will pay, but it's not always so simple, warns Morningstar analyst Rajesh Yadav.