Research Articles

There are three aspects of Shann’s life and work that particularly resonated with me as I sought to become more familiar...

The GFC of 2008 hastened the already occurring relative demise of the US and many developed economies relative to the emerging economies of China and India.

Dr Ken Henry is one of our best economic minds – despite the brickbats recently thrown from the Opposition benches. So when Dr Henry speaks about his other pet love (he was head of tax policy at Treasury before assuming the top job) it’s important to listen well to his message.

As the Australian share market tests new lows the chatter from the doomsayers is getting louder and more persistent. Who are these doomsayers and what motivates them is a key to understanding the reason for their noise.

There’s been a bunch of investor research conducted over the last few weeks and the results are not at all surprising. We know that half of Australian SMSF investors don’t hold any managed funds at all.

Supposed victims of our ravaged economy, the Australian banks’ current crop of earnings announcements have surpassed the pessimists, triggering share price recoveries in the sector as well as – perhaps – in the broader index.

There was a kerfuffle this week as the media broke the story about UBS bringing forward the repayment/maturity date for a protected investment loan it had provided, against a fund of hedge funds managed by Rubicon.

In last week’s column we reflected on the economic indicators that coincide with stockmarket recoveries, especially noting that recoveries traditionally occur after high spikes in volatility start to subside

It’s fair to say that the worst excesses of the banking system crisis are behind us, and its timely now to look forward to profitable share investing opportunities for 2009 and beyond. Its true that banks are yet to resume lending in a big way, but the “systemic” risk of banks falling and bringing others down with them has been significantly reduced by the actions of central banks and Governments.

Just back from a flying visit to investment bankers in the City of London, and with a little more clarity about market trends for 2009. One of the looming ideas for this year is the expectation of a spate of M&A activity as cashed up blue chip stocks look to pick up cheap opportunities, from amongst those companies that haven’t weathered the storm. “Cashed up” you ask?

Most people think of the sharemarket as a discounting mechanism, where share prices reflect the future value of the cash flows from corporate risk taking

Another week of watching late night US market news shows, and pondering when the US and global markets will hit bottom.

2009 will be the year to remain in, and where possible to increase, your client’s exposure to Aussie equities. We’re not predicting an immediate share market recovery, but this statement reflects the fundamental rationale for share investing – access to the long term wealth creation mechanism that “sharing” in corporate profits provides.

One of the latest product pushes is targeting investors nervous about stock markets, and comes from a bevy of fixed income fund managers arguing that bonds and credit investments are better value than being in the stock market.

I had a call from an investor during the week who sent me the PDS for the most recent Commonwealth Bank structured product, known as “CBA Capital Series,” a relatively simple play on the growth of the ASX 200 index over the next 5 ½ years.

Even though the first wave of recovery has passed through the global banking system, digging deeper shows that there are still persistent concerns with some of the more exotic types of gearing products which investors have become used to.

Continuing our theme from last week, we look today at the perils and pitfalls of investing in hedge funds that are ASX listed. We saw last time that most of the key investment strategies adopted by hedge funds are now under severe pressure, both from recently introduced limits on short selling as well as because of the dysfunctional arbitrage markets.

The question that is being posed by the popular media – namely, does the global financial markets crisis spell the end of our economic system as we know it? – drives straight at the heart of the logic which underpins your enrolment in the LPAC Program. To understand how to react to the financial markets crisis, we need to dissect the causes and effects of this global phenomenon

Many traditional Listed Investment Companies are currently trading at a discount to their Net Tangible Asset backing and represent good value for longer term investors. LICs have been around for much of the last century and are off radar for many investors.

All short selling is bad for the market, right? ASIC has been extremely tardy in closing down this last bastion of market manipulation and its weekend ban prevents all short selling except where it is conducted by ASX market makers and warrant market makers, for hedging pre existing positions.

Malcolm Turnbull has been playing a trump card for the last few days, querying the probity of Treasurer Wayne Swan talking down the Australian economy to garner support for the aggressive budget cuts the ALP has ushered in.

To state the obvious, the Australian property market has been decimated by soaring interest rates and state taxes. Residential property has fallen heavily in most states with NSW house prices having fallen by 20% in some sectors.

With the current high term deposit rates many investors have sidelined themselves from the share market with surplus cash sitting on deposit, waiting for some definitive indication that the sharemarket turmoil is over.

Following our story last week on gold based investments – and remaining in synch with the amazing 2008 Olympics that have just begun – we look this week at a simple way to buy your own physical gold.

It’s nearly time for one of my favourite events, and despite the media bleating the Beijing Olympics will be a cracker. We visited Beijing earlier this year and it’s an incredibly dynamic city and country – more on China and its investment opportunities in this column in coming weeks.

Just when investors may have been excused for relaxing, out comes the NAB with an $810m provision against its CDO exposure. So for investors that are still waiting for a clearer signal of returning strength in the Australian market, are there any better alternative to staying invested in cash?

What a June investing season it’s been! Early reports from major sharemarket lenders indicate that volumes have collapsed this year with one major bank telling this writer that share and financial product lending volumes have fallen back to 1999 levels.

As we suggested in last week’s column many Australian corporates have decided to raise new equity capital to shore up their finances as we emerge from the worst of the global credit crisis.

Watch out for a wave of new “hybrid” security issues from Australian companies over the next 12 months. Hybrids have been around for the last 18 years and offer quasi fixed income returns to investors

It hasn’t taken long for the old school to beat their chests about the perils of borrowing to invest. Stirred up by the recent Budget changes to interest deductions for protected share borrowings, over the last few weeks the traditionalists have dominated the pages and airwaves, trotting out the old line that gearing doesn’t add value to investment returns.

We saw last week how the Rudd Budget has changed the rules applying to deductibility of interest on capital protected borrowings, by limiting deductibility to the level of the RBA standard variable mortgage rate (currently 9.45%).

People who borrowed to invest in either shares or property a decade ago are wealthier then they would otherwise be, according to a report by the Australian Securities Exchange and asset consultancy Russell.

PORTFOLIO POINT: Given that most fund managers cannot beat the market in the long term, Burton Malkiel urges individuals to have indexing for at least the core of their portfolio.

Plenty of investors have built wealth by gearing into the sharemarket – and (as many over-geared investors will attest) – plenty have lost money as well, when the market turns south.

It’s surprising to see that the venerable Credit Suisse has just launched a major new investment product which seeks to by pass the tax rules against “trading” in franking credits: the new “GP 100” product effectively staples the franking and dividends from a riskless basket of stocks, to the return from an option over the upside in the ASX 200.

In 12 months time it is almost certain that we will be looking back at share prices which will be higher than current levels. We can’t be sure how much higher share prices will be then, nor should we be focussed on the prospect of short term gain.

This article was originally written about one of the newer forms of share leverage provided by Lift Capital. Since the placing this morning of Lift Capital into administration, the issues to be discussed have become more acute. In essence, the issue is: how can investors understand and differentiate between the various forms of geared and structured investment products which are now available?

Last week we discussed the demonstrable under-performance of most Australian managed funds when they are compared to the performance of general sharemarket indices. We saw that one way to overcome the disappointment of managed fund under-performance is to use a low cost investment that simply replicates the performance of an index.

One of the most troubling news items to come from this month’s SMSF professional’s conference confirmed the rising use of wrap platforms and master trusts by financial planners and their SMSF clients.

Over the last few years an amazing financial industry has emerged, which offers with one hand the prospect of strong absolute returns, while with the other hand offering additional layers of leverage and capital protection – just in case the original promise isn’t delivered upon.

The Australian market is rapidly filling with the litter of over cooked investment structures, built on aggressive leverage to ramp up fees for their promoters, and with a solid investment rationale often as only an afterthought.

This weeks investment product review comes to you from Beijing, written from the midst of the fastest growing economy in the world, that of the People’s Republic of China. Over the last few days its been enjoyable to site visit the largest PRC steel producer (Bao Steel) as well as to see at first hand the economic miracle experienced by key cities like Shanghai and Beijing.

Nervous sharemarket investors often seek to reduce their risk by investing in a managed fund, relying on the skills of the fund manager to smooth out returns, as well as gaining access to sectors and countries which may be difficult to invest in directly.

Stockmarket wary investors looking for a more secure home for their funds are being targeted by product issuers with new variations on the “enhanced cash” style product.

With this month’s savage sharemarket volatility still ringing in investor’s ears, the typical reaction from many will be to select more conservative investments – at least until perceptions of risk are reduced.

One of the final virtuous reforms of the Howard Government was the confirmation given last year that superannuation funds (including SMSF) can buy shares on Instalment – even when the Instalment creates a borrowing by the investor.

Borrowing to buy shares has been a powerful wealth builder for most of this decade and for extended periods of time prior to that. Even so, gearing into stocks is still an imperfectly understood concept, with many investors and advisers adhering to out of date investment strategies which shun borrowing to invest.

It’s increasingly clear that the Australian share market offers better value than most of the rest of the world. Although strong GDP growth remains likely in China and India, the uncertainty about how these regulated markets operate leaves most investors in sufficient doubt to shun them for now.

Last week we looked at the opportunities for wealth creation and risk management which products like the Macquarie “Fusion” range provide. To recap, Fusion and its analogues such as those offered by Perpetual, wrap a wide menu of managed funds in a capital protection mechanism which will ensure that the investor at least receives back the value of their initial investment at maturity.