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Investment update Mar 2019.ppsx
- 1. Slide 1 Baiocchi Griffin Private Wealth Economic and Investment Markets Update 8th April 2019
- 2. Slide 2 General Advice Warning This presentation and the associated discussion is general in nature and does not take your individual situation into account. You should not act on anything contained herein, or discussed as a consequence of the contents of this document, without receiving personal financial advice from a suitably qualified person such as a financial advisor.
- 3. Slide 3
- 4. Slide 4 What will be covered Key issues both globally and in Australia
- 5. Slide 5 US-China Trade War Escalation of the trade war has the potential to significantly harm the global economy A reminder as to why Trump is pursuing the trade war, although intellectual property theft and copyright issues are also important
- 6. Slide 6 Another view of the trade war
- 7. Slide 7 MAD – Mutually Assured Destruction Remember the 1950’s? The view that a nuclear war could be best prevented by the acceptance that neither side could be expected to survive a full-scale nuclear exchange Increased globalisation and financial linkages mean that the US and Chinese economies are similarly entwined, bringing into question the wisdom of Trump’s trade strategy
- 8. Slide 8 Trade war uncertainty is having an impact Leading business activity indicators have all turned negative over the past 18 months, suggesting a broad global economic slowdown
- 9. Slide 9 While in the UK… The ongoing Brexit saga continues to add to global uncertainty
- 10. Slide 10 Brexit explained (sort of)
- 11. Slide 11 From an Australian perspective
- 12. Slide 12 Domestic issues • Federal election, most likely sometime in May • Generally, economic activity (and the stock market) slows in the build- up to an election, but can recover once the result is known (the removal of the uncertainty) ASX 200 Index: 2015 to mid-2017 2016 Federal election
- 13. Slide 13 A quick look at forecasting RBA Forecasts of Annual Wage Growth vs. Reality Even the RBA is unable to forecast wages growth with any accuracy at all
- 14. Slide 14 Franking credits One policy issue which is in the news is Labor’s proposal to end the refund of franking credits for certain types of taxpayers. How it works: A company pays a fully-franked dividend of $100, which includes $30 of franking credits (based on the company having paid 30% tax on the income used to pay the dividend) If your tax rate is 45% - you will pay an additional 15% tax on your dividend, $15 If your tax rate is 30% - you pay no additional tax on the dividend If your tax rate is 15% - you receive a tax refund of $15 If your tax rate is 0% - you receive a tax refund of $30 This is relevant to many retirees and SMSFs in pension mode
- 15. Slide 15 If franking credits are lost… IF Labor wins the election, and IF legislation is passed by the House and the Senate, what are the likely impacts and what (if anything) should be done? Potential impact on: • High-yielding fully franked shares may be less desirable and may experience a minor re-rating (i.e. share prices may see slight falls as some investors sell) • Companies with a history of increasing dividends may become more desirable, or those who are able to consistently grow revenue and profits • Greater focus on overall return (i.e. the lost income can be partially or wholly offset through share price appreciation) The most significant impact will be on all-share portfolios, which is usually an inappropriate approach for most investors. Diversified investment portfolios (such as those we typically prefer) will be less affected.
- 17. Slide 17 Federal Budget Key points: • Total tax cuts to total $302 billion over the next decade (mostly towards the end of the decade) • 2 in 3 workers will be taxed at a top rate of 30% • income tax exempt payment of $75 for singles and $125 for couples who were on a qualifying payment on 2 April 2019 • Little change to superannuation; minor change to make it easier for people older than 65 to contribute to super However, it should be noted that tax revenue was boosted by $15 billion from mining company taxes (not likely to be permanent)
- 18. Slide 18
- 19. Slide 19 Budget surplus by 2019-20
- 20. Slide 20 Baiocchi Griffin Private Wealth The End of Traditional Retail? 8th April 2019
- 21. Slide 21 What will be covered - What is happening? - Why is it happening? - What are the impacts? - Where to from here?
- 22. Slide 22 What is happening? • eCommerce growing more rapidly than traditional in-store sales
- 23. Slide 23 What is happening? • Local stores closing, unable to compete with online competitors
- 24. Slide 24 Why is this happening? • Developments in Technology • Smartphones, 24/7 connectivity • Digital payment system • More economical • Greater choice
- 25. Slide 25 What are the impacts? Consumers • Changing role of stores from places just to store product to “discovery” and “experiential” centres • Changed purpose of shopping centres towards “leisure centres”
- 26. Slide 26 What are the impacts? Investors • Limited exposure to discretionary retailers • No exposure to retail real estate investment trusts (“listed property trusts”) • Seeking out companies with up-side benefit e.g. supply chain logistics
- 27. Slide 27 Where to from here? • “Phygital” future for retail – combination of physical and digital stores • Omni-channel shopping channels
- 29. Slide 29 Conclusion • eCommerce drastically changing the traditional definition of shopping • “Experience stores” becoming increasingly common along with “leisure” shopping centres • Combination of physical & digital the most likely way forward
- 30. Slide 30 To end with, a note on portfolio construction You may wonder why we include certain investments in your portfolios and the role that they play in generating returns. Our investment approach is based on a ‘Top Down’ methodology:
- 31. Slide 31 ‘Top Down’ Approach
- 32. Slide 32 The outcome of the process Position Quantity Value Market Value Value Domestic Cash MACQUARIE CMA 6,441 $1.00 $6,000.00 3.24% Total for Domestic Cash: $6,000.00 3.24% Domestic Equity MEDIBANK PRIVATE LTD - ORDINARY FULLY PAID 3,521 $2.69 $10,000.00 5.41% NATIONAL AUST. BANK - ORDINARY FULLY PAID 504 $24.96 $12,000.00 6.49% NIB HOLDINGS LIMITED - ORDINARY FULLY PAID 1,415 $5.31 $10,000.00 5.41% RAMSAY HEALTH CARE - ORDINARY FULLY PAID 152 $64.77 $10,000.00 5.41% SEVEN GROUP HOLDINGS - ORDINARY FULLY PAID 304 $18.48 $10,000.00 5.41% TRANSURBAN GROUP - FULLY PAID ORDINARY 610 $12.79 $12,000.00 6.49% TELSTRA CORPORATION. - ORDINARY FULLY PAID 2,205 $3.28 $10,000.00 5.41% WESTPAC BANKING CORP - ORDINARY FULLY PAID 495 $26.33 $12,000.00 6.49% WOOLWORTHS GROUP LTD - ORDINARY FULLY PAID 353 $30.48 $10,000.00 5.41% Total for Domestic Equity: $96,000.00 51.89% Domestic Fixed Interest AUSTRALIAN SECURITIES TERMFUND 10,000 $1.00 $10,000.00 5.41% MULTIPLEX SITES - TRANS PREF 3-BBSW+ 3.90% PERP 67 $95.70 $6,000.00 3.24% NUFARMFINANCE (NZ) - CONVERT BOND 74 $85.00 $6,000.00 3.24% THETA-ACBC NABF06-20 - XTB THETA F10 FLT JUN-20 39 $100.87 $9,000.00 4.86% THETA-ACBC WBCF07-20 - XTB THETA F11 FLT JUL-20 39 $101.46 $9,000.00 4.86% Total for Domestic Fixed Interest: $40,000.00 21.62% Domestic Property ASL - 203599 - 18 GLEN EBOR(15/04/2020,6.50 %) 5,000 $1.00 $8,000.00 4.32% ASL - 203637 - ST CLAIR(15/09/2019,6.25 %) 7,000 $1.00 $10,000.00 5.41% ASL - 203664 - BRAHAM(15/02/2020,5.95 %) 7,000 $1.00 $10,000.00 5.41% ASPF SS7 CORPORATION CIRCUIT 22,000 $0.96 $15,000.00 8.11% Total for Domestic Property: $43,000.00 23.24% Grand Total: $185,000.00 100.00% Liquidity Income and Growth Predominately income Mortgages for income, property for income & growth
- 33. Slide 33 ? Thank you Please join us for morning tea
Editor's Notes
- A reminder to clients why the trade war came about. A significant trade gap exists between the US and China, which has grown significantly in the past 20 years as a significant proportion of global manufacturing moved to China. However, the disparity in wealth between the US and China also explains the gap to a certain extent. As Americans get richer they buy more of what China sells. It’s just that now there is really only one supplier (China) whereas in the past goods were bought from many different countries and many were manufactured domestically.
- A good chart which shows that the US experience with China is not unique, that China has gobbled up many countries’ share of global trade, not just the US. The US being the US however, it is convenient for Trump to blame China, when it is in fact more complex than simply China vs the US. Interesting changes in the chart are Japan and the UK, who seem to have lost the most share. Germany is still very high, which is interesting.
- Pointing out the folly of Trump’s trade war. Given globalisation and the economic and financial links between countries, it’s fanciful to think that the US will not be damaged economically, as well as China. Then again, Trump’s rationale is political not economic or financial.
- These are 4 closely watched economic indicators which provide a composite view of how the global economy is faring. It shows consumer confidence in advanced economies; an OECD composite leading indicator (it tracks things such as dwelling permits, bond yields, terms of trade, share prices, manufacturing orders etc.); G7 business confidence levels and the Markit Global Manufacturing PMI (based on a survey of intentions of senior execs in regards to their business plans). The trade war is not the only issue impacting these indicators, but would certainly be having an affect
- Perhaps a bit of discussion about how markets hate uncertainty? You could relate your story about the Gulf war and what happened to share prices once the shooting started (i.e once the uncertainty was removed about what would happen)
- This will need an internet connection to run. If you want to watch it, just search on YouTube for Brexit explained (by the Washington Post)
- Just to point out that Brexit is not really a big deal from an Australian perspective. UK ructions are unlikely to have a meaningful impact on the Australian economy.
- Not really conclusive, but tries to show that markets can pick-up once the election result is known, once the uncertainty is removed.
- Thought this was an interesting chart. It shows the RBA’s forecast of wages growth at the start of each year (the coloured lines), with the black line showing actual wages growth. Basically the RBA got it hopelessly wrong every time. The point here is that forecasting with any accuracy is almost impossible, even for a well funded and resourced organisation like the RBA (with many 100’s of PhD’s working for them too no doubt). Could segue into why we don’t try and forecast future stock market returns or try to time markets: too many variables and impossible to get right consistently
- A discussion of how franking credit refunds arise
- The gist here is that there is no reason to panic. All-share portfolios (which are a bad idea anyway) would suffer the most, which does not apply to our clients. The loss of some income may mean that total return (income + capital growth) becomes more important than the income yield. As far as we are concerned, this would entail little or no changes to our approach, which has typically focused on income first, capital growth second. At the most we might slightly favour growth companies over income, but not enough that it would be overly noticeable.
- The headline from the Fin – the key point being that this was clearly an election budget. No nasties and plenty of handouts and tax cuts, although most of them occur fairly far into the future
- Just some key points. Really the budget contained nothing controversial so there is not much to say really. It should be pointed out that the budget bottom line has been boosted by a TEMPORARY increase in mining company taxes (a la Howard and Costello a decade ago) and the government is locking in structural changes (to tax rates) based on a temporary increase in income (which is just repeating past mistakes)
- Interesting slide which shows how the tax brackets would change. Much simpler than it is at the moment.
- Budget estimates, note the projected surplus in 2019/20, although the debt remains
- AN introduction to the next topic. Next slide shows the top-down approach…
- Fairly straightforward. A discussion about top-down investing, can contrast it with bottom-up – why we prefer top-down, its advantages & disadvantages etc.
- This is in here to link the ‘top down’ approach to actual portfolios. This can be introduced as a sample portfolio, showing how we incorporate different assets and different asset classes, informed by our conclusions derived from the ‘top-down’ approach. I would stress it’s not a recommended portfolio, simply a way of showing how the various assets interact in terms of generating a return. You could walk them through each asset class – why it’s there and the role it plays in the portfolio