Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 262

Cuffelinks Newsletter Edition 262

  •   13 July 2018
  •      
  •   

There are many theories about why most active fund managers fail to consistently outperform their benchmarks. It takes many years of study and market experience to become a portfolio manager, but good results are often elusive. One theory is that there are so many skillful managers pricing shares that the market is relatively efficient and tough to beat.

Research by Hendrik Bessembinder of Arizona State University shows active management and stock selection is really difficult. He found that most stocks listed in the US since 1926 delivered lifetime negative returns relative to one-month US Treasury bills. Only 4% of companies (represented by the blue box below), or about 1,000 out of a total data base of over 25,000, produced half the returns of the entire market.




The grey space of the outer box represents the vast majority of companies that generated no returns, with 12% delisting at an average of 2.5% of their listing price. It's more common to invest in losers than winners, especially when competing against other talented analysts.

It's even more difficult to value a loss-making startup that has a good idea gaining traction. We take a close look at Raiz Invest, the former Acorns Australia, both as a micro investing platform and a company recently listed on the ASX. What's it worth? Take a guess.

Banks compete aggressively in many products, such as housing loans, but bank retail FX rates have always been pathetic. As I write this, the wholesale AUD/USD is 0.7419 and the retail rate from a major bank is 0.71. So A$100 buys US$71 at a branch instead of US$74, a difference of over 4% and a costly start to a holiday. Matthew Hayja uncovers the choices for a better deal.

The $1.6 million pension cap opens a number of financial planning choices, and Graeme Colleyand Emma Partenza explain how to contribute for a spouse with lower balances. Julie Steedalso shows how disability insurance works, something we all hope we don't need but might.

Longevity? 120 years is just the start

Few retirees know how long their money needs to last, and the doubt causes many to live frugally. Adam Curtis examines the dilemma that sequencing and longevity risks create. 
   
In the King James Bible, 2 Kings 25:27, the King of Babylon releases the King of Judah ...

"And set his throne above the throne of the kings that were with him in Babylon;
And changed his prison garments:
And he did eat bread continually before him all the days of his life.
And his allowance was a continual allowance given him of the king, a daily rate for every day, all the days of his life."


Average life expectancy in biblical times was less than 40 years, so the cost of this promise was probably not great. But in a presentation last year, Hamish Douglass of Magellan said that medical advances would allow people to live to 500. What about 1,000 years? While scientists do not unanimously support the claims of Ori Eyal, it's thought-provoking for how long retirement may last some time in the future.

Also looking into the future, the White Paper from MFS Investment Management is 'Dawn of the Urban Epoch', with the consequences for investing in an increasingly urbanised world.

ASIC on property spruikers for SMSFs

ASIC is watching SMSF service providers closely. The regulator recently found 90% of advice given to SMSFs was non-compliant and 30% risked disadvantaging the client. There was also a focus on 'one-stop shops' for the purchase of geared property through SMSFs, with groups of agents, lenders, brokers, developers and financial advisers all working together, even when a property was not suitable. So we reprise my article published in 2013 where I attended one of these spruiking seminars, when I was shocked by what happened. It's taken five years to 'crack down'.

A reminder that some new super regulations came in last week, including topping up unused $25,000 concessional limits over the following five years for super balances less than $500,000, and the new downsizing rules for people over 65 to make a non-concessional contribution.

Mark your diaries for 6 August 2018. The Financial Services Royal Commission has asked 30 superannuation funds to make a director available to give evidence. More sweaty palms.

Graham Hand, Managing Editor

 

Edition 262 | 13 Jul 2018 | Editorial | Newsletter

 

  •   13 July 2018
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Want your loved ones to inherit your super? You can’t afford to skip this one step

One in five Australians die before retirement and most have not set up their super properly so their loved ones can benefit from all their hard work and savings. 

Super is catching up, but ageing is a triple-threat

An ageing Australia is shifting the superannuation system’s focus from accumulation to the lifecycle of retirement. While these pressures have been anticipated for decades, they are now converging at scale and driving widespread industry change.

Has Australia wasted the last 30 years?

The 20 years after Peter Costello left Treasury have been deemed wasted...by Peter Costello. The missed opportunities for Australia began long before.  

The 5% deposit scheme is bad for homeowners and Australia

An ‘affordability’ scheme making the county more vulnerable to economic shocks and contributing to the deteriorating financial situation of everyday Australians.

3 ways to defuse intergenerational anger

With the upcoming budget increasingly likely to include bold proposals to alter the tax code I’ve outlined three incremental steps with fewer unintended consequences.

Navigating the next stage of life in retirement

Retirement planning is more than just saving enough money. Long-term care needs, housing choices, and social networks are just as critical for a happy and enjoyable life.

Latest Updates

Superannuation

Indexation implications – key changes to 2026/27 super thresholds

Stay on top of the latest changes to superannuation rates and thresholds for 2026, including increases to transfer balance cap, concessional contributions cap, and non-concessional contributions cap.

Economy

Central banks need higher inflation targets

In a shift away from solely targeting low inflation, central banks are considering raising inflation targets to combat economic challenges, but face potential drawbacks and conflicts in policy implementation.

Exchange traded products

The missing 30%: how LIC returns are understated, and why it matters

The perceived underperformance of LICs compared to ETFs is due to existing comparison data excluding crucial information, highlighting the need for proper assessment and transparent reporting.

Latest from Morningstar

Alpha isn’t dead. You’ve just been measuring it wrong

New research shows smarter portfolio construction—not new factors—is the real edge in the hunt for alpha. However, finding it requires a fundamentally different mindset.

Investment strategies

The diversification illusion: why 'balanced' portfolios may be exposed

Many 'diversified' portfolios are increasingly driven by the same narrow set of forces. As concentration builds beneath the surface, understanding how portfolios behave - not just how they’re constructed - is critical for investors.

Investment strategies

The case for staying the course in credit

Current market volatility is likened to Lenin's quote on rapid change. Rising oil prices and interest rates impact bond and corporate yields, with a potential economic downturn ahead. Maintaining interest rate duration is advised.

Investment strategies

One risk after another

Investors often focus on front-of-mind risks, reacting to each headline event without considering long-term impacts. Cass Sunstein and Timur Kuran define this as an "availability cascade," affecting financial decision-making.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.