Unusual circumstances in the bank funding market are causing many out-of-cycle housing loan rate increases as banks struggle to maintain margins. I worked in balance sheet management for many years and large differences between the bank bill rate and expected cash rates are unusual. The current 90-day bank bill rate is about 2% while the market does not expect the RBA cash rate to move from 1.5% soon. It's a big difference and better news for term deposit investors, who can now achieve around 2.5% or more for 3 or 6 months. Make sure you negotiate.
This week is the final Summer Series (with some great articles selected below), but with the Productivity Commission grabbing the headlines, we take a look at the 'Best in Show' recommendation. Why is there such industry angst when Best in Show only really targets some new workers who don't contribute much money to super? Change would be very slow.
We've also had a few subscribers ask for an update from Peter Thornhill, whose February 2018 article on sticking with shares regardless of market conditions was extremely popular (and drew 84 comments). And we link to some end-of-year updates in Additional Features below, including ETF reviews from the top two providers, BetaShares and Vanguard. - Graham Hand
Summer Series with Guest Editor, Bryce Doherty
"At a time when we are overwhelmed with negative views surrounding the financial services industry, it is important to take stock, reassess and ask: ‘How did we find ourselves here?’
As an individual with kids of school age who needs to look beyond the here and now, a key takeaway from the Royal Commission is how paramount financial literacy and sound and transparent financial products and advice are for all Australians to prepare for their futures. The amount of information or maybe disinformation available nowadays is overwhelming. Educational, well explained and accurate pieces are increasingly hard to come by for all investor segments.
Hence when Cuffelinks approached me to be a Guest Editor this year, I instinctively was drawn to pieces which seek to educate, with these five examples.
1. Superannuation planning is not a simple thing, and while Australia is well ahead of most developed countries in terms of planning for one’s retirement, Wade Pfau & Jeremy Cooper’s ‘The Yin and Yang of retirement income philosophies‘ (21 November 2014) highlights the basic principles to retirement planning. Despite its 2014 vintage, the article still drives home for me why every Australian needs to understand the basics to achieve their end retirement/wealth accumulation goal.
2. Don Ezra’s 10 November 2017 piece titled ‘Three crucial mistakes about life expectancy‘ builds on the above fundamentals, “I’ve found that many people have a vague idea about how long life expectancy is, and that is typically underestimated.” This basic mistake can be fatal in retirement planning, another issue I think all Aussies need to give serious consideration to when they are looking to plan for their futures.
3. Moving on from the basics into portfolio construction, there are a number of articles which resonated with me. As CEO of UBS Asset Management in Australia, portfolio diversification and optimisation is something that we are very focused on. Typically Australian investors are heavily weighted to onshore equity products, hence multi asset portfolios, emerging market portfolios, infrastructure portfolios and even portfolios which focus on factor investing are increasingly becoming the basis of our discussions as investors shy away from the big 4 Aussie banks.
A good bridge into this topic of portfolio diversification is via Jim Masturzo and Jonathan Treussard’s ‘Building portfolios: diversification without the heartburn‘ (5 October 2018). It highlights why diversification is important and that diversification is a balancing act.
4. And finally building on this diversification topic, two articles which stand out are Warren Bird’s ‘A journey through the life of a fixed rate bond‘ (March 5, 2015) and …
5. Greg Goodsell’s ‘Three Drivers of Attractive Infrastructure Opportunities‘ (21 April 2017).
Two great examples of potential diversification sectors and why people shouldn’t be shying away into the less ‘glamorous’ areas!"
Bryce Doherty, Head of UBS Asset Management, Australia and New Zealand.
For a PDF version of this week’s newsletter articles, click here.