Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 303

Cuffelinks Firstlinks Edition 303

  •   26 April 2019
  •      
  •   

Next Wednesday, it will be 500 days since the Financial Services Royal Commission was established. Even those who wanted it did not expect remediation costs would top $10 billion before any criminal convictions.

Only in Australia - an election fought on franking credits

Now that the public holidays are behind us, we suddenly have only three full weeks before the 18 May election. I live in Tony Abbott's seat of Warringah, and independent Zali Steggall is his biggest threat since he won the seat in 1994. At a major Military Road intersection, the Liberal Party has rented one shop, and Steggall has taken the one next door. Labor will finish a distant third in this Sydney Lower North Shore seat.

 


Steggall highlights her opposition to 'Bill Shorten's investment tax', which the Coalition calls a 'retirement tax' and is really the franking credits proposal. She is deliberately distancing herself from the "Vote Steggall Get Shorten" headline in the Liberal Party poster. And curiously, no mention on any of the posters of the name of our sitting member, the ex-PM.

In 30 years living at this address, for the first time ever, we were doorknocked about an election this week. Not by a party but by GetUp, which is mobilising a massive grass roots effort to unseat Abbott. He will need all his political skill to survive this one.

Dozens of these personal battles will play out over the country (including for Peter Dutton and Josh Frydenberg) and decide the election result. They will make 18 May a fascinating evening, and if ever you've thought of holding a 'Don's Party', this has to be the night.

I doubt many members of Labor's Shadow Ministry thought the arcane subject of franking credits would become the Number One issue in parts of the electorate. 

And for what? Treasury admits its costing of the policy is "particularly unreliable" due to the high sensitivity to behavioural changes, especially by trustees of large SMSFs:

"A proportion of franking credit refunds held by SMSFs is assumed to be sold, as investors shift to other forms of investment. This behavioural response is assumed to be greater for higher wealth SMSFs. In addition, the behavioural response is assumed to grow over time. Some of the sold credits are assumed to be purchased by an entity that can use the credits to offset tax."

And later, more detail on the likely changes:

"Assets that shift into APRA funds are assumed to continue to draw the benefit of the franking credit since most APRA funds are in a net taxpaying position. Some other SMSFs will rebalance their portfolios away from franked dividend paying shares towards other forms of income to compensate for the fall in after-tax returns on shares in the absence of refundability. These other forms of income could include fixed income, property trusts, managed funds or offshore equities."

To help you sort out your views on the superannuation policies, Mark Ellem has produced a useful 'Compare the Pair', and it's also a good reminder of how to top up super before 30 June.

KPMG has produced a fascinating interactive website which shows how the superannuation industry has changed, and we take a quick look at their future predictions.

Use the Have Your Say section to comment on super policies or the future of the industry.

ASX at 11-year high but value managers still struggle

One reason it is difficult to judge fund managers is that their style may stay out of favour for years, even if it is proven over long periods. Value managers who look for stocks that appear undervalued by the market have struggled for at least five years versus growth managers who focus more on future growth potential. Australia has its own version of the US FAANG with our WAAAX (WiseTech, Afterpay, Altium, Appel and Xero). These are all growth stocks.

The MSCI Australia Growth Index versus Value Index shows growth has beaten value over all periods to five years, but since 1974, value is the big winner by 2.75% per annum. At some point, the market will focus more on fundamentals and less on the dreams of loss-makers. 

 

Source: MSCI


Four pieces explore this issue and whether it's a good time to invest. Emma Goodsell describes some value opportunities in local consumer stocks, while Richard Ivers finds three other unfashionable shares. There has also been much talk of the US yield curve investing, and Peter Moussa checks it as a sign of the arrival of a downturn. The White Paper from Vanguard puts a probability of a recession at 35% as risks spill over into the economy. It's a tough balance for investors tempted into the market by the S&P500 and NASDAQ at record highs.

Meanwhile, Peter Meany describes five myths about listed infrastructure, an increasingly popular sector due to its long-term earnings strength and lower price volatility.

Finally, Marissa Hall takes a tough look at diversity and inclusion in the workforce, reporting on what really works. It's not just a matter of hiring people with different backgrounds. 

Graham Hand, Managing Editor

For a PDF version of this week’s newsletter articles, click here.

 

  •   26 April 2019
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Latest Updates

Planning

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Superannuation

There's a reason why your super is locked up until your 60s

For decades, it seemed settled. Then one controversial idea reignited a debate that could reshape the financial future of millions. The real question isn’t who’s right or wrong, but whether a long-held assumption deserves another look.

Property

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Retirement

Under-retiring: The greatest retirement risk in a generation

Two retirees. Similar savings. Completely different lives. New research from Challenger reveals why some Australians confidently spend in retirement while others hold back and the overlooked factor shaping retirement decisions.

Five risks to watch in markets

Things you may often hear are: a recession is around the corner, markets are overpriced, the AI sector is about to flop at any moment. It’s like the never-ending laundry pile that sits in my house, it never really disappears.

Investment strategies

Do you qualify as ‘rich’?

What does it mean to be 'rich'? For something so universally desired, it is surprisingly difficult to define. That ambiguity creates a challenge for investors and raises a bigger question about what financial success really looks like.

Investment strategies

If you’re worried about your bond portfolio, you’re missing the point

Most investors think they know what bonds are for. But when markets turn volatile, a surprising misunderstanding can lead to costly decisions. Here’s the overlooked lesson that could change how you view your portfolio.

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 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.