Welcome to the Firstlinks Newsletter Edition 310
Graham Hand
We are approaching the end of another financial year where the performance of fund managers will again be judged against an index. Investors should cut them some slack and consider whether they are being true to their style. Simply by not owning the five WAAAX stocks (Wisetech, Altium, Appen, Afterpay and Xero), a fund will underperform the market this year by about 3%.
Experienced fund managers at a recent Morningstar Investment Conferencesaid they could not hold these stocks because there was no way to value them. Two of the companies do not make a profit but the market values them at $15 billion. Goldman Sachs' research shows these high-growth stocks are more expensive in Australia than any other sharemarket in the world. Who can blame a manager for protecting capital and not owning them?
Source: Yahoo Finance
These companies need exceptional growth and near-perfect execution to justify such prices, and the market is forgiving mistakes at the moment. Robert Miller reveals the disconnect the high-flyers are causing versus small, less-fashionable companies, and the need for considerable patience. It's also a test for many fund managers to retain their fundamental beliefs.
As more investors turn to bonds for income instead of cash and more volatile shares, we continue our popular Interview Series with Adam Grotzinger who specialises in global corporate bonds, now accessible via the ASX. The White Paper ETF update below from BetaShares also shows the strong flows into fixed income funds.
Courtesy of the Morningstar Conference, we also have a 45-minute video with Hamish Douglass on how Magellan went from nothing in the GFC to $83 billion 12 years later.
Many financial advisers are doing it tough in the wake of the Royal Commission. A recent EYsurvey revealed 40% of clients intend to switch their advice provider in the next three years. Major life events are often a catalyst for change, but more people are turning to multiple providers for assistance. ASIC is asking advice licensees for lists of products where they receive grandfathered remuneration, and there is a trend towards "punitive measures rather than protective measures". A Money Management survey suggested 30% of planners intend to leave the industry as a result of the Financial Adviser Standards and Ethic Authority (FASEA) regime.
All financial advice businesses are reviewing their business models, and clients should ensure the new approach works for them. There are more planning tools and technology solutions available than ever, and as Jonathan Hoyle says, the traditional way an adviser reviews a portfolio and recommends changes is "old-fashioned, clunky and reactive". Claire Wivell Plater uses a recent court case to show the only way forward is with digital solutions. What does your adviser use?
Many of you consider the franking issue done and dealt, but we know from reader comments that Chris Bowen's example of a nurse earning $67,000 versus a retiree bothered many others. So to finally put this one to bed, actuary Geoff Walker does the numbers.
At the EOFY, people often look for tax deductions. Rachael Rofe shows new research from Swinburne University on PAFs, and how charitable giving and tax efficiency can combine well.
Finally, Louise Watson reports on how professional fund buyers are allocating their assets, and how they retain faith in active managers to deliver performance to justify their fees.
Howard Marks has just released his latest client memo, 'This Time It's Different'.
Graham Hand, Managing Editor
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