Welcome to the Firstlinks Newsletter Edition 313
Graham Hand
Most investors enjoyed the strong sharemarket recovery in the second half of 2018/2019, with the All Ords Index up a wonderful 19.8% including dividends after a shaky December quarter. Total return for the All Ords was 11% for the full year, while the dramatic fall in interest rates (10-year bonds were 2.63% at 30 June 2018 and touched 1.26% last week) delivered investment grade bond returns around 10%. The Elstree Hybrid Index rose a healthy 8.9% as spreads tightened, listed property did well overall and gold shone brightly. Ashley Owen summarises with a great chart showing the unusual 'game of two halves'.
But it was not all champagne and roses, with some massive sector winners and losers, as shown below. The ASX MidCap50 and Small Ordinaries Price Indexes were flat. Many small cap managers had a tough year, with some shutting their doors after missing out on the big winners for the year: Nearmap (ASX:NEA) up 233%, Clinuvel (ASX:CUV) up 206%, Afterpay (ASX:APT) up 168%, Magellan (ASX:MFG) up 119% and Appen (ASX:APX) up 109%.
It was a year when the investing rule book was thrown out of the window. Global debt with negative yields now total US$12.5 billion (I give you $1,000, you give me back $990 in a year), and as shown below, over 80% of US Initial Public Offers listed with negative earnings. It's a 'risk on' world when so many companies are valued and sold on blue sky not profits.
Source: JP Morgan
Dawn Kanelleas shows the small cap versus large cap outcomes and argues the need for active management, and how avoiding the losers is as important as picking the winners.
Roger Montgomery warns that the private equity owners of businesses are quitting at insane prices, and he gives his views on market darlings Appen, Wisetech, Altium and Xero. It ends badly, but when? It's an interesting contrast to last week's more bullish Joe Magyer.
In the past, many readers have commented that family trusts are not worth bothering with because of the limited ability to pass income to children tax-effectively. But as lawyer Jason Carswell-Doherty points out, it is the use of 'bucket companies' that make the trusts work.
Jeremy Cooper analyses the data on retirement savings and says superannuation is working to keep people off the age pension. There has been some debate about Jeremy's findings, using averages rather than medians, but there's no denying the important role of super.
Following some editorial criticism here of gold as an investment, Jordan Eliseo gives a counter view, showing the precious metal's role when cash rates are low and equities struggle.
Two articles as thoughts turn to tax and savings for a new year. Mardi Heinrich explains tax lodgement deadlines and Catherine van der Veen summarises a study showing parents and grandparents are worried about the financial resources of the following generation.
A reminder that the roll forward of unused concessional contribution caps was introduced on 1 July 2018, which means FY19 is the first year when a top up is available. If you have less than $500,000 in super, and did not use the $25,000 last year, a roll forward is available for five years.
In the additional features below, a couple of reports highlights recent LIC price movements, while AMP Capital checks local real estate trends.
Graham Hand, Managing Editor
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