A uniquely boutique investment and wealth management advisory.

Good afternoon,

The ASX 200 fell almost 1% this week, back to around 7000pts as resources sold off (BHP -2.48%, RIO – 3.8%, PLS -17%, ORE -12%) on Coronavirus-related growth fears.

The only type of Coronavirus I know anything about is curable with a Powerade and toasted sandwich, so I won’t pretend to understand how serious this might get. Very sad that 200+ people have died and a virus like this does have the potential to negatively impact consumer spending, investor confidence, earnings growth etc.

Market still is pretty expensive by historical terms, with the forward PE ratio at 18x

And the earnings growth outlook nothing to write home about

However, due to record low interest rates, bond yields have collapsed causing the market to rise and rise over the last 15 years

I’m no economist, but the consensus is for the target cash rate to fall to 0.50% this year and stay there until CY’22 (which is going to surely be revised down at some point in the next few months)

It seems pretty clear to me that while interest rates are low, look set to stay low and growth is in equities is above zero, valuations will remain supported. The tricky thing is avoiding sectors and stocks that are vulnerable to fickle consumer spending and/or aren’t supported by structural growth. I’m looking for companies that “essential”… for example:

• Microsoft (MSFT) is the platform on which business around the world is conducted
• Apple (AAPL) is increasingly the preferred supplier of technology for 1.5bn of the world’s richest people
• Adobe (ADBE) is the only software choice professional creatives need

Re-occuring revenue supported by low customer churn, high brand value, multi-product bundling, sole product usage (you don’t need MS Excel and Google Sheets).

Nearmap (NEA)

Shares fell 38% this week after the company announced the loss of 4 enterprise customers in the US.

Good afternoon,

I was reading an article in the Australian Financial Review this morning about Macquarie selling it’s back office function to Bell Potter and it reminded me of when I was moving all my clients from Shaw to Seneca and realising that most clients have no understanding of the plumbing that powers their transactions, the institutions that are responsible for their money and how interconnected the whole financial ecosystem is.

Today I thought I’d have a go at explaining it to you.

Where are shares held?
Shares are held by a custodian or directly in your own name.Custodians are regulated entities that are licensed by ASIC to hold assets for clients.  Some brokers and most wrap platforms hold assets in custody for clients.  This means you don’t actually own your shares directly, but they are held in trust for you.  Some older clients might be familiar with the old “master trusts” well this has really evolved into the “platform” business now.  BT Panorama, Hub24, Macquarie Wrap, Netwealth, AMPNorth to name a few.If you hold shares in your own name, you’ll likely be relying on the ASX to keep a record of those shares using CHESS (Clearing House Electronic Subregister System) – think of it as a big list of who owns shares in what (holder identification numbers, HIN) and ensures when you sell shares, someone pays (and vice versa).
International shares are often held in a custody via a nominee service facilitated by the broker.  This saves you opening seperate trading accounts all around the world and having to maintain and pay for those accounts as an individual.

Why does this all matter? 
To have access to CHESS, you need to “settle and clear” with the ASX.  This means you’ve got to put a big $10m + deposit bond down with the ASX… not many firms want to do this anymore. Why not?  because there’s no money in executing trades anymore.  Retail investors used to pay 3-5% commission on every trade, for institutions 0.50-1% wasn’t uncommon.  Now retail investors pay the old institutional rates, or trade for less online (c.0.35%).  Institutional rates are now at 0.05-0.10%.

Good afternoon,

The ASX 200 continues to rip higher on falling risk aversion and falling interest rates.  At the time of writing, the index is up 28 points today, 7070 pts.

Worst Performers of 2019 
Sometimes, the worst performers in one year can be the best performers in the following year.  As an idea generator, lets look at stocks that:
underperformed last year (went up by less than 20%)
are forecast to grow their revenues and profits
and have a balance sheet that’s not in a complete shambles (4x net debt to EBITDA limit)

Worst Performers that meet our basic criteria have some clear common ground

Agriculturally exposed
Costa Group (CGC) down 43%, Ridley’s (RIC) down 19%, Elders (ELD) up 9%, Graincorp (GNC) down 9%, Incitec Pivot (IPL) down 4%, Nufarm (NUF) down 4%.

The drought clearly impacted these names over the course of the year, while Costa got itself into a right mess. If there’s a recovery in the rural economy this year, there could be some opportunity amongst these stocks, though in my opinion, agriculture is intrinsically speculative.  The returns can be superb, but the volatilty of those returns through time I’d bet, with climate change, will likely increase. I’ll most likely leave it to the specialists.

Good afternoon,

And we’re back! Happy New Year! 2020 kicks off to a ripping start, the ASX 200 making an all time high of 6927 at the time of writing.

Most sectors up…

$100,000 invested in the ASX 200 at the start of the decade, and with dividends reinvested, you’d have $520,000 today.

Below is the ASX200 Accumulation Index (dividends reinvested) and the ASX200 (no divs, just prices) indexed at 100.

Predictions for 2020

Surely you know me well enough by now that I don’t think “predicting” the index adds any value over the long-run.  However, I think our thesis from late last year is largely playing out.  Bond yields remain surpressed by accomodative central banks around the world (the RBA included), this is supporting the only asset class offering about a 3% yield… equities.