Retirement
The challenges of retirement aren’t just financial
Moynes, a former educator and financial adviser, wrote the short book after his own struggles in retirement and subsequent interviews with other retirees. He believes that there’s a predictable and identifiable pattern to retirement, and it involves four phases:
ESG
Sustainable Investing Flows Landscape for Australasian Fund Investors Q2 2023
The Sustainable Investing Flows Landscape for Australasian (Australia and New Zealand) Fund Investors provides a high-level view of the trends in asset flows across the sustainable fund universe, and any corollaries to the rest of the Australasian fund universe.The Big Picture
What's next for the RBA?
With the first rate pause of the current hiking cycle here and the flagged departure of controversial Reserve Bank of Australia governor Phillip Lowe, it's been an historic month for the RBA. We sit down with Morningstar's Peter Warnes to discuss what's next for the nation's central bank.
Inside Morningstar
Morningstar Manager Research Coverage: A Dynamic Approach
Morningstar's coverage universe is expanding. We've shared that from September, the Morningstar Medalist Ratings can be powered by an analyst, a machine-learning algorithm, or a combination of both. Our approach to analyst coverage is also evolving. We believe some strategies can be covered more dynamically to enable analysts to spend more time where warranted.
Investing basics
A capital gains tax discount is legitimate but how much?
With negative gearing, where costs of owning a rental property exceed revenues, the ‘loss’ can be charged against other personal income. Some people seem to think the loss itself is a good thing because it reduces their tax, but the tax savings only reduces the loss: it is still a loss.
Investing basics
The Ambitious World of Absolute Return Bonds
Are absolute return managers exhibiting the skill to consistently deliver on all their objectives, and are these strategies worth the additional cost for investors? Should absolute return bond managers be expected to protect the downside as well as meeting absolute return objectives?
Investing Trends
Morningstar ETFInvestor Year End Review 2022
Exchange-traded funds’ growing popularity among retail investors continued to drive growth in this sector, albeit at a slower pace in 2022. Net new flows declined compared with 2021 as investors remained cautious amid volatile global markets. Asset growth was, however, supported by multiple successful new launches in 2022.
ESG
Is Greenwashing Scrutiny Leading to the Rise in Greenhushing?
When engaging with asset managers, Morningstar has recently seen a softening of language around green claims. An unintended consequence of the focus on greenwashing has likely contributed to the rise of greenhushing, which is the antithesis of greenwashing.Retirement
How the new super tax will hit large balances
Although holders of large super balances will be hit by the higher tax, the fears of a hard cap forcing the removal of money from super, or the imposition of tax at the top personal marginal rate, have not been realised. The delay until after the next election also gives time for consultation and modification.
Inside Morningstar
Power your financial advice business with AdviserLogic and Sharesight
Morningstar AdviserLogic and Sharesight have joined force to help financial advisers power their business with comprehensive tax and performance reporting, research tools, CRM and much more. Connected via the AdviserLogic API, Morningstar AdviserLogic and Sharesight have come together to create a great solution for advisers who want to save time, automate their practice, and build better relationships with their clients. Keep reading to learn more about how your practice could benefit from connecting Morningstar AdviserLogic and Sharesight.Research Insights
Morningstar Australia Prospects - February 2023
In our February 2023 edition, we present a list of 22 strategies that we believe are worth investors' consideration. Since our last edition, we have added one strategy and have seen two strategies graduate into full coverage for our 2023 review cycle.ESG
Sustainable Investing Landscape for Australian Fund Investors Q4 2022
Sustainable funds have faced a challenging 12 months, with only 35% outperforming their respective category peers over the calendar year. Yet despite these performance headwinds, Australian investors have continued to support sustainable investing with fourth-quarter inflows up 311% over the previous quarter.
Investing basics
The 60/40 Portfolio Is Dead. Long Live the 60/40 Portfolio!
Much has been written in 2022 about the death of the so-called 60/40 portfolio. Many suggest it isn’t an appropriate solution for future portfolio construction. This paper will explore these concerns and also explore whether the 60/40 portfolio may now be even better placed for the future.
In Practice
Three reasons to adopt a client portal in 2023 [VIDEO]
Client portals are a huge opportunity for advisers to engage clients and better protect their security. In less than three minutes, find out how client portals can help advisers from Morningstar Australia's Head of Business Development and Strategy, Peter Bryant.
Investing Trends
Drive to survive
Drive to Survive, the gripping and successful Netflix series on Formula 1 racing, is also a very fitting motto for investment management, as it captures the fierce and innovative competition for survival of the fittest. The parallels are clear, with storied histories, narratives, and defining brands, teams both large and boutique, strong leaders, and never-ending battles for success. The Formula 1 teams and fund managers are both trying to achieve a singular objective: win.Research Insights
Income Isn't Fixed
The momentous rise in government-bond yields since the second half of 2021 has had one unexpected effect: shrinking income distributions. This may be particularly surprising given bond managers have been able to reinvest at progressively higher yields, and presumably they are able to distribute more income.
ESG
Australian Investors Focus on Portfolio Decarbonisations Rather Than Investing in Climate Solutions
When it comes to sustainable investing, climate change has never been higher on the agenda. This work is critical, but the scale of capital needed for the transition is significant. According to the COP27 agreement, a global transformation to a low-carbon economy is expected to require an investment of at least USD 4-6 trillion per year.ESG
Sustainable Investing Landscape for Australian Fund Investors (Q3 2022)
Sustainable funds have faced a challenging 12 months, with only 33% outperforming their peers within their respective categories. The longer-term picture remains more positive, with 52% of sustainable investments with five-year track records outperforming peers within their respective Morningstar Categories. This quarterly paper highlights recent trends within sustainable retail investments in Australia.
ESG
3 newly rated funds for ESG portfolios
We've recently added three new funds to our coverage to provide some additional options for advisers constructing ESG portfolios for clients. We've provided detail on the investment merits of the strategy and also noted the Morningstar ESG Commitment Level, or ECL, for asset managers.
The finance industry
Can you trust industry super fund valuations?
The Australian Prudential Regulation Authority's recent commitment to update SPG531 – Valuation cannot come soon enough. The financial year-end performance data has been met with suspicion from investors, advisers, and even between superannuation funds. The reality is the industry has come a long way in recent years.
ESG
Sustainable Investing Landscape for Australian Fund Investors Q2 2022
Sustainable funds have faced a challenging six months, with only 31% outperforming their peers within their respective categories. The longer-term picture remains more positive, with 55% of sustainable investments with five-year track records outperforming peers within their respective Morningstar Categories.Research Insights
Australia and New Zealand Best Stock Ideas - August 2022
Morningstar's monthly Best Stock Ideas highlights high-quality Australian and New Zealand companies, which are currently trading at discounts to our assessed fair values. The ideas, chosen from our coverage of nearly 200 companies, are intended to have broad application in a variety of equity strategies, but individuals should consider their personal investment goals and positioning before investing.Retirement
Should you personalise your withdrawal rate in retirement?
No single Australian’s retirement is the same—the notion of the “average” client simply doesn’t exist. But advisers know that. After all, the advice industry has been providing personalised strategies for years and helping retirees answer the big question: How much should I spend each year? But if personalisation is the way forward, is it time to consider the role of minimum drawdown rates in superannuation?The finance industry
Australia's Finance Industry Again Demonstrates the Failings of Its Portfolio Holdings Disclosures to Fund Investors
At a time when the Australian Prudential Regulation Authority is calling on Australian super fund trustees to improve the frequency and methodology used in unlisted asset valuations, perhaps we should also remind ourselves how abysmal Australia's portfolio holdings disclosure requirements are when compared with other countries'.The Big Picture
Hope has no place in an investment strategy
“Fingers Crossed” read the headline of The Australian Financial Review last weekend. Two words investors should never rely on. Appeals to hope should be a wake-up call in the current environment. They should shake up the complacent and reinforce the need for capital preservation. Luck is not a sustainable investment strategy. There is likely to be much more economic pain ahead before greener pastures emerge.The finance industry
Crimson Tide: How Are Bond Managers Handling Rising Interest Rates?
Consensus has shifted overwhelmingly towards expecting higher interest rates to address burgeoning inflationary pressures—it wasn't too long ago that the Reserve Bank of Australia was maintaining a yield-curve-control policy and projecting to keep interest rates on hold until 2024. Changes in the shape of the Australian yield curve over this period tell the story—it's risen and steepened significantly, particularly at the front end and intermediate maturities.Investing Trends
Market Selloff Is Creating Opportunities for Long-Term Investors
In the past year, inflation has risen to high levels in many Western countries including Australia, driving interest rate expectations up and bond and equity markets down. Cost-of-living concerns and fears of recession are growing, but Australian equity investors shouldn't panic.Retirement
Allocating to Private Markets in the Post-Retirement Phase
Many Australian investors, including the large superannuation funds, are allocating assets to private markets such as private equity, unlisted infrastructure and private debt. In the right structure, private markets have positively contributed to portfolio return outcomes. However, financial advisers often cite liquidity and transparency of the underlying investments as the biggest challenge to allocating more to private markets. But is it the Australian retail platform infrastructure that constrains advisers from allocating private assets to client portfolios? Or is liquidity more crucial for investor needs when constructing portfolios for the retirement income phase?Research Insights
Global Equities Style and Manager Performance in Sell-off. Leaving the Goldilocks Zone
Market conditions have shifted dramatically in 2022, driven by an outbreak of global inflation to the level not seen in four decades. The easy monetary policy era appears to be over, and markets are adjusting to the reality that central banks may not be prepared, or able, to step in and support asset values with stimulatory settings. Against this backdrop, the selloff in global equities has been sharp, but it is noteworthy that there has been a large dispersion in manager performance particularly when differentiated by style.The Big Picture
Forecast 2022–23: A difficult path ahead to avoid a hard landing
Bringing inflation under control will probably require a meaningful contraction in economic activity. The nightmare scenario would be stagflation, where central banks do not kill growth, but inflation escapes unscathed.
The finance industry
Can you still bank on the banks?
Last week the future for banks looked bright. Rising interest rates would nourish emaciated margins. A red-hot economy would keep new borrowers coming through the door and credit growth strong. The $200 billion Australians had squirreled away in savings and offset accounts would ward off defaults or an economic slowdown.
In Practice
User Guide: Model Portfolio downloads from Morningstar Direct into Morningstar Portfolio X-ray tool.
The following user guide is for Morningstar Direct users to be able to download their model portfolios that can be easily imported into Morningstar’s Portfolio X-ray tool on Adviser Research Centre and AdviserLogic.
The finance industry
Fixed Income Advisory and Research | Monthly Review: March 2022
The first quarter of calendar year 2022 represented the worst quarter on record for the AusBond Composite Index, returning -5.88%. It was also the worst month on record, returning -3.75%. Commodities continued to benefit from de-globalisation, while interest rate expectations hammered fixed-rate investors.Research Insights
Aged Care to Survive, Ryman to Thrive
Shares in Ryman Healthcare are 40% below our NZD 15.20 fair value estimate, with shareholders penalised for transient issues, or industry problems not shared by Ryman. Rivals struggle with old facilities and declining occupancy, and one third of Australia's care homes lose money. The industry is consolidating and Australian providers exiting, despite demographic tailwinds. Meanwhile, Ryman's demand is underpinned by the ageing population, its brand, and track record of care.Investing basics
How to Think About Managing Style Within a Portfolio
In our recent article, "Australian Equity Performance: What’s Driving Markets," we looked at return drivers in the domestic market that had begun to soften following a strong pandemic-rebound period. We decided to see how variability in return profiles between styles and sectors can be managed within a portfolio’s Australian equity allocation. One key observation lately has been the variance in fortunes between value and growth investment styles driven by divergent sector performance.
Investing Trends
5 charts on crypto’s past and future
Over the past seven years, cryptocurrencies have rocketed from about $5.2 billion in market capitalization for the top 100 coins to nearly $1.7 trillion as of January 2022. Cryptocurrencies now represent the fourth-most popular type of investment among investors, behind only stocks, mutual funds, and bonds. Bitcoin alone has a market cap that would rank in the top 10 largest companies in the S&P 500.The Big Picture
Cost-of-living payments could come back to bite if they add to inflation
The 2022/23 federal budget has delivered the third round of significant fiscal stimulus in as many years. While most of the stimulus was necessary, at some point the piper must be paid. Would the budget have been any different if it wasn’t an election year?
The finance industry
Balancing the Performance Test Guidelines With Best Interest Duty
Your Future, Your Super and its performance test is set to be applied from July 2022 to some multisector choice products. Some of these choice products are available on retail super platforms, and there will almost certainly be a barrage of questions when the next round of “underperforming” letters reaches members. There will also be implications for the advice sector. Advisors need to prepare themselves and work out how to balance best interest duty with the guidance from the regulator.
Research Insights
Picking Fund Managers: Focus on the Data, Ignore the Noise
The recent stock market sell-off sees the shares of all of the listed ANZ asset managers we cover trading at substantial discounts. With such fertile hunting ground, we think the market is underestimating the key investment strategies of these asset managers, and their ability to deliver positive alpha and attract money. We think the outlook for asset managers is better than what's currently being priced in. Recent market declines suggest future investment returns will likely improve. Their strong fundamentals, such as having solid operating cash flows and relatively low capital intensity support our conviction.
Top stories
Magellan Leads Managed Funds in Feeling the Meta Stock Pain
We looked at the funds that had significant exposure to Meta within their portfolios, and those whose positions held the highest market value. Below is a list of actively managed funds where managers have opted to hold a hefty stake in the social-media company.Top stories
“Dose of reality”: Interest rates tipped to rise as inflation picks up
Australian investors need to brace for higher rates after consumer prices soared past market forecasts to hit their highest level in eight years, ratcheting up pressure on the Reserve Bank to begin winding back its pandemic-era easy-money policies.
Retirement
10 little-known pension traps prove the value of advice
The age pension is a major source of income for the majority of Australian retirees. But the system is complex, and many people find it hard to work their way through the labyrinth of regulations. As a result, they may fail to qualify for a pension, lose their pension, or receive less than they would if they took advice.The Big Picture
Fossil fuels, ESG and investing opportunities post COP26
In the wake of the United Nations-sponsored Conference of the Parties (COP26)—now you know what it stands for—in Glasgow it is time to air some thoughtful disagreement again. Today the discussion revolves around environmental, social, and governance (ESG), green energy, decarbonisation and fossil fuels. You may ask, why go there? Because I sniff an opportunity.
Investing basics
Your year-end portfolio review - In six easy steps
As 2021 winds down, investors can look back on yet another excellent year. While investors have had plenty to worry about - especially inflation and the delta and omicron variants of the coronavirus - that hasn't stopped US stocks from posting a tremendous rally. Australian stocks are poised to end the year with respectable gains.
The finance industry
Australian Listed Managed Investment Landscape. Exploring an evolving market.
Of the roughly 100 LICs currently listed on the Australian Security Exchange, a small handful have seen a half century or more of market activity, with the five oldest companies boasting an inception date prior to 1972.
Top stories
Australia Blows Opportunity to Improve Portfolio Holdings Disclosures to Retail Fund Investors
As an otherwise sophisticated market, it is remarkable that Australia has consistently ranked bottom of all major global markets for managed funds disclosures. This has been a consistent finding from Morningstar’s Global Investor Experience studies, which assess the retail investor experience across 26 markets.
Investing Trends
Stock market selloffs present opportunities to buy
The selloff in Facebook stock and other big technology companies earlier this month highlights an important lesson for investors – prices are volatile, and the ups and downs are all part of the investment journey. Selloffs represent an opportunity to buy shares at lower prices, but caution is warranted.
The Big Picture
100 Aussies: five charts on who earns, pays and owns
Each year, the Australian Taxation Office (ATO) publishes a snapshot of the 14.7 million individuals who lodge tax returns. Many returns are not lodged on time, so the latest data is for FY2019, but it reveals some surprises. The ATO also summarises some of the demographics of taxpayers (and non-taxpayers).
Investing basics
3 investment mistakes to avoid
This is not the first time that I have written about these three investment blunders. Fortunately, they are becoming less common. But, until they disappear altogether, admonitions are still warranted.
Investing basics
The power of compound interest
Albert Einstein is reputed to have said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” As an investor, making your money work for you is the best way to increase your wealth. And the wealth you will accumulate is the result of 2 things: how long you invest and the rate of return on your investment.Investing basics
Three all-time best tables for every adviser and investor
I have read countless books on investing, met an enormous number of financial experts and fund managers, and made pretty much every investing mistake possible! If I could distil my learnings into one statement, it would be this: the short term is unknowable, but the long term is inevitable. Let me share my three all-time favourite tables from 30 years of investing.
Investing Trends
Best global equity ETFs for Australian investors
International equity is one of the most popular categories for ETF investors as they seek global opportunities and diversification. As of 31 July 2021, almost $60 billion is invested in ETFs tracking global shares, up from $28 billion a year before.
Research Insights
10 franked income-stock ideas for Australian investors
We've identified 10 franked income stock ideas from our Australian and New Zealand coverage list of 189 stocks. The additional income from franking credits highlights several companies with 3-star ratings which appear more valuable when the value of franking credits is incorporated into our analysis.
Investing Trends
6 charts on rising US tech stocks
Markets have been hitting record highs. But over the past few months, the value stocks that led the US equity market since late 2020 have been losing steam. Here’s a look at the monthly returns of the Morningstar US Growth and Value indexes, which helps to visualize the trend.
Retirement
What I learned from my faux-retirement
I'm not ready to retire any time soon, but my recent sabbatical from Morningstar--a six-week break totally free from work obligations, available to Morningstar's US employees every four years--gave me a chance to noodle on what retirement would feel like for me.Retirement
Three steps to planning your spending in retirement
How to make your retirement savings last is an age-old conundrum. Bill Sharpe, the US economist and Nobel Prize winner, called it “the hardest, nastiest problem in finance”. How much can you sustainably withdraw from your pension pot? And what’s a sensible way to allocate assets in it?
The finance industry
ETFs are the Marvel of listed galaxies, even with star WAR
ETFs had a slow start, making little progress by the time the GFC came in 2008. LICs flourished while they had the support of financial advisers and handsome stamping fees paid by issuers. It was not until the end of 2018 that ETFs finally took over LICs. ETFs have since become the avengers, sweeping LICs aside with the inclusion of a wide range of indexes, sectors and niche products, and a big boost from the Magellan active funds.Research Insights
What if you missed the dip? Chart of the week
The mantra “buy the dip” started as a chorus to the gyrations of Bitcoin’s price. Since then, it has cemented a place in the investor’s glossary thanks to an age-old fear: trying to time the market. Investors can be especially prone to this kind of fear and regret. Whether buying Bitcoin in 2015 or mortgaging the house to buy stocks in late March 2020, it’s easy to lose sleep over market timing.
Investing Trends
Five stock recoveries not hanging on COVID predictions
With or without COVID, investors want businesses with predictable earnings and recurring revenues, especially disruptive businesses benefitting from change in the global economy, with a large addressable market. Here are some examples of what happened during COVID.
Top stories
Grantham interview on the coming day of reckoning
Jeremy Grantham co-founded GMO in 1997 and is a member of its Asset Allocation team, serving as the long-term investment strategist. He was interviewed by Kunal Kapoor, CEO of Morningstar, at the Morningstar Investor Conference Australia on 2 June 2021.
Retirement
How long will my retirement savings last?
The Retirement Income Review (RIR) noted that many retirees leave large bequests and they would have enjoyed a higher standard of living in retirement if only they had spent some of their capital, not just the income from their investments. Planning cash flow in retirement is extremely difficult because of the uncertainties about expenditure, doubts about investment returns and unpredictability about how long we are going to live.
Retirement
The risks lurking in your 60/40 portfolio
Most Australians hold their superannuation in a balanced fund, often 60 per cent growth/40 per cent defensive or 70 per cent/30 per cent. Lifecycle funds are also popular, where the amount in defensive assets increases with age. Employees who are not engaged with their super (and that’s most people when they start full-time work) simply tick a box for the default fund selected on their behalf by the employer.
Investing basics
Why it’s time to update your SMSF investment strategy
Having a future-proof investment strategy is not only legally compulsory, but also one of the best ways to enhance retirement savings. Amid volatile markets, how can self-managed super funds get the right settings in place? Recent market volatility suggests a review of investment strategy is advisable, particularly ahead of the approaching new financial year. The Australian Taxation Office says the strategy must be reviewed at least annually, and when “significant events” occur including a market correction.
Investing basics
Hume and Frydenberg reset super with two buzz words
Adding to the jargon that fills the superannuation industry and confuses most people, two common words have taken on new meanings. They sound innocent, but when a Morrison Government minister uses the words ‘efficiency’ and ‘flexibility’ in the super debate, they now have particular definitions. And in neither case is it the way we previously understood superannuation.
The finance industry
The Bond Market Rout Exposes an Assortment of Risk
The actions of central banks around the world are well known—they are undertaking substantial quantitative-easing programs to support their economies. While they have control of cash rates and their bond purchases at the shorter end have been more effective at keeping rates low, further out the curve, they have not. And even in the face of central bank purchases, investors have sold longer-dated bonds and quickly driven up rates in early 2021. Unsurprisingly, this has had flow-on effects in other markets, too, particularly equities. This article explores what is going on in the bond markets now, how our fixed-interest managers have fared, and what it means for equity markets.
The finance industry
How the Reserve Bank scuppers retail depositors
The Reserve Bank of Australia (RBA) and Amazon have a lot in common in 2021. They have both positioned themselves as the premier high volume, low price, low margin product provider. They are redefining logistics in their distribution channels. Their current market position on price competition and sheer scale of influence unleashes factors of productivity improvement and makes it difficult for others to compete on traditional business models.
Investing Trends
Does your portfolio need bitcoin?
The cryptocurrency has soared, so it’s no wonder investors want a piece of the action. Should you invest? Maybe—but keep it to a minimum. Bitcoin investors have been on a wild ride lately. After dropping about 74 per cent in 2018, the digital currency nearly doubled in price in 2019, and then nearly quadrupled during 2020. Trading volumes have also skyrocketed as individual investors have embraced cryptocurrencies through commission-free trading platforms such as Robinhood.
In Practice
Top 10 most popular Investments in 2020
We’re looking at the most frequently viewed securities – equities, funds, and ETFs – on Adviser Research Centre over 2020. Based on previous years there were no real surprises, the pandemic didn’t alter the way Advisers thought about Investments, continually looking at quality and value for their clients.The Big Picture
Best and worst performing equity funds of 2020
Growth was the place to be through the covid-19 pandemic while value managers couldn't catch a break. This is a round-up of the best and worst performing equity funds under Morningstar coverage for 2020. Morningstar fund analysts conduct reviews of over 480 flagship Australian funds, exchange-traded funds and listed investment companies.Research Insights
10 stocks too hot to handle
These names have shone but as bubble warnings grow louder their frothy valuations and lack of competitive advantage may concern. When warnings of a stock market bubble emerge it may pay to heed them. And that's especially the case when such warnings emanate from heavyweight investing veterans. Last week two members of that esteemed club, Jeremy Grantham and Carl Icahn, warned that a speculative bubble is swelling.Top stories
Warren Buffett's 2020 Scorecard
In a tough year for most investors, even Warren Buffett had a mixed year by his standards. The share price of his Berkshire Hathaway (BRBK.B) investment company inched forward by just 2.5%, lagging major US benchmarks like the S&P 500. Billionaire investor Warren Buffett had a mixed year by his standards, with some winners such as Apple and Snowflake balanced by banks and energy.
Top stories
Forecast 2021: Vaccines, Vaccinations, Volatility and V-shaped recoveries?
It was a year of trials and tribulations, where patience was tested but those in for the long haul were ultimately relieved and rewarded. Late March provided some rare opportunities for those with cash. 2021 is unlikely to be a repeat. Markets could begin the year with an extension of the current upswing, but as it unfolds several questions will undoubtedly be asked about the progress of the economic recovery and the relationship to risk asset valuations.
Research Insights
How the Morningstar 11 Wide Moat Stocks did in 2020
It was a rough year for some of Australia’s biggest companies as covid a toll and low rates inflated asset prices. For the year 2020 only two of Morningstar's 11 wide moat stocks posted positive returns. At the end of the year Australia’s top stocks were in general back to square one, with the benchmark S&P ASX 200 posting a return of -0.36 per cent.Top stories
Can Warren Buffett forecast the stock market?
To answer the headline’s rhetorical question, Mr. Buffett can indeed predict the future of the stock market, just as Glendower can call spirits from the vasty deep. However, Hotspur’s response to Glendower remains salient: “Why, so can I, or so can any man. But will they come when you do call for them?”
The Big Picture
How IFAs Can Appeal to Millennials
Financial advisers must adapt their business if they want to appeal to the younger generations, says Kind Wealth's David O'Leary. In this interview, O'Leary touches on his experience with dealing with the younger generation, 30 to 50-year-olds; in his financial planning business. We discuss the challenges in serving the young clientele as well as some interesting findings.
In Practice
This is your brain on uncertainty
It’s been a long slog to get this far in 2020 and unncertainty is stressful. In fact, humans have been shown to prefer even physical pain to the stress of uncertainty, but we have to be careful right now to avoid making rash investment decisions that we might soon regret. In this article, Sarah Newcomb provides some healthy food for thought to help you keep your head while others are losing theirs.Research Insights
No moat, no bargain: nine overvalued stocks
Netwealth, Afterpay and Fortescue Metals Group are among the most overvalued no-moat names under Morningstar coverage. A Morningstar stock screener that filtered for no-moat stocks that are significantly overvalued according to their price/fair value ratios revealed nine names. More than half the list comprises names from the Consumer Cyclical sector.
Top stories
The creator of the 4% rule and his own retirement
This is an interview with Bill Bengen, who is widely known as the father of the 4% 'safe withdrawal rate' that he put into practice. Bill discusses how he first developed the safe withdrawal rate research, the retirement problem in the early 1990s that he was trying to solve, how Bill integrated his 4% rule into his financial planning business, and why he didn’t actually use the 4% safe withdrawal rate with his clients.
Research Insights
Australian Energy Stocks Are Cheap
The COVID-19 outbreak has created a large dent in near-term oil demand and triggered spiralling energy prices. However, local oil & gas producers are some of the best placed to weather the COVID-19 meltdown and emerge comparatively stronger. In this article, we dive deeply and explore the four major Australian E&P companies which have 5-star recommendations.
In Practice
Sustainable Investing Landscape for Australian Fund Investors
The coronavirus has dominated both news headlines and investors’ minds in 2020. But hidden amidst the news headlines is that investment options and assets in sustainable funds in the Australian retail marketplace continue to grow, with promising signs of performance during the volatility caused by the pandemic. We explore the recent trends within sustainable retail investments in Australia, as well as Morningstar’s updated framework for identifying sustainable funds.Top stories
18 Aussie Names For Your Watchlist
COVID-19 has produced big winners and losers on the Australian stock exchange, and this month, we focus on Morningstar research to find the opportunities. A Morningstar stock screener reveals a cross-section of companies with competitive advantages that are trading at material discounts. We invite you to explore these stocks to get a fuller picture of Morningstar analysts' take on the pros and cons of each.
The Big Picture
Will a Turbulent Election Derail Economic Recovery?
As Election Day nears and the coronavirus vaccine trials continue, headlines may lead to volatility, but we expect economic rebound to keep on. While the consensus from market forecasters on Wall Street is that the market will be especially volatile come this November, it could also be relatively mundane.
The Big Picture
A tale of two markets
Well, that was quick. Despite bleak global economic outlook and the continued uncertainty brought on by the coronavirus pandemic, as of August 6, 2020, the US market recovered to its pre-pandemic high. The covid-19 bear market goes down in history as one of the least painful on record, lasting a total of about 120 trading days with a maximum drawdown of about 34 per cent.
Investing basics
How to build a core and satellite fund portfolio
Building an investment portfolio is not an easy task. Whether you’re a novice or a skilled adviser, picking the right funds takes time and research and, despite that, many times we all get something wrong. One approach investors can take is to build a core and satellite portfolio.
In Practice
Who's next? Discounts on LICs force managers to pivot
History will record that the few years until 2019 were halcyon days for Listed Investment Companies (LICs) and Listed Investment Trusts (LITs). The main listed competitor for the LIC/LIT structure is Exchange Traded Funds (ETFs). While LICs/LITs have failed to launch any primary transactions in 2020, ETFs have gone from strength to strength, reaching a record $70 billion in August, a lead of $25 billion over their rivals.
Top stories
The lingering fear of a post-pandemic world
COVID-19 has turned many lives upside down. For some, avoiding the daily commute is a joy, while for others, isolation is a struggle. Are the impacts permanent or will we move on? We ranked a few behavioural changes induced by covid-19 containment measures, finding that working from home, online shopping and exercising from home may be best positioned to persist after the crisis in the form of habits.
In Practice
Principles of Investing
Investors in shares must expect market shocks as part of the long-term benefits of owning part of a company, and on average over time, stock markets fall one year in every five. We have put together some graphs which show some fundamental principles of investing, and how markets have recovered from previous shocks, with supporting commentary.
Research Insights
Australia and New Zealand Best Stock Ideas for August 2020
Morningstar's monthly Best Stock Ideas highlights high-quality Australian and New Zealand companies, which are currently trading at discounts to our assessed fair values. The ideas, chosen from our coverage of nearly 200 companies, are intended to have broad application in a variety of equity strategies.
Top stories
Keating versus Hume: where willy-nilly meets obscene
Jane Hume and Paul Keating are kicking around a favourite political football, superannuation, but what's the score at half time? Treasury initially estimated that $29 billion would be withdrawn from super when the early release was announced in response to COVID-19. With the scheme now extended until the end of 2020, the estimate has been revised to $42 billion.The Big Picture
Investing basics: reasons NOT to invest in gold
Gold has hit a record high and investors have poured billions into gold tracker funds. But should you invest? Despite its allure and popularity, some experts say that holding gold is not a sensible investment move - particularly after its recent climb. Here are just some of the reasons not to invest in gold.
Research Insights
Why rebalancing (almost always) pays off
This year’s turbulent market was yet another reminder of the power of portfolio rebalancing for risk reduction. In this article, I’ll look at how different rebalancing frequencies have paid off in 2020’s turbulent market, as well as during other market drawdowns. In a nutshell, any rebalancing strategy works far better than none at all, especially when it comes to risk control.Top stories
11 lessons from my lousy $50K profit on Afterpay
Afterpay has taken thousands of retail investors on a ride few will experience again, leaving behind the most astute professional investors in the country. Relatively few fund managers believe in the value and it’s not possible to value this company on normal metrics. Graham Hand says whether it is worth $10 or $100 depends on the market’s ongoing belief in the growth story.
The Big Picture
Is the retirement ‘4 per cent’ rule broken?
Retirement researchers have been sounding the alarm about the 4 per cent guideline for a while. A combination of very low bond yields and not-inexpensive equity valuations mean that a starting withdrawal of 4 per cent, could cause a retiree to prematurely deplete his or her funds over a 25- to 30-year horizon. In this interview Wade Pfau and Christine Benz give new ways to avoid money running out in retirement.In Practice
7 Items Your Estate Plan May Have Left Out
If your goal is to look out for your loved ones, you should consider tackling these estate-planning additional jobs. Estate planning is the easiest financial planning to-do to put off. It’s certainly not fun to ponder your own mortality, and yet that’s the very nature of estate planning. In this article, Christine Benz explores seven aspects overlooked by many.In Practice
60/40? Do you have the right mix of shares versus bonds?
Bonds have been a beautiful thing over the past couple of decades, compounding returns at a decent clip while faithfully filling their traditional role as buffers in down markets. But now that interest rates are close to all-time lows, their future return prospects are much lower. In this article, we explain why investors saving for retirement should consider shifting their asset allocations to lean more heavily on stocks.The Big Picture
Easy money: download Robinhood, buy stonks, bro down
Call it Robinhood traders, the corona generation, YOLO (You Only Live Once), TINA (There is No Alternative) or simply retail investors, but trading by individuals has hit global equity markets in massive numbers. Some daily moves are called a battle between the smart professional sellers and the dumb retail buyers, but since the 23 March bottom, the dumb money has been right. So far.Top stories
Is the stock market rebound overdone?
We’ve heard questions from many clients about why the market is doing so well right now given how bad the economy is, and whether we will see the lows of March 2020 retested. They’re good questions, but there might not be clear-cut answers for those who want certainty. We’ll discuss three points embedded in investors’ questions.
Research Insights
Post-covid economy calls for humility, patience and preservation of capital
One should never say never, but I have never nor will I probably ever again experience the level of uncertainty that currently exists. Everywhere one looks, uncertainty abounds. How can anyone predict the outcome of something that has never been experienced? Risk escalates. No one knows what the future holds and personal biases only muddy the waters. Objectivity should be key, intellectual humility its companion.
In Practice
Evaluating Carbon Risk in Managed Funds
The impacts of the coronavirus pandemic have reverberated aggressively across the globe. Immediate term societal priorities are on protecting public health and stabilising financial and employment markets. This period also serves as a reminder of global interconnectedness, systemic risk, and the vulnerabilities and tensions between economic, social, environmental, and governance considerations.The Big Picture
The vibe of future returns: tell ‘em they’re dreamin’
Retirement planning should start decades before the end of full-time work. In a wonderful world of returns well in excess of inflation rates, driven by compounding over long periods, bond and equity markets will provide the financial resources for a comfortable retirement far quicker than if returns struggle to beat inflation. But is all that in the past? Super balance calculations default to earnings rates of 7.5%, but that's in the past. Planning needs a more realistic view.Top stories
Six simple charts on what to expect from shares
In our recent Reader Survey, about 40% of respondents reported portfolio losses of over 20% between January and March 2020, although the market rise since the lows has pared back some of the pain. We opened the Morningstar Direct data base for the Australian All Ordinaries Accumulation Index to measure the total returns (including dividends) over one year, three years and five years since 1983. There are good reasons to take comfort from the charts, and the pictures 'tell a thousand words'. Of course, Covid-19 is a unique threat, and only time will tell whether 'this time is different'.Research Insights
Coronavirus: Market Temperature Check
It has been difficult to keep on top of the rapidly shifting environment, but collectively we find more opportunities to buy than sell shares at the current level. There are a number of moaty names that investors should consider adding to their portfolios as well as heavily sold-down stocks that could see a good post-virus bounce.
In Practice
What Prior Market Crashes Can Teach Us About Navigating the Current One
The circumstances of the current market crash might be unique to the coronavirus pandemic, but they lead investors to wonder: Are such drops normal for equity markets, or is this different? The regularity of market crashes is a reminder that patience is key to investing in equity markets.In Practice
How to Manage Client Conversations During Turbulent Markets
As the market pendulum continues to swing back and forth, many investors may be struggling to rein in their emotions. During these troubling times, financial advisers can use behavioral coaching tactics to help their clients manage their emotions and avoid making rash decisions.
Top stories
A Behavioral Guide to Market Volatility: How Behavioral Science Can Help Advisers During Market Turmoil
The severe shock brought on by COVID-19 brought unprecedented volatility and repercussions that have reverberated through our daily lives. How can we make sure our clients’ emotions don’t get in the way of their better judgement when making financial decisions?
In Practice
The virus will run its course, but the pain of record debt will become more acute
Coronavirus is affecting the global economy to a greater degree than any previous event. Global supply chains are so interwoven that the initial disruption in the world’s largest manufacturing centre triggered a meaningful slowdown in world trade and economic activity.
The Big Picture
Seeking a vaccine for that other virus going around: investor complacency
Financially, more serious than the outbreak of coronavirus would be an outbreak of investor complacency. Unknowns like the coronavirus are a compelling reason for investors to always be prepared and vigilant, even more so with markets near record levels.
In Practice
Coronavirus: An Investment Perspective
Public health outbreaks can quickly scare investors and, eventually, affect economies and businesses. The recent coronavirus outbreak has shut down airports, halted trade, and led to the rapid construction of new hospitals in China. The effects of the outbreak may push China's economy into a period of slower growth, with stocks trading lower as investors seek protection.
Research Insights
Debt-ridden companies face contamination as virus saps supply chains, cash flows
From an economic viewpoint, the coronavirus is and will have far reaching global implications. The market should be focused on the extent of the disruption to the global supply chain and the impact on cash flows of companies, rather than deaths or making comparisons with earlier viral outbreaks.
Top stories
Financial advice in transformation: a reflection on 2019...
There is widespread optimism around the move to independence and the professionalisation of financial advice, yet the immediate uncertainty and unravelling of the landscape following the Banking Royal Commission, is causing many advisers to rethink their business models and even their careers.
The Big Picture
3 Key Conversations to Have With Clients to Prove Your Financial Adviser Value
Advisers face many obstacles, but when we asked them what their biggest challenge was, we quickly found that many related to one overarching theme: financial adviser value. In this article, we discuss these challenges and how advisers can overcome them.
Top stories
The Value of Financial Advice: How Morningstar is Leveraging Data and Research to Better Serve Advisers
Advice is evolving at a rapid pace—shifting from a world of product distribution to true client-centric advice. Today, the conversation is focused on the clients’ goals and aspirations. Advisers will spend less time selecting products and building portfolios and more time supporting their clients through the inevitable ups and downs of markets, helping them stay the course to meet their goals.
The Big Picture
The Big Five and Behavioral Finance
Contributor Michael Pompian introduces a new series that examines the relationship between the "Big Five" personality traits and the behavioral biases of investors. The "Big Five" model is a classification scheme that attempts to cover the major aspects of one's personality.The Big Picture
Retirees: Are you Spending Too Much?
At a bare minimum, anyone embarking on retirement should understand the basics of spending rates: how to calculate them, how to make sure their spending passes the sniff test of sustainability given their time horizon and asset allocation, and why it can be valuable to adjust spending rates over time. Here are the key steps to take.
Top stories
Our Plans to Acquire AdviserLogic, a Leading Australian Financial Planning Software
On 3 November, we announced our plans to acquire AdviserLogic, an Australian financial planning software platform that will broaden our product suite and expand our set of capabilities for independent financial advisers.
In Practice
Why Financial Advisers Should Operate as Financial Coaches — And How to Do It
Between social media, financial news outlets, stock apps, and word of mouth, today’s investors have no lack of information. In this environment, financial advisers can no longer view access to data or investment options as the biggest service they provide, as investors are now craving holistic advice that will effectively help them achieve their personal goals. To meet this demand, financial advisers need to increasingly think of themselves not only as investment advisers, but also as financial coaches.The Big Picture
The Fruits of ESG - Advisers find that sustainable investing is good for business
Just a few years ago, advisers would only discuss ESG investing with clients and prospects after they were asked about it. Today, these advisers incorporate ESG strategies into their practice just as they would any other kind of investment strategy, and they’re asking most, or even all, clients about their interest in ESG investing. This shift, which advisers say has built momentum over the past three years, has coincided with a change in the ESG investment landscape.
In Practice
How to Help Clients Choose Between Funding Retirement and a Child’s College Education
When it comes to tuition costs, many advisers see their clients face a common problem. They want to pay for their children's tuition even if it means putting their own future financial security in jeopardy. Doing otherwise may make clients feel like a bad parent or provider.In Practice
How to Understand What Investors Value in a Financial Adviser
Since meeting investors’ needs is essential to attracting and retaining clients, this level of discordance between the expectations of advisors and their clients can drastically impact the success of an advisor’s practice.
Here, we discuss what advisors can do to help bridge the gap.
The Big Picture
How Does the Timing of Fund Selection and Sale Impact Investor Returns?
Bad timing can undermine good fund selection and substantially impact investor returns. To understand how much of a difference timing can make, and the factors that contribute to this discrepancy, we took a closer look at our investor-return data.
Research Insights
Investing basics: raising a portfolio you don’t have to babysit
According to Morningstar research, portfolios that assumed no further adjustments tended to beat the returns of the actual portfolios, which reflected the fund managers’ trading activity. Read as Tim Murphy explores the many reasons to take a 'hands-off' approach.
In Practice
Ten Tips for More Effective ETF Investing
Investors want more information and further education to help them effectively use ETFs. It’s worthwhile revisiting the 10 rules of thumb for ETF transactions that we published in 2015. Every rule remains just as relevant in 2019, and we wouldn’t be surprised if these rules remain relevant for years to come.
The Big Picture
7 Elements of Great Investing Advice
There’s a huge need for great investing advice, and great advice begins with us. Not just with Morningstar, but with the institutions building investment products; with the plan sponsors trying to help a workforce unlock the power of their retirement plans; and with the advisers who face the push and pull between serving clients and building successful practices.
The Big Picture
The World in Transition
The world is changing, the levers of central banks no longer have the same power to contain the global economy, and China’s growing presence on the world stage is reshaping geopolitics and markets. These are just some of the observations of Capital Group, Michael Thawley.
In Practice
Portfolio Concentration Doesn't Necessarily Lead to a Significant Difference in Returns
Investing with a high-conviction manager may sound prudent, as it can help increase investors’ exposure to managers’ strong ideas, which could potentially lead to better performance. But higher portfolio concentration may also increase the risk of missing out on some of the market’s other big winners.The Big Picture
Markets Rebound, but May Not Be Sustainable: A Quarterly Market Update in 6 Charts
Every quarter, Morningstar’s quantitative research team reviews the most recent global market trends in finance and evaluates the performance of individual asset classes. The findings are then shared in the Morningstar Markets Observer, a publication that draws on quantitative analysts’ careful research and market insights.
Top stories
Labor’s election loss a welcome reprieve for health insurers
The shock defeat of the Bill Shorten-led Labor Party has reversed negative sentiment and boosted the share prices at private health insurers NIB Holdings (ASX:NHF) and Medibank Private (ASX:MPL). The Coalition's upset win scuttled several policies that would have likely increased member outflows and slashed margins.The Big Picture
What Is Financial Health?
Financial advisers often find themselves playing the role of counselor, and they are confronted with clients whose emotional health is wreaking havoc on their finances. It’s time to redefine the term “financial health” so it includes both a person’s economic stability and emotional wellbeing around his finances.In Practice
5 Reasons to Use a Holdings-Based Style Analysis for Risk Assessment
It’s important to understand that risk-factor models are at their most powerful when you use them to look into the future, rather than seek to explain the past. The past track record of returns for a fund or manager will not help you identify the current exposure of a fund’s holdings.
Research Insights
Small-Cap Investing: Volatility Shouldn't Be a Surprise
While the return of volatility in 2018 might provide some short-term discomfort, history has shown it is a fundamental feature of small-cap investing that investors should be prepared for. Indeed, it is within a more volatile environment that good active managers are given the opportunities to add significant value over the long term.
In Practice
Worksheet: 3 Steps to Helping Your Clients Set Financial Goals
When was the last time you checked in on your clients' top financial goals? This steps on this worksheet can set advisers on the right path for showing investors how to avoid behavioral biases, establish strong financial goals, and implement behaviors to help meet these goals.
The Big Picture
Vanguard Investments Australia Wins Morningstar Australian Fund Manager of the Year Award
The 2019 Australian Morningstar Awards took place last Friday evening at the Establishment in Sydney. Congratulations to Vanguard for taking out the overall Fund Manager of the Year, and all our category winners. All winners in the Morningstar Awards have demonstrated themselves to be good stewards of investors’ capital.
Research Insights
Have Flexible-Bond Strategies Hit Their Mark?
Relatively flexible, or unconstrained, fixed-interest strategies have touted their capacity to handle higher-bond yields better than more-traditional options. Our prior research has found some validity to these claims, albeit in a limited sample size. There were more opportunities to test this in 2018. We consequently investigate whether this has remained true and discuss the implications for using these vehicles in portfolios.In Practice
What Are You Benchmarking in 2019?
Benchmarking is a concept used to help define whether an investment proposition is delivering value. It is well intentioned; however, we should acknowledge the shortcomings. In this article we discuss the importance of benchmarking to your financial goals.Top stories
How to Avoid ‘Terminator’ Exchange Traded Funds
Did you know 25 Australian ETFs have been terminated since 2013? That’s a big number and it means about 12% of Australia's ETFs have shuttered in that time. In this article, we examine what a termination really means for investors and how to avoid getting caught by ‘Terminator' ETFs.The Big Picture
Rising Volatility: How Concerned Should Investors Be?
Volatility returned in October, sending the equity market spiralling downward for a second time in 2018. When this happens, investors naturally look for explanations for the downturn and wonder whether they’re in the right investments. So how can you respond?
