What we liked

  • Both the ASX (10.9%) and S&P 500 (13.6%) delivered the strongest quarters since 2009 as global sharemarkets reacted positively to a synchronized loosening of monetary policy in the developed world. Whilst the rally came following reporting season, it correlated little with the weak results reporting across the period, with mining (17.8%) and technology (20.7%) the key contributors once again.
  • Australian GDP surprised to the downside, with the economy growing just 0.2% in the final quarter of 2018 as the property slowdown began to bite. Talk of a per capital recession was overdone and irrelevant for most Australian’s who are more concerned about increasing utility and living costs. Australia’s history has been one boom coming after another, with the mining boom following by the residential construction boom in recent years. What will be the next boom? All signs point to infrastructure and public spending, as Government’s turn the switch to fiscal policy following years of accommodative monetary policy.
  • The telecommunications sector, including TPG and Telstra, was a key driver of market returns, adding 16.9% in the quarter. The period saw increasing pressure placed on the Government and NBN Co. to cut the wholesale access rates they charge internet service providers. TPG saw its first half profit drop 76% and pushed back at the NBN suggesting it’s popular $50 per month plan will need to be removed without some accommodation from the NBN.
  • The Coalition delivered it’s early budget and thankfully there were no major surprises. The headlines were a return to surplus for the first time in 12 years, since before the GFC, and a combination of tax cuts for low and middle income families and energy supplements for social security recipients. As detailed later in this report, superannuation and investment markets came through reasonably unscathed as the Government kicks off its election campaign on the front foot.
  • Not that we like the man, but the handing down of the Mueller Report confirming that there was no evidence of collusion between the Trump Presidential Campaign and Russian agents should put this sideshow to bed and allow Congress to move forward with governing. Trump has put forward a pro-business candidate for the upcoming Federal Reserve seat and appears to be refocused on his mandate for refreshing the US’ ailing infrastructure.
  • Woolworths combined some good news with bad news, announcing a $1.7bn off-market buy back using the proceeds from the sale of its Petrol business, at the same time indicating that at least 30 Big W stores would be closed around Australia following consistently poor performances. The off-market buy back includes a capital component of just $4.79 allowing management to return excess franking credits before a potential Labor victory.

What we disliked

  • The intra-super war took another step forward during the month as the union owned Australian Super declared war with the SMSF sector suggesting funds with less than $500k should be closed down. CEO Ian Silk stated that ‘The fact that industry funds emerged largely uncriticised from the royal commission process, and certainly in better shape than the retail sector, is no cause for triumphalism,’ yet the Royal Commission was targeted at banking, not specifically financial services or superannuation. This comes at the same time that union super board are under increasing pressure about what constitutes the ‘best interests’ of their members and whether they push labor market reforms from their position of power.
  • Unfortunately it appears both parties have caved in to the lobbyists when it comes to the Royal Commission’s recommendation to remove these conflicted payments. The sales commission system occurs throughout financial services and many other industries like travel agencies and car sales, neither of which has anywhere near the regulation or prosecution that financial advisers do. We’d suggest regulation should be extended to any potentially conflicted commission, particularly when it relates to the largest purchase of most people’s lives.
  • Standard & Poor’s released their annual SPIVA Scorecard for 2018, which saw the typical headlines across the media suggesting 87% of all Australian equity funds had failed to outperform their benchmarks. Their conclusion? ETFs and index fund, the same ones that fell over 50% during the GFC. As always, it’s important to look deeper into these reports, take for instance that independent research house Morningstar only rates 52 Australian equity funds as actually being investable, so we’re not sure where 323 come from?
  • This is probably both a positive and a negative but the Australian 10 Year Bond Rate, or the so-called ‘Risk Free’ rate hit an all-time low of 1.72% during the month. The cause was a combination of a slowing property market, hitting an overleveraged consumer and resulting in weaker than expected economic data for the final quarter of 2018. Most economists are now pricing in at least two rate cuts in 2019, we suggest rates will more likely remain on hold.
  • The Brexit delays continued into April, after the 28 March deadline was extended to 12 April and then to 30 June. Prime Minister Theresa May continues to seek the support of the British Parliament, offering a plethora of options, including a series of surveys, but with little in the way of progress. Without an agreement in place straight break from the UE without appropriate agreements and deals in place would be chaotic, particularly for multi-nationals, yet the spectre of a revote is growing more popular by the day.
  • There couldn’t be anything more negative than the Christchurch mosque shootings that occurred during the month, bringing home the importance of spending time with family and friends. The subsequent media coverage and tit-for-tat between commentators has been disappointing as was the reaction of the Turkish President in relation to his comments about the ANZAC’s travelling to Turkey.