What we liked

  • The US reporting season began strongly, with Amazon doubling its quarterly profit to $3.56bn and Microsoft joining the USD$1 trillion market capitalisation club as its transition to a software as a service business continues at pace. That being said, the results were generally mixed and selective, with certain sectors benefitting more than others and providing opportunities for active managers. Overall, the S&P 500 was up 3.93% for the month, the tech focused NASDAQ +4.74% and the global MSCI +3.22%.


  • Looking domestically, the ASX continued its incredible recovery, increasing 2.34% for April, with the consumer staples sector driving returns at +7.35% for the month, as Woolworth’s continued to rally, the Discretionary sector, +4.89%, and Financials 4.40%. The A-REIT sector was weakest falling -2.56% followed by Materials as commodity prices took a breather.


  • The Chinese economy delivered GDP growth of 1.4% for the March quarter as expected, suggesting recent stimulus may have been enough to offset the impact of the US tariffs. The US economy grew 3.2% on the previous quarter, smashing market expectations of just 2.0%, driven by a rebound in consumer spending and exports. There was also better news in Australia as retail sales jumped8% in February, compared to expert predictions of just 0.3% growth. New car sales also improved 5.6% in March, suggesting forecasts of rate cuts due to weaker consumer spending may have been overdone. To finish the month, Australian inflation disappointed at just 1.3% as both petrol and housing cost falls impacted the result.


  • After announcing the election will be held on the 18th of May, the polls appear to be tightening in what many have described as Labor and Bill Shortens election to lose. Without taking an outright position on the results of the election, readers will be well aware of our concerns regarding the Labor Party’s transformational changes to the taxing of individuals, trusts, investment property and rental income. Particularly given this is occurring as our housing market enters a period of substantial weakness. In our experience, a tighter election and diverse Senate ensure that all policies receive the attention and analysis they deserve. Our advice for those impacted by any of the proposals is to hold off on any drastic changes until the election is complete and legislation drafted.


  • Spaceship Super, which burst onto the investment scene just a few years ago promising younger investors the opportunity to invest in the companies of tomorrow, but simply giving them an index fund and some of the highest fees in the market, has pulled its application to become a regulated super fund. This means the team are not allowed to determine where their members assets will be invested, which falls in the hands of external managers. We covered this company in detail several years ago, questioning the strategy and high fees, so it’s a positive to see APRA taking action.


  • As highlighted in previous issues, we expect the major Australian banks to follow the lead of Telstra, and begin a long-needed process of slimming down their business, starting with their workforce and branch networks. There are suggestions that the CBA is seeking to cut its total employees, which number 50,000, by at least 20% as part of a restructure. In a post Royal Commission world the banks best assets are their technology and the data they have, we expect them to become streamlined, savings and loan institutions, but to begin this transition and remain profitable, they need to cut costs wherever possible. This is obviously bad for those investors, but in the long-term should be a positive for shareholders and the economy.


  • The oil price hit a 2019 high, topping $74 a barrel in April as the US announced a further clampdown on Iranian exports which tightened global supplies. This comes after sanctions were applied on Venezuela in an effort to oust the failing Maduro government by banning the import of this major global producer. This has been good news for Australian oil and gas producers after a difficult end to 2018.


  • Australia’s trade surplus hit a record $4.8bn in February, with hope this will offset the slowdown in housing construction and investment. The major contributor was income from metal ore exports, which increased 11%, also reaching a record high, as the price of iron ore spiked following Vale’s much publicized issues in Brazil. The news was not great for the retail sector, with the import of consumption goods growing just 0.2% but capital goods including machinery were up 4.7% for the year.

What we disliked



  • Our thoughts go out to those impacted by the suicide bombing attacks in Sri Lanka over the Easter break. The world is seemingly becoming more volatile by the week and it is events like these that reiterate the importance of spending quality time with family and loved ones whenever the opportunity presents.


  • The fallout from the Royal Commission continued, with IOOF Limited, the owner of Shadforths and several other financial planning firms, was issued with a class action during the month. The law firm behind the class action suggest that IOOF management acted inappropriately, particularly around the use of cash from member accounts being used to compensate for losses of other members. This comes after APRA disqualified five top executives in December. Unfortunately, we expect a great deal more to come from the regulator, as large corporate firms have relied upon their conflicted advice and products to drive profits and bonuses.


  • Unfortunately, it appears the long-awaited legislation allowing SMSF to have up to 6 trustees has been pulled, with the Coalition Government giving up on this proposal in an effort to pass unrelated legislation before the Budget. This was shaping as one of the few ways to minimize the impact of Labor’s franking credit proposals, by allowing one’s children, who are in accumulation phase, into the SMSF and ensure the franking credits were going to use in offsetting their tax, rather than the tax of a stranger through a union super fund.


  • As the tit-for-tat on climate and energy policy continues at the Federal level, consumers, who use substantially less electricity than the industrial sector, continue to feel it in their hip pocket. According to the University of Melbourne wholesale prices in Victoria and SA hit all-time highs during the March quarter. The hot weather required major industrial users to shut down production, who are subsequently reimbursed by the energy company. It’s increasingly difficult to see any transition of Australian electricity occurring in an orderly manner.


  • In the worst kept secret around the world, Brexit was delayed further, until October 2019, after the hard deadline of 12 April came up quickly. PM May remains in an unenviable decision, with support from her own party and the opposition difficult to come by, even with the introduction of a ‘survey’ of MP’s of the many options left on the table. In most cases, business work around Government’s but this delay is having major impacts on the UK economy and business sector, who would no doubt have more confidence to invest if they knew had some idea on the result.


  • As the hyperbole around the weakening property markets continues to grow, Ernst and Young came out with a detailed analysis suggesting that 62% of property owners in Sydney would have been better off investing in shares over various 10 year periods since 1994. Whilst we appreciate the analysis, it does little but complicate the decision for young Australians, when the most important step is to commence a disciplined savings and investment strategy as young as possible.