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Financial Planners Starting To Avoid Managed Funds
The results of a new survey suggest that under pressure from clients, financial planners and advisers have begun to avoid managed funds. According to the results of the report, planners are increasingly investing money directly into equities and other listed investments.
Investment Trends (IT), a market research firm which authored the report said that unlisted managed funds gained ground over the last year, and only half of the cash collected by planners was invested in managed fund, down 62 per cent from the previous year.
The survey which polled 700 planners during April and May suggests that planner’s estimate only 39 per cent of funds allocated would be directed towards managed funds by 2013.
Mark Jones of IT said that nearly 20 per cent of all new money was being allocated towards direct equities investment, and that asset allocation into exchange traded funds, real estate investment trusts and managed accounts has also risen.
“Planners have been gradually increasing their use of direct shares and other listed investments since 2008,” Mr Johnston said. “But this year has seen a dramatically larger shift.”
Approximately one third of planners can be described as high users of direct investment strategies, where client funds are allocated towards equities, ETF’s, with only 7 per cent of inflows from this groups allocated towards managed funds.
“That appears in part to be a response to . . . increased investor fee aversion and dissatisfaction with managed fund performance,” Mr Johnston said.
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E*Trade Posts Second Quarter Profit
E*Trade Financial the online brokerage company has returned to profitability after posting second quarter profits on Wednesday for the first time in three years.
The company has not faired well after its business was negatively impacted by bad loans made by its banking division, which reported its seventh consecutive drop in loan loss provisions.
Net charge-offs, or loans that E*Trade doesn’t think it can collect, were $US225 million ($252m), falling 42 per cent from a year ago.
E*Trade gave its earnings a boost by releasing US$60 million from its loan loss as opposed to adding to it, suggesting that the company now believes it has enough capital to cover any impending losses.
The in improvement in the company’s loan portfolio during the second quarter was the difference between E*Trade reporting a profit rather than a loss.
In an interview with Dow Jones Newswires, E*Trade chief executive Steven Freiberg said: “The most significant dollar change (for the company) has been continued improvement in delinquencies and therefore write-offs and provisions in the legacy loan book.”
Mr. Freiberg took the helm at E*Trade on April 1st, and given the current state of the U.S. economy says the company would probably experience a continued decline into 2011.
A closely followed metric with E*Trade is its daily average revenue trades (DARTs), which it reported as being 170,000, up ten per cent from the first quarter however still 16 per cent below where it was a year earlier. The broker like its rivals benefitted from the “flash crash” on the U.S stock market in May 6.
Mr. Freiberg said, however, that trading in June was “not anywhere near as robust,” adding that the “residual effects of the flash crash have caused more investors to become concerned”.
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Pimco Says Australia Is A Top Investment Destination
One of the largest global managers of fixed income securities, Pimco, says that Australia now offers the most investment opportunities in the developed world.
During one of its regular updates to the global bond markets, David Fisher who runs global product management for Pimco also said there was a “new normal environment”, which looked much different to that of previous decades.
Despite the volatility in Australia caused by former Prime Minister Kevin Rudd’s proposal to tax mining companies, a cooling China and debt concerns in Europe, Australia remains one of the top investment destinations of Pimco.
“Starting with a ladder, we would say those countries with solid fundamentals include in the developed world places like Canada and Australia, not only because they came into the crisis with better conditions … but also because they’re very well exposed to the growth dynamics in the emerging world and particularly through the channel of commodity prices,” Mr. Fisher.
Mr. Fisher also warned that there were risks posed by unrealistic expectations and over priced companies as both America and Australia both enter into critical reporting periods.
Pimco chief Bill Gross surprised global markets when he announced the asset manager had begun investing in equities.
“While we think bonds are priced for a depression, we think that equities are still priced for something more akin to the ‘old normal’ than the ‘new normal’, he said. We think that there’s still some scope for compression in PE ratios and we think that optimism over profit recovery is probably a little bit exaggerated in this environment of very, very weak growth, outside of a few countries such as Australia and Canada and the emerging world. So, on a relative basis, we would say that the returns in global bonds, while not spectacular, are certainly attractive.”
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Jeremy Cooper Defends The Controversial Cooper Review
Jeremy Cooper, the former deputy chairman of the Australian Securities and Investment Commission (ASIC) and author of the controversial government review of the Australian superannuation system, has defended his plan for low cost MySuper accounts.
The accounts are intended as a default for people who do not select a retirement fund.
Mr. Cooper who made his comments during a luncheon organized by the Australian Superannuation Funds Association in Melbourne, said that the criticism that his plan was paternalistic could in fact be applied to the entire concept of superannuation.
The criticism was leveled earlier in the week by the Investment and Financial Services Association.
“It’s acutely paternalistic — it’s saying that if we don’t force Australians to defer some of their wages and salary and put them away for a time, they’re simply not going to save, so we’ll force them, and so that’s how we have to see the system,” Mr. Cooper said.
By cutting fees and improving investor returns, it is hoped that the MySuper account will serve as a benchmark for the rest of the industry to follow Mr. Cooper said.
“Because it’s a compulsory system, we think all workers in Australia are entitled to have super that is as good as a MySuper product,”
Mr. Cooper also issued a denial that the rules which determine fees on the MySuper accounts would result in lower investor returns. Mr. Cooper says that the fund trustees would be both obliged to minimize the cost and maximize investment returns.
Chris Bowen, the minister for Superannuation says that the government intends to move quickly to examine the proposals for MySuper and SuperStream, the proposed revamp of superannuation administration, which he terms as being “largely commonsense”.
“I understand the government needs to provide some direction and some certainty around those proposals so the industry can go forward with some sense of confidence, and I hope to be giving an indication of our response . . . over coming weeks.” Mr. Bowen said.
Mr. Bowen says it was unlikely that the government would make any changes to the superannuation preservation age, which is presently set for 60. Mr. Bowen added that the government would not sponsor any specific superannuation products or mandate compulsory income-style investments for retirees.
Speaking after the lunch, Mr Bowen also rejected claims by IFSA that making a low-cost default fund available to workers would lead to increased apathy.
“There are always people who will be disengaged from super and we need to make sure the fees are as low as possible,” he said.
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Global Financial Market Instability Hits Australian Super Fund Returns
Volatile global financial markets that plunged in the aftermath of the European sovereign default crisis have consumed the highly anticipated bounce in super fund returns.
The drop in financial markets is likely to result in investment earnings falling below double digits for the financial year, ending at about 9.6 per cent.
The recent volatility has seen Australian super funds lose as much as 50 per cent of their valuations which provided the federal government with the impetus to ease rules on capital draw downs from pension funds.
As recently as two months ago, analysts were confidently predicting investment returns as high as 15 per cent. However in the last couple of months valuations have been hammered by renewed fears of the recovery in the global economy, which has produced a string of negative equity market returns in Australia.
The poor performance this year has resulted in lower rolling cumulative returns, with the median five year return now estimated to be 3.7 per cent, according to research firm SuperRatings.
Since the compulsory super was established in 1992, the median balanced fund has returned 6.8 per cent a year, illustrating the fact that a well diversified portfolio does indeed protect investors from catastrophic loss.
Balanced funds have both met and exceeded their long term objectives of outrunning the Consumer Price Index by an annual 3 per cent SuperRatings data shows.
Chant West, another research firm estimates that the median returns for investment funds who hold between 61 to 80 per cent of their portfolio in growth assets is exactly 10 per cent.
Superannuation industry figures look better when taken over the past seven years, but the record has been remarkably volatile.
After a shaky start to the decade, when many Australians fell behind compared to the returns of cash investments in the aftermath of the collapse of the tech bubble, Australians enjoyed a four year period of uninterrupted gains in their super, after which the onset of the first global financial crisis took hold.
Growth funds especially were hit in the financial years 2008 and 2009, posting negative returns of more than 6 per cent and 12 per cent respectively.
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Australian Regulators Warn Brokers To Be Suspicious Of Portfolio Manager Window Dressing
The Australian Stock Exchange, which with ASIC acts as a corporate regulator says it intends to monitor portfolio and mutual fund managers closely, as it seeks to stamp out the practice of window dressing.
Window dressing typically occurs at the end of the financial year and is a deliberate strategy managers engage in of price manipulation which dresses up the performance of the portfolio or fund before presenting the performance to clients or unit holders.
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Competition Regulator Unlikely To Grant Approval For NAB Acquisition Of APH
According to investment bank Credit Suisse, the proposed acquisition of AXA Asia Pacific Holdings (APH) by National Australia Bank is likely to not be approved by the competition regulator.
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Majority Of Australians Say They Support Superannuation Increase
A majority of Australians say they are in favour of the government’s decision to implement proposals that would increase the national superannuation rate, whilst more than half of all Australians say they are willing to sacrifice their wages to fund the measure.
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Three Ways To Save A Bit Of Cash In A Low Interest Rate Environment
With governments globally raising income tax rates in their response to fiscal deficits run up during their attempt to deal with the financial crisis, it is becoming increasingly difficult to save.
In Australia, fortunately the government so far has yet to raise tax rates, the top marginal tax rate is the same as it was last year however it is still at a hefty 45 per cent.
Australia is indeed one of the few countries that has not aggressively raised taxes, whilst at the same time has also begun tightening monetary policy, so interest rates are no longer at near half century lows.
If however you find yourself living in a place where like the UK for example, the top marginal tax rate has been raised to 50 per cent, whilst the bank rates are less than half a per cent, then clearly difficulties in obtaining returns on one’s savings does become a problem.
Those seeking returns are therefore being extremely inventive in sourcing methods to beat their savings problems, using offset mortgages, cash back credit cards, paying private school fee upfront.
Here is how it works
CASHBACK
Low bank interest rates are not the main problem in Australia, with the official cash rate at 4.25 per cent, and many lenders offering term deposit rates well in excess of that level. But for those who want easy access to their cash, and want to find a way of making some savings at the same time, then a cash back card is a good idea.
Many lenders seem to offer better rates for spending money using their credit cards, in some countries it is more profitable to spend on a credit card than using your savings.
The card issuer typically offers a cash back rate of something like 1 per cent, when you spend money using your credit cards with participating retailers.
The big advantage is cash back spending is tax free, so if you live in a place where the bank rates are puny, and a 1% cash back rate is competitive relative to the interest on your savings, then it makes sense to use the card to spend, not only do you earn cash back, but that is not taxable, unlike the cash sitting in your savings account.
OFFSET MORTGAGES
For those income earners who find themselves in the top tax bracket, holding a mortgage and a savings account, now would be a good time to enquire about the possibility of switching your mortgage over to an offset deal.
Offset mortgages work by simply offsetting the borrowers savings against their mortgage debt, with interest accruing on the remaining balance.
This means that the mortgage debt is paid off far earlier than otherwise would be, with the interest only accruing on the remaining balance, which is far less than the tax payable on the same amount.
The best thing about offset mortgages is the fact that cash balances can be accessed whenever you have the need to dip into them.
Ann offset mortgage allows the borrower to earn tax free interest on their savings at the same level as the mortgage, and is very useful for top rate taxpayers, who have a decent amount of savings.
PAY SCHOOL FEES UPFRONT
If you are sending your children to private school, then one way to save cash and reduce tax is pay the fees upfront. What the school will tend to do is place the money in a separate account, which is supposed to protect you from any closure or bankruptcy.
The school places the money in a deposit and returns the interest earned from the deposit in the form of discounts. Most schools have charitable status, so their interest income is tax free, which has the effect of the discounts often being far better than the interest received were the money held in a taxable savings account.
Bursars report increased interest in paying fees in advance, thereby netting a higher effective return than on cash deposits. Your money tends to be kept separate from a school’s financial affairs, so it should be protected if it closes or gets into difficulties.
When you pay upfront, the school puts the money on deposit and passes back the interest earned in the form of discounts. Schools earn interest tax-free thanks to their charitable status, which means the discount is often far better than the interest you would receive on a taxed savings account.
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Super Fund Industry Rails Against New Government Proposals- AGAIN
Once again, the superannuation sector is resisting government proposals that would change the industry, and is strongly dissenting against any move towards a compulsory government annuity scheme, in which retired investors can hand either all or part of their superannuation and receive an annual income.
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