Callum Burns

Companies that hold assets which are difficult to replicate, such as brands, licenses, patents, distribution rights, logistical capability and a captive client base, and operate these difficult to replicate assets with the objective of entrenching their products in the marketplace, should be in the sights of investors and advisers looking for superior medium-to-long term performance, says Callum Burns Portfolio Manager from SG Hiscock & Company (SGH).

Mr Burns says SGH ICE, the recent winner of the Morningstar undiscovered fund award, invests in ASX listed companies that have (or will have) a business franchise that meets this criteria. The features of a business franchise include:

• It is a good business
• It possesses a sustainable competitive advantage
• It is difficult for clients to discontinue using the product or service
• Often has pricing power, ie. can increase their product prices with minimal negative impact on the customer base.
• Possesses a moat around the business

“These industrial companies typically deliver more certain earnings growth,” Mr Burns says.

“The core premise is to identify stocks that have a sustainable competitive edge, and assets that are difficult to replicate, and for this to be demonstrated by consistent and secure earnings growth.”

David Myers National Sales Manager at Equity Trustees, responsible entity for the SGH ICE fund, said: “We believe the fund invests in the safe end of small caps, so can make up a reasonable portion of the broader Australian equities asset class in an investor’s portfolio.”

The top five holdings in the SG Hiscock ICE fund are National Storage REIT, Resmed, GBST, Cover More and AMP.

Key contributors to performance for February were Carsales, Sky Network Television, AMP, Cover-More and Seek

“Although it was the winner of the Morningstar Australia Fund Manager of the Year: Undiscovered Manager Category for 2014, the SGH ICE fund is eight years old, and has been proven over some of the most testing market conditions in decades. It has provided investors with a net return of 11.7 per cent a year since inception, compared to 2.1 per cent a year. for the Small Cap Industrial Index and 5.6 per cent a year for the ASX 300 Accumulation Index,” Mr Burns said.

It holds a portfolio of approximately 30-50 predominantly ASX listed securities.

In naming the fund the winner of the Undiscovered Manager category last month, Morningstar Australia said: “SGH ICE Portfolio Manager Callum Burns’ creative approach to small-cap investing involves scouring the market for companies with the traits of a quality franchise, which possess entrenched market positions, assets hard to replicate, and pricing power ability. The combination of Burns’ shrewd insights and the well-reasoned approach make SGH ICE deserving of wider attention.”

The post Difficult to replicate assets with an entrenched market position the key to performance appeared first on AdviserVoice.

The value of ASX-listed stocks, as measured by the All Ordinaries Index, fell 2.7% during June 2011. Many other major markets also fell during the month including Hong Kong down 5.4%, the US down 1.8%, the UK down 0.7%, and Singapore down 1.2%. In contrast Japan was up 1.3%. Over the course of financial year 2011 (FY11), the All Ordinaries rose 7.7% following a rise of 9.5% in the previous financial year. Market volatility was slightly lower in FY11 (0.6% average daily movements compared to 0.8% in FY10). The rise in Australian equity valuation lagged behind many other major markets with the US up 28.1%, the UK up 20.9%, Hong Kong up 11.3%, and Singapore up 10.0%. This relative performance, in large part, reflected the strong rise in the Australian dollar over the financial year: 26.0% higher against the US dollar, 14.4% higher against the yen and 6.1% higher against the euro. Market conditions helped underpin continued strong secondary equity market trading and a further increase in initial public offering (IPO) activity during FY11. Secondary capital raising activity remained healthy in FY11, although lower than FY10 and well down on the record levels seen during FY09.

Measures of volatility in the Australian equity market were generally restrained during June:

• Current volatility (as measured by the average daily movement in the All Ordinaries Index) was 0.7% in June (May 0.8%).
• Expected future volatility (as measured by the S&P/ASX 200 VIX) rose on average in June to 19.6(compared to 18.4 in May).

Volatility in US markets (S&P 500 Index) rose sharply in June with average daily movements of 0.9% (0.6% inMay). Expectations of future volatility in the US also rose during June.

The value of daily cash market trading in June was steady compared to the previous month’s performance, with an average traded value of $5.3 billion a day. Activity in interest rate futures contracts continued its upward trend, with trading during the June expiry month in the four main contracts (3 and 10 year bonds, 90 day bank bills, and the 30 day cash rate) creating a daily average record of 525,536 interest rate futures contracts traded.

Listings and capital raisings

• In June 2011 there were 13 new listings, 63% higher than the 8 in the previous corresponding period (pcp). There were 160 new listings in FY11, up 72% on 93 in FY10.
• Total listed entities at the end of June 2011 were 2,247, up 3% on the 2,192 a year ago.
• There was $3.3 billion of initial capital raised in June 2011, compared to $226 million in the pcp.
• Secondary capital raisings in June 2011 increased slightly, with $1.6 billion raised, compared to $1.5 billion in the pcp. There was also $1.1 billion of other capital raised, including scrip-for-scrip, in June 2011.
• Total capital raised in June 2011 amounted to $4.9 billion, up 186% on the $1.7 billion raised in the pcp.
• For FY11, total capital raised is down 18% on FY10, with capital raised from IPOs $29.4 billion and from secondary raisings $33.7 billion.

Trading – Cash markets (including equities, interest rates and warrants trades)

The All Ordinaries Index closed at the end of June at 4659.8 points, a fall of 2.7% over the course of the month. Theindex has fallen 3.9% in the calendar year-to-date but was 7.7% higher than a year ago.

• Total cash market trades for June 2011 were 12.8 million, up 8% on the pcp. Total trades for FY11 were 144.3million, up 9% on the pcp.
• Average daily trades for June 2011 of 610,193 were 8% higher than the pcp. Average daily trades for FY11 were570,440, up 9% on the pcp.
• Total cash market traded value was $111.2 billion in June 2011, up 2% on the pcp. The average daily value traded was $5.3 billion in June 2011, also up 2% on the pcp. Total value traded for FY11 was $1.3 trillion, down 1% on the pcp, corresponding to an average daily value of $5.3 billion, down 1% on the pcp.
• In June 2011 the average value per trade was $8,681, down 6% on the pcp of $9,266. The percentage of traded value crossed was 24% (28% pcp).

Trading – Financial derivatives markets

• There was a continuation of very strong trading activity in the benchmark interest rate contracts in June (an expiry month), including record monthly volume in:
  • 30 day cash rate futures (885,640 contracts), 8% higher than the previous record set in May 2011.
  • 90 day bank bill futures (2,879,948 contracts), 7% higher than the previous record set in August 2007.
  • 3 year treasury bond futures (5,365,381 contracts), 15% higher than the previous record set in March 2011.
• Volatility in the short end of the yield curve drove activity in the 30 day interbank futures and 90 day bank bill futures as the market’s view on future changes in the official cash rate by the RBA changed. At the beginning of the month, market expectations were for another 25 basis points increase in the official cash rate by mid next year. However,with economic data signalling a weaker domestic economy and concerns over the euro debt crisis deepening,market expectations turned to the probability of a rate cut in the second half of 2011.
• Equity derivatives volume (excluding the ASX SPI 200) for June 2011 was 16.2 million contracts. Measuring volumes on the prior contract size in order to allow for a meaningful comparison, results in equity derivatives volume (excluding the ASX SPI 200) for June 2011 of 2.5 million contracts. This represents a 26% increase in total volumes compared to the pcp, with a daily average of 118,559 contracts, up 26% on pcp. Total volumes for FY11(based on the prior contract size) were 23.1 million contracts corresponding to an average daily volume of 91,495contracts, both up 7% on the pcp.
• Total futures and options on futures contracts volume (excluding equity derivatives and CFDs) for June 2011 was a record 13.6 million, up 71% on the pcp, with a notional value of $6.6 trillion. Average daily contracts volume during June 2011 of 616,781 was also up 71% on the pcp. Total volumes for FY11 were a record 98.0 million contracts,corresponding to an average daily volume of 382,687 contracts, both up 29% on the pcp.
• A total of 5,937 ASX CFD trades were transacted in June 2011, comprising a volume of 15.3 million contracts. The total notional value of all CFD trades for June was $204.2 million, a decrease of 26% on the pcp, while the value of CFD open interest at the end of June was $87.1 million, a decrease of 27% on the pcp. Total ASX CFD trades in FY11 were 92,905, down 25% on FY10, comprising 176.5 million contracts, up 15%, and with a notional value of $3.5 billion, down 4%.

Trading – Energy and agricultural derivatives markets

• A total of 10,776 Australian electricity futures and options contracts were traded in June 2011, a decrease of 28% on the pcp. Total open interest was 46,360 contracts at the end of June 2011.
• The ASX grain futures and options market traded 33,518 contracts (670,360 tonnes) during the month, up 42% on the pcp. Open interest at the end of June 2011 of 108,774 futures contracts represents 2.17 million tonnes of Australian grain and oilseed. The total volume traded for FY11 was 483,273 contracts (9,665,460 tonnes), a record year representing 24% growth on FY10.

ASX CLEARING CORPORATION

Clearing

All on-market trades (equities and derivatives markets) are novated by ASX’s two central counterparty clearing subsidiaries, ASX Clear and ASX Clear (Futures), which act as counterparties to those trades and replace bilateral counterparty exposures.

• Total margins (including additional margins held against stress testing exposures and concentrated large positions)averaged $3.0 billion during June 2011 (including excess cash collateral but excluding equity securities lodged in excess of the margin requirement), with cash margins lodged averaging $2.5 billion.
• There were intra-day margin calls made on four separate days in June 2011 totalling $4.6 million compared to $2.9million of intra-day margin calls in May 2011.

ASX SETTLEMENT CORPORATION

ASX Settlement

There were no disruptions to the completion of batch settlement in the equities market during June 2011.

• Total equity settlement delivery fail rate averaged 0.65% per day during June 2011, a small increase on the 0.5% rate for May 2011.

Austraclear Settlement

There were no disruptions to the Austraclear settlement sessions during June 2011.

• The levels of total debt holdings in Austraclear decreased over the course of June by $14.7 billion to $1.2 trillion. During June electronic certificates of deposit decreased by $6.9 billion, treasury bonds decreased by $5.1 billion,semi-government bonds decreased by $3.6 billion and corporate bonds decreased by $3.5 billion. Treasury notes increased by $4.3 billion and all other holdings increased by $0.1 billion in total in June.

A separate ASX Compliance activity report for June 2011 has also been released today.

The post ASX Group Monthly Activity Report – June 2011 appeared first on AdviserVoice.

On 29 June 2011, the Federal Court of Australia ordered that York be wound up and appointed Mr Paul Burness of Worrells as liquidator.

The Court’s orders follow an ASIC investigation into York’s failure to prepare and lodge audited financial reports and director’s reports and hold annual general meetings from 30 June 2008 to date. York also failed to appoint the statutory minimum of three directors and comply with a court order dated 9 June 2009 which required financial accounts be lodged with ASIC within 28 days.

ASIC’s action reflects its commitment to ensuring companies demonstrate openness and transparency and keep investors well informed.

The post ASIC obtains orders to wind up York Capital Limited appeared first on AdviserVoice.

Australian Institutional Specialist Hired to Head Sydney Office

The Sydney office will be managed by Australian Ian Webber, Director, Institutional Investments (Australia & New Zealand), who joined Artio Global in June of 2011. Mr. Webber has extensive experience providing investment solutions to institutions, most recently as Co-Head of Australia/Head of Sales and Marketing for AXA Rosenberg Investment Management. He also served as Director, Institutional Business for Salomon Smith Barney/Citigroup Asset Management. He holds a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and a Bachelor of Economics from the University of Newcastle.
x
Tony Williams, Chief Operating Officer of Artio Global said, “We believe that we offer a well-differentiated and compelling perspective on global investing that will resonate with Australian investors. Ian’s background and experience working with local institutions provides a strong base for us to make inroads into this important market.”
x
Artio has offices in New York, Los Angeles, Toronto and London. The Sydney office will be part of the firm’s strategy to increase its distribution into Asia. “We have been looking to expand our global network and Australia, with its appetite for a variety of strategies and large pool of superannuation capital is a logical early opportunity,” concluded Mr. Pell.

For more information, please visit www.artioglobal.com.

The post Artio Global Investors Selects Australia for Global Expansion appeared first on AdviserVoice.

ING Investment Management Australia’s business provides a number of investment strategies and products directly to the Australian institutional and wholesale markets.

The business had EUR 24.8 billion (AUD 34.0 billion) in assets under management as of 31 March 2011, the majority of which is managed on behalf of ANZ’s wealth management business, OnePath.

In a letter announcing the sale, CEO Steven Billiet writes “the  transaction supports ING‘s objective to actively manage its capital and portfolio of businesses to ensure an attractive and coherent combination for the announced potential IPOs of its insurance and investment management activities.

“ING has previously said it plans to divest its insurance and investment management operations by the end of 2013 through a base case of two IPOs: a European-led IPO including the European and Asian insurance and investment management businesses, and a U.S.-focussed IPO.

“With a strong presence in Europe, the Americas, and nine Asian countries, ING Investment Management remains well-positioned in relation to the attractive Australian market.
z
“We continue to manage an array of off-shore strategies in our various international investment centres, which are available to our clients domestically, regionally, and globally.
z
“The transaction is subject to regulatory approval by the Dutch government and is expected to close in the fourth quarter of 2011. ING IM will be working with UBS Global Asset Management to ensure a smooth transition for all clients, but there will be no changes to client relationships or the way funds are managed in the short-term.
z
“We understand that you will likely have questions or need additional information and we remain committed to keeping you updated on developments. In the meantime, our focus remains on delivering superior investment returns and servicing the needs of our clients.”

The post ING to sell Australian investment management unit to UBS appeared first on AdviserVoice.

The big picture

• Our central view is that the US economy is undergoing a mid-cycle pause and that growth will start to lift again late in 2011. As such, we believe that the Federal Reserve won’t provide additional monetary stimulus and will in fact start to withdraw the stimulus in early 2012. The gradual withdrawal of stimulus is expected to translate to a firmer greenback over 2012.
• We tip the Aussie dollar to ease from US104 cents at the end of 2011 to US102 cents by March 2012 and US97cents by June 2012. The Aussie is also expected to ease from 70.75 Euro cents in December 2011 to 70.30 Eurocents in June 2012.
• The weaker Australian dollar should cause foreign investors to become more positive about the Australian sharemarket. Around 40 per cent of all our listed shares are owned by foreign investors, so the stronger Aussie dollar caused some investors to become overweight Australian shares, prompting some to lessen their exposure. In the March quarter foreign investors sold $1.9 billion of Aussie shares – the first fall in just over eight years.
• But while a weaker currency should improve interest in Aussie shares, other factors such as proposed taxes on carbon emissions and mining profits, as well as a potential ban on the live animal trade, may also serve to restrain interest by foreign investors.
• Valuations on the Australian sharemarket remain broadly favourable. Currently share prices stand at 13.6 times historic earnings – below the long-term P/E ratio of 15. At face value the sharemarket appears cheap, but given investor preference for liquid investments such as cash and bank deposits, it may actually just be regarded as fairly valued in these more conservative times. CommSec expects the ASX 200/All Ordinaries to end 2011 at 5,000 before lifting to 5,500 points by the end of 2012.
• Shares are expected to out-perform other asset classes over 2011/12. Returns on residential property are expected to remain modest at 0-3 per cent given that supply and demand for property has become more balanced. Cash is expected to provide returns of around 5 per cent over the coming year with Government bonds also earning close to 5 per cent.
• The $64 question is when will the “new conservatism” come to an end. Unfortunately no one has the answer. We expect cash to rise from 4.75 per cent to around 5.25 per cent over the coming year. However, just like 2010/11,the risk is that “new conservatism” results in rates remaining stable for longer

The week ahead

• A busy week lies ahead in terms of domestic economic data with a Reserve Bank interest rate decision thrown in for good measure. In the US, the spotlight shines brightly on Friday’s jobs data.
• In Australia, the first full week of the new financial year begins with a barrage of economic data. On Monday, data on job advertisements is released together with the TD Securities/Melbourne Institute inflation gauge, retail trade and building approvals data.
• We expect that retail trade rose by 0.6 per cent in May with the colder weather providing a spur to seasonal purchases. Building approvals are expected to have risen by 3 per cent in May, but approvals are up one month and down the next, so little should be read into the gain. The other data is also worth watching. Job ads fell in May while underlying inflation fell to near 6½ year lows. If the June readings produce similar results, the Reserve Bank won’t be in any rush to lift rates.
• The Reserve Bank Board meets to decide interest rate settings on Tuesday with the monthly trade figures and Performance of Services index released the same day. No change in rate settings is expected or justified. The next big test for most analysts is the June quarter inflation data to be released on July 27.• In terms of the economic data, the Performance of Services index was below 50 in May, pointing to a contraction of activity across the sector. Another weak reading would further water down the chances of a rate hike in coming months. And the trade surplus may have expanded to $1.7 billion in May.
• Data on engineering construction is released on Wednesday while the June jobs report is issued on Thursday. We expect that employment grew by 15,000 people in the month – largely in line with the number of new entrants. As a result, the jobless rate probably remained unchanged at 4.9 per cent. Over the past two months, full-time positions have been cut by almost 80,000, and another fall in jobs in June would raise doubts about the fundamental health of the economy.
• In the US, markets are closed for the Independence Day holiday on Monday. On Tuesday, data on factory orders is released, while the ISM services sector index is issued on Wednesday alongside the Challenger job lay-off series. Economists believe that the services sector is still growing – a reading above 50 is expected – but the index probably eased from 54.6 to 54.3 in June.
• The ADP survey of private sector employment is released on Thursday while the non-farm payrolls (employment) report is issued on Friday alongside figures on consumer credit and wholesale inventories.
• Economists tip a modest 60,000 lift in the ADP survey and then project a modest 90,000 lift in non-farm payrolls. But whichever way you cut it, job gains are modest. The unemployment rate is tipped to remain high near 9.0 percent, albeit down from 9.1 per cent in May.
• The European Central Bank and Bank of England have rate-setting meetings on Thursday.

Sharemarket

• It may not seem like it, but the sharemarket had one of its least volatile years during 2010/11. Over the past financial year, there were just 56 trading days where the All Ordinaries either rose or fell by more than one percent. In fact it was the least volatile 12-month period in almost four years.
• Looking back over the past 15 years, on average the sharemarket has risen or fallen by more than one percent on 63 days in a year, or around once every 4-5 days. No surprises for the most volatile period – it was the time of the global financial crisis. Over the year to January 2009, the All Ordinaries moved up or down by more than a percent on 163 days or around two in every three days. The least volatile period was the year to January 2005 when there were just nine days where the sharemarket rose or fell by more than one per cent.

Interest rates, currencies & commodities

• The past year has been the most stable year for interest rate changes in six years – since 2004/05. Contrary to the forecasts of most private sector economists, the Reserve Bank hasn’t had to lift rates more than once over the financial year as a slowdown in non-mining sectors together with the effects of floods and cyclone have offset solid growth in the resources sector. The only rate change was a 25 basis point increase delivered on November 3. The last time there was just one rate change in a financial year was 2004/05 when rates rose 25 basis points on March 2 2005. That was the only official rate change between January 2004 and April 2006.
• Interestingly, financial markets have again changed their view on the next move in rates. In five months time, the cash rate is tipped to be at 4.70 per cent – or below the current 4.75 per cent cash rate. In other words, financial markets have priced in a 20 per cent chance of a rate hike late this year.
• Over the past year the Aussie dollar has held between US83.14 cents and US110.11 cents – a range of almost US27 cents or a 32 per cent movement between the highs and lows. It sounds a lot, but is this normal? Over the2 7½ years since the currency floated, the Aussie dollar has moved on average by US13.6 cents over a year, or a change of around 21 per cent. The 2010/11 financial year was actually the second most volatile year on record behind 2008/09 (range of US38.45 cents).

The post Investor Signposts: Week Beginning July 3 2011 appeared first on AdviserVoice.

The growing demand for transparency, increased liquidity, fee structure changes, and lower stock-market beta products have increased competition in the sector. The classic fund of hedge fund (FOHF) model—offering investors “access” to a diversifying set of alpha managers, albeit at a higher cost and with reduced liquidity—is being challenged, especially where performance has been poor.

“During the GFC, many multi-manager/FOHF products failed to deliver absolute returns or diversifying protection from equity market sell-offs, raising significant doubts in investors’ minds as to the core value premise of the format. High profile due diligence failures compounded its unattractiveness, along with relatively high fee structures. In addition, some products using single-manager multi-strategy and active multi-manager models that incorporate tactical exchange-traded fund (ETF) and index-like allocations have outperformed the “alpha manager” FOHF model,” said S&P Fund Services analyst Michael Armitage.

He added: “We view the “allocate and pray” feeder FOHF model as dead. In future, we expect offerings that fail to compete in terms of active oversight, transparent risk management, product-level liquidity, and competitive fees to lose out to the growing competition from newer funds designed from the ground-up to deliver on these features. There were several upgrades in this year’s sector review as we recognised funds with some of these product advantages and gained conviction in other offerings that had shown extended track records since our previous reviews.”

The Alternative Strategies – Multi Asset – Diversified Multi-Manager And Multi Asset – Multi-Strategy Sector Report published today, together with reports for all funds rated as part of the review, are available on S&P’s subscriber website www.fundsinsights.com

We also withdrew our ratings on the following four headline funds:

The post Investors demand more competitive offerings from Alternative Strategies – Multi Asset Sector appeared first on AdviserVoice.

• Improve existing products before creating new
• Focus on solutions which deliver targeted outcomes
• Human judgement a key enabler
• Third party administrators a partner for innovation

An annual, independent study released today by CREATE-Research, commissioned by Citi’s Global Transaction Services and Principal Global Investors, finds that while innovation is deemed to have produced mixed results over the last decade, asset owners have retained an appetite for innovation, but only where specific principles are met.

The report, entitled Investment Innovations, raising the bar, surveyed over 500 respondents from pension plans, asset managers, consultants, administrators and distributors from 30 countries with a combined AUM of over US$29 trillion. It asked respondents which financial innovations they believe have worked, which haven’t, what should be the main thrust of innovations over the next three years and what specific improvements and actions they want to see related to these innovations.

The headline findings cite 2008 as a watershed for financial innovation with many of the new products, asset classes, return enhancing tools and asset allocation techniques developed in preceding decades viewed as becoming increasingly fallible, as the financial crisis developed. This prompted a dangerous mismatch in expectations between asset managers, advisors and their clients. Now, client engagement is rising again and the report presents a call to action for asset managers and owners to work more closely together to add value in the innovation process, better aligning their interests and expectations for mutual benefit.

Prof. Amin Rajan, CEO of CREATE-Research and the study’s author, said:

“The global economy is still in a state of uncertainty and strong headwinds in the shape of financial regulation, scarcity of talent and revised client expectations are buffeting the industry. Against this backdrop, there has to be a clear line of sight between innovations and client needs. Asset owners will demand creative solutions which deliver tangible value. New products developed without such fundamentals and without clear client engagement will struggle to gain traction.”
z
Key findings of the report include:
z

• Some 35 innovations saw significant adoption in the last decade. 57% of respondents said that emerging markets equities delivered most value while leverage recorded the worst performance, according to 40% of respondents
• 50% of pension plans believe a switch from products to solutions will be a key driver of innovation over the next 3 years
• A mismatch exists between asset managers’ and clients’ expectations – 39% of the clients think further product innovation will deliver genuine value over the next three years versus 64% of the asset managers
• Lack of client engagement is viewed as a major cause of failed innovation: 73% of pension funds surveyed are only rarely/occasionally engaged when asset managers innovate their financial products
• 88% of asset managers foresee further product innovations over the next three years, although of these, 52% believe they will be incremental, improving existing innovations, rather than creating new ones

x
Grant Forster, CEO of Principal Global Investors Australia, said: “The findings show that lack of client engagement is viewed by the industry as a major factor behind failed innovation. First and foremost, there should be a direct link between innovation and client need. That means building tailored investment solutions that are relevant and additive to clients’ business objectives, rather than creating copy cat products or those which rely on financial engineering. We believe that our multi-boutique model provides a strong platform to execute this strategy, enabling a deep knowledge of products combined with an ideas-centric, client driven approach.”
z
The report finds that pension plans increasingly want to see an overlay of human insight, foresight and empathy in the investment process, as quant models can only deal with historical data. This is highlighted by the failure of existing risk models during the last two vicious bear markets.
z
The report also highlights that product quality, better alignment and operational excellence will dictate the thrust of innovation in the near term. Asset managers intend to adopt more robust processes for promoting new ideas and stress-testing the resulting products. They also expect to rely more on their administrators in order to focus on their own core capabilities and continue an upward advance in the investment value chain.
z
Neeraj Sahai, Global Head of Citi Securities and Fund Services, said: “Underpinning the drive for innovation is the need for ongoing operational excellence. The findings show that looking ahead over the next several years, market participants are focusing on becoming more efficient, reducing risk and modernising the back and middle office, in partnership with administrators. This drive will be a key differentiator for distinguishing the leaders and the laggards of the new era of innovation.”
x
Click to download the full report –  Investment Innovations 2011

The post Research reveals investor appetite for future innovation, but on new terms appeared first on AdviserVoice.

However unlike the US or Europe, the growth of these investment vehicles in the local market has been largely driven by retail investors, with most institutional investors seemingly reluctant to get on board.

A research paper by Russell Investments considers whether the Australian ETF market will start to develop in line with global trends and explores current perceptions and uses of ETFs with an institutional portfolio.

Click to view a full copy of the Russell Investments paper: Research – Institutional ETF Investing in Australia

The post Digging Deeper: Institutional ETF investment in Australia appeared first on AdviserVoice.

• Australia’s population grew by 69,703 people over the December quarter to 22,477,378. Annual population growth slowed from 1.57 per cent to 1.47 per cent – the weakest growth rate in almost five years.
• Despite businesses crying out for skilled migration, the Government’s reduction in the skilled migrant intake meant that in-bound migration hit a near 4-year low in 2010. Over 2010, 171,100 migrants came to Australia.
• There were 297,900 babies born in 2010 – holding just shy of the highest reading since quarterly records began 28 years ago (303,500 in March 2010).
• The financial wealth of Australians hit 3-year highs in the March quarter. But consumers and businesses are increasingly holding assets in cash or deposits.

What does it all mean?

• The Federal Government must shoulder the blame for the sharp slowdown in Australia’s population growth over the past year. Despite persistent calls for skilled migrants, the Government wound back the skilled migrant intake,exacerbating the tightness of the job market and contributing to the slowdown in the economy.
• In 2008, almost 316,000 migrants came to our shores but this slowed to 264,000 in 2009 and to a four-year low of 171,000 in 2010. The reduced number of migrants has contributed to upward pressure on wages and led to reduced demand for housing and slower retail sales. While the migrant intake has been lifted for the coming year,the question is whether it is sufficient. In order to cap wage growth, supply of labour has to keep pace with demand. The best way of ensuring this in the short-term is skilled migration as up-training of Australian jobless takes time. Further, there are doubts that this up-training can be successful in meeting the specific skilled labour shortages across the country.
• The Reserve Bank has been polite in pointing to the need for increased labour supply to meet higher demands. Arguably it should be more forceful in warning that if migration isn’t lifted, the risk is that interest rates will need to rise.
• Cash is king. Australia’s increasingly cautious consumers and businesses are continuing to hold their wealth in cash or bank deposits. And Australian companies are well into the black, with non-equity assets a record $130 billion more than the level of outstanding loans. The environment is much more akin to the 1950s or 1960s when people chose to live within their means and keep borrowings at low levels in relation to assets.
• Foreigners are losing patience with Australia, selling down their holdings of Australian shares in the March quarter. Our high dollar combined with mooted taxes on carbon emissions and mining profits are spooking foreign investors. Clearly this is a wake-up call for the Federal Government.

What do the figures show?

Population Statistics:

• Australia’s population expanded by 325,469 people over 2010 to 22,477,378 people. Overall, Australia’s population growth rate eased from 1.57 per cent to a five-year low of 1.47 per cent. Population growth had hit a40-year high of 2.20 per cent in the year to December 2008.
• A total of 171,100 people migrated to Australia over 2010, the lowest annual total in over four years (since the year to September 2006). The record high was 315,700 in-bound migrants over the year to December 2008.
• There were 297,900 babies born in 2010, just shy of the record 303,500 births in the year to March 2010.
• Population growth eased in all states and territories except the ACT in the December quarter. Over the past year population growth was fastest in Western Australia (2.09 per cent), followed by ACT (1.95 per cent), Queensland(1.70 per cent), Victoria (1.56 per cent), NSW (1.22 per cent), South Australia (0.95 per cent), Northern Territory(0.83 per cent) and Tasmania (0.77 per cent).
• Population growth in the ACT is at 3½ year highs. But population growth in Queensland is at 11-year lows with Northern Territory population growth at 7-year lows.

Financial Accounts:

• The net financial wealth of Australian households (assets less liabilities) rose for the third straight quarter, lifting by 2.4 per cent in the March quarter.
• Financial assets of households (such as shares, bank deposits) rose by $50.6 billion or 1.9 per cent in the March quarter to $2,651.3 billion. Of the total, 25.3 per cent was held in cash and deposits, above the long-term average of 22.7 per cent. Financial liabilities of households grew by $24.2 billion or 1.6 per cent to a record $1,545.5billion.
• Overall, net household financial wealth (assets less liabilities) rose by $26.4 billion to $1,105.8 billion at the end of the March quarter. Financial wealth is up 7.0 per cent on a year ago but is still down 8.1 per cent from the record high set in the September quarter 2007.
• Net household wealth per capita rose from $48,025 to $49,045. Per capita wealth is up 9.7 per cent over the past five years and up 40.8 per cent over the past decade.
• The household debt to liquid assets ratio rose by 1.2 percentage points to 161.9 per cent in the March quarter. The ratio shows that households do not have sufficient readily liquefiable assets to cover outstanding debt, highlighting a degree of vulnerability in the current economic environment.
• Foreigners sold $1.9 billion of Australian equities in net terms in the March quarter after buying $28.5 billion of equities in the December quarter. The Aussie dollar remained at historically high levels in the quarter, hitting 29-year highs of  US103.34c on March 31.
• Foreign investors held $585.4 billion of Australian listed shares as at the end of March quarter or 41.3 per cent of the total. While the share was modestly down from the December quarter it wasn’t far short of the 12-year high of 43.3 per cent in March 2009 (when the Aussie was at US68.7 cents).

• Assets held by superannuation funds (pension funds) rose by $20.6 billion (2.9 per cent) in the March quarter to $1,164.5 billion. Super funds held 14.7 per cent of assets in cash and deposits, down slightly from the 14.9 percent held in December and well above the long-term average of 8 per cent.
• Non-equity assets held by Australian companies (non-financial) stood at $682.7 billion at the end of March, a record $129.5 billion higher than loans. Short and long-term loans rose by $6.5 billion (1.2 per cent) to $553.3billion at the end of March. Companies held 30.9 per cent of assets in currency and deposits, just shy of the highest level in 11 years.
• The value of listed equities rose by just $16.9 billion (1.2 per cent) to $1,417.5 billion at the end of March. The value of currency and deposits rose by $45.1 billion (2.8 per cent) to $1654.4 billion.
• As at the March quarter, 19.6 per cent of assets were held in listed equities (19.8 per cent long-term average);20.1 per cent held in bonds (17 per cent average); 22.8 per cent held in cash and deposits (20.5 per cent average). Smaller than normal shares of assets were held by unlisted equities (20.4 per cent, compared with 24.1per cent average) as well as bills of exchange, accounts receivable, derivatives and one-name paper.

What is the importance of the economic data?

• Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.
• The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.

What are the implications for interest rates and investors?

• The conservatism expressed by consumers and businesses in conducting their financial affairs has further watered down the risk of a near-term rate hike.
• The Federal Government must closely assess the labour needs of Australian businesses. The sharp fall inmigration inflows over the past year has served to weaken the economy and added to the tightening of the jobmarket.
• The under-performance of the Queensland economy and out-performance of the ACT economy have much to do with population flows.
• Foreigners are losing patience with Australia. Australian equities have become more expensive, courtesy of a high dollar, but the risks of investing in Australia continue to rise with mooted carbon and mining profit taxes.

The post CommSec: Population growth hits 5-year low and cash is now king appeared first on AdviserVoice.