Jonathan Philpot

HLB Mann Judd Sydney’s Managed Discretionary Account (MDA) service has outperformed the median superannuation fund over the past 12 months by four per cent, despite having no exposure to CBA and being underweight the booming US tech giants, demonstrating the strength of a diversified, actively managed approach.

Jonathan Philpot, head of wealth management at HLB Mann Judd Sydney, says since being launched just over a year ago, the MDA has delivered strong returns to clients by maintaining a diversified position across different asset classes including listed property, global infrastructure and high yield debt.

“We have maintained a tight focus on investing with the discipline to avoid overpriced investments, and focus on long-term expected returns. As a result, we have invested in a way that may seem different to the market consensus, but which has delivered outstanding results,” Mr Philpot said.

“For example, this focus has led us to have zero exposure to CBA for the whole financial year.  This is at a time when the ASX 200 increased 14 per cent during the year and CBA contributed nearly 30 per cent of this return. Our 20-stock direct share portfolio delivered an impressive 19.4 per cent for the same period, which indicates an index approach is not required to build a good quality share portfolio.

“Likewise, we had an underweight exposure to large US equities, particularly the “Magnificent 7”. The US market performed well for the year rising 13.6 per cent and those stocks were about 50 per cent of the return. However, our global exposure was ahead of respective benchmarks and importantly we had much lower volatility when the US market went through its near 20 per cent correction in March 2025.”

HLB Mann Judd’s MDA service consists of five risk-adjusted portfolios designed to meet different client needs. Each portfolio outperformed its respective benchmark in its first year.

“Our investment changes throughout the year reflected an overall need to be more defensive when share markets are approaching being fully valued,” Mr Philpot said.

“This may seem strange after a year of 10 per cent plus returns, however with the US share market having been on a strong upward trajectory since the end of the global financial crisis and the Australian share market averaging 13.3 per cent per annum over the last five years, it makes sense that these share markets are now starting to be fully valued.”

Mr Philpot says the MDA approach offers a number of benefits to clients, including the ability to act quickly which was crucial in protecting client portfolios during periods of volatility and market overvaluation.

“We’re able to implement new investment ideas quickly and efficiently, without placing an administrative burden on our clients. It means we can respond to changing conditions in real time,” Mr Philpot said.

“While many advisers are turning to Separately Managed Accounts (SMAs) and outsourcing to asset consultants, we believe in providing something more personal. Our portfolios are not an off-the-shelf model – they are directly managed by us and tailored to our clients’ long-term goals.”

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Jonathan Philpot

Investors should revise their expectation of comparative returns from their risky and secure investments, as the impact of consecutive rate rises normalises levels of return, according to HLB Mann Judd wealth management partner, Jonathan Philpot.

Mr Philpot says the gap in returns between different investment types is now around five per cent, having been closer to ten per cent over the past decade.

“Now that much of the interest rate movements have occurred, investors should be reassessing their expected returns across share markets and fixed interest.

“For the ten years up to 2022, every additional ten per cent of their portfolio allocated to risky assets delivered an additional one per cent per annum return. For example, the 60/40 balanced portfolio delivered a return of nine per cent, the 70/30 balanced portfolio around ten per cent, and the 80/20 portfolio 11 per cent.

“However, these returns will not be replicated for the next ten years. For equities, you should expect a return of 7-8 per cent and fixed interest a 3-4 per cent return. We’re entering a very different environment for investment returns,” he said.

Mr Philpot said it is the smoothness – or lower volatility – of the market that is important, particularly for retirees. For the ten years up to 2021, investors enjoyed positive returns, with 2022 coming as a surprise for retiree investors.

“The risk premium is justified as share markets will often move downward within a one-year period of about ten per cent, so particularly for retirees, the stability of returns over their lifetime is an important factor.

“For those investors who have increased their risk allocation over the last 10 years, it may be worth starting to consider slowly reducing their exposure to the share market, particularly as markets move into overvalued territory over these next few years.

“Some other asset classes, such as infrastructure investments, high yield debt and hedge funds, could be considered as alternative investments for share markets, however it is important to understand the underlying risks in all of the different type of asset classes,” he said.

Another beneficiary of the higher interest rate environment is the short-term investor – those with an investment horizon of less than three years – who may be saving for a home deposit or large capital purchase.

“These investors can now invest in a term deposit or higher interest-earning accounts and receive a return on their savings,” he said.

According to HLB Mann Judd restructuring and risk advisory partner, Todd Gammel, 13 consecutive years of record-low interest rates followed by ten straight increases is also having a substantial impact on businesses, with the SME market in particular being affected.

“The current economic climate is making it difficult for some businesses to access capital and debt to fund operations. While supply chain issues have eased, relative to 12-18 months ago, it continues to have a knock-on effect for some.

“The uncertainty around rates and the steep manner in which they have risen means business owners need to manage funding risk more closely.

“The Silicon Valley Bank collapse has highlighted the need for management to understand and hedge risk in a changing environment with greater scrutiny. Taking a small loss on a poor investment or strategy is a learning experience, losing the business because of an unwillingness to close the position or accept the loss earlier places concern around adherence with personal obligations,” he said.

Mr Gammel said rising interest rates are also resulting in an increase in distressed businesses, while prospective acquirers have missed the opportunity to use cheap capital.

“Rising rates have, to a degree, put a handbrake on some businesses looking for greater scale through acquisition but given there are some sectors still struggling, particularly construction and some retail sectors, the opportunity to acquire hasn’t altogether passed.

“Not only does an acquisition add scale, increase hard to find workforce, they can improve the margin and market position of both businesses by operating as a single entity,” he said.

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Jonathan Philpot

One and two-year investment horizons are effectively becoming redundant, according to HLB Mann Judd Sydney wealth management partner, Jonathan Philpot.

The smoothing of share market volatility over time and the narrowing of likely outcomes with each passing year means investors should focus on ten-year forecasting instead, as this provides a more accurate reflection of market cycles and allows for likely volatility, said Mr Philpot.

“Investors should only consider share market outlooks for the next five – preferably ten – years. It shouldn’t be a question of, ‘what’s going to happen over the next six to 12 months’, but rather ‘how long do I wish to invest for, and what do I want to achieve’?

“No-one predicted after the initial COVID-19 outbreak in March 2020 that the share market would rise by 37 per cent over the next 12 months, which illustrates the risk of a short-term focus,” he said.

Mr Philpot said if investors have a specific objective within a defined period of time, such as a house deposit, the share market is arguably not the most appropriate investment strategy.

“Short-term investment horizons carry increased risk of negative returns, so investing in a secure, fixed-interest type of investment that will likely achieve a smaller comparative return is a better option.

“For longer-term investors, including those who wish to leave a legacy to children and grandchildren, focusing on expected returns across different asset classes over ten years is a sound financial strategy.

“Importantly, however, for these longer-term investors, the share market shouldn’t be viewed as a ‘set and forget’ investment approach. Asset allocation should be reviewed every couple of years to ensure they are maximising the market value as it fluctuates between cheap and expensive.

“When considering ten-year forecast returns, investors are able to make gradual changes to their asset allocation – the share market will not become a sell overnight. This will mitigate any emotion-charged decision-making that occurs after a crisis,” he said.

With listed companies currently announcing financial their results, Mr Philpot said it can be tempting for longer-term investors to tweak portfolios, however caution is required.

“Some of these announcements can play into a short-termism mindset, but investors should stay true to their financial strategy. Just because a company’s profit has taken a hit or has come under public scrutiny, it doesn’t mean that will continue in the years ahead. It’s too easy for short term investors to buy into headlines,” said Mr Philpot.

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Jonathan Philpot

The long-held 60/40 asset allocation rule is no longer adequate if Australians are to retire comfortably, with an 80/20 ratio of risky vs secure assets far more appropriate in the current market environment, according to HLB Mann Judd Sydney wealth management partner, Jonathan Philpot.

The traditional balanced investor profile previously meant a fairly equal allocation between more secure fixed interest and cash investments and riskier Australian, international shares and property investments. However, with the ultra-low interest rate environment set to continue for some time yet, the secure part of the portfolio could only return about two per cent over the next 10 years.

“With interest rates having been on a downhill run for the last 30 years, the balanced profile is now reflecting an allocation of about 70 per cent risky investments and 30 per cent secure investments. This is the default super option for many industry and retail superannuation funds.

“Worryingly, some super funds are classifying higher-risk corporate debt and property type investments as part of their secure or defensive part of the portfolio. This not only exposes investors to greater risk than they perhaps thought they were taking, but also shows the importance of comparing like-for-like funds on performance tables,” he said.

Mr Philpot said while the US sharemarket in particular has benefitted from the huge tech sector gains of the past ten years – returning an average of 13.68 per cent – the next 10 years will not be able to generate anywhere near that type of return, given the current high valuations. Excluding the US, global returns over the past decade have been 6.17 per cent, with this projected to be 5-6 per cent in the coming ten years.

“Many retirees wish to preserve their capital throughout retirement which requires a 5 per cent plus return from super – this indicates you may need to be 100 per cent invested in the share market to achieve this.

“However, what if another unexpected global event takes place, upsetting our economic recovery and shares plummet 30 per cent? This is what is called sequencing risk and if you were to sell down your share position, as you would be strongly considering, then you now lock in this loss that your portfolio will never recover from, and not only is your goal of preserving capital throughout your retirement gone, but most likely you will run out of money in your retirement years,” he said.

Mr Philpot said for retirees, it’s therefore critical to carefully consider their risk vs return profile. 20 per cent of their portfolio should be in a secure, four-year bucket of future pension payments at 5 per cent per annum, which should be sufficient to provide liquidity in the event there’s a significant pull back in share markets, without needing to sell shares at the worst time.

“Knowing that you have future pension payments already locked away and thus reducing the anxiety that comes with share market falls – is just as important as the reduction in sequencing risk.

“For the retirees who can’t sleep at night with share market volatility, and have no exposure to the share market, unfortunately they will continue in a low return environment that will see pensions reduce their capital balance each year,” said Mr Philpot.

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Jonathan Philpot

Investors may need to revisit their traditional balanced’ investment option in coming years, as the market cycle turns and overall returns reduce, says Jonathan Philpot, wealth management partner at HLB Mann Judd.

“The ‘balanced’ default asset allocation option is the way many people are invested in superannuation.  Typically this is an asset allocation of 70 percent to ‘risky’ investments – such as shares that experience large swings in market value – and 30 percent to ‘secure’ investments – those that have less volatile pricing movements such as fixed income.

“It’s a strategy that has served super fund members well in the past few years as super funds have delivered very strong returns. 

“Shares in particular have performed well with the lower interest rates leading to double digit returns over the past three years.  Even the ‘secure’ part of the portfolio has performed well as bonds have benefited from an environment of falling interest rates,” Mr Philpot said.

But he questions whether this strategy will serve investors over the next five years.

“A ‘balanced’ investor is unlikely to continue to receive such strong investment returns as interest rates hit the bottom of the cycle. 

“In particular, the poor outlook for ‘secure’ or fixed interest investments is a concern and a 30 percent allocation may be too high in this low return environment.

“It is hard to predict interest rate movements, but it is fairly safe to assume that interest rates over the next five years will not rise by more than 1 or 2 percent. We can expect 1 year term deposit rates to remain under 3 percent and other secure fixed interest type of investments to be providing similar type of returns.

“This means the balanced investor with a 30 percent allocation to fixed interest investments may only receive a return of 3 percent for this part of the portfolio for the next five years.”

Meanwhile, Mr Philpot says medium term returns of 7-8 per cent – made up of dividend yield and earnings growth – over the next five years would be a reasonable expectation for share investments. 

“With a 70 per cent allocation to shares and a 7-8 percent expected return, the balanced investor is likely looking at a total return of between 5.5 and 6.5 per cent for the next 5 years; significantly less than previous years.

“For investors who are drawing down more heavily from their superannuation, this return may be too low.

“One solution to increase the investment returns is to increase the allocation to the ‘risky’ part of the portfolio. An extra 10 percent allocation is likely to produce a 0.5 percent higher return. But of course this comes with increased volatility and investors need to consider this carefully.

“Sharemarkets will continue to operate in the same volatile manner, which can be a daunting prospect for investors who are not used to the wilder ride.

“But while a 15 percent short term market correction on a higher proportion of an investor’s portfolio may be a difficult pill to swallow, for the benefit of higher expected long term returns, it may be necessary to achieve a longer lasting superannuation balance,” Mr Philpot says.

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Jonathan Philpot

With a May 2019 Federal election creeping closer, the tax changes proposed by Labor in the areas of negative gearing, capital gains tax and dividend imputation are worth a closer look, says Jonathan Philpot, wealth partner with HLB Mann Judd Sydney.

“There will be a significant impact, both short term and long term, from these three areas of tax changes, if Labor wins the next federal election and implements them in their current form,” he says.

Negative gearing

“Labor have committed to abolishing negative gearing on existing residential property with only negative gearing on new property developments to continue.

“With the property market already going through difficult issues with the banks tightening on lending, limited access to interest only loans, and a general downturn in the property market, many potential investors are probably already on the sidelines.

“If a Labor win looks certain, there may be some short term support for the property market; however once changes take place, we would expect to see further weakness in the property market.

“Over the longer term, if less rental property becomes available over time, we would expect to see rental yields increase, possibly even to the point where they start to become positively geared.”

Another issue will be what other measures people will then consider to reduce their personal taxable income, he says.

“Personal super contributions of the difference between the $25,000 maximum limit and the compulsory SG contributions may provide a large tax deduction.

“Particularly for those over age 40, contributing more into superannuation for the primary reason of a tax deduction may be a sufficient incentive to lock money away until retirement.”

Capital gains change

“The Labor proposal to halve the CGT discount from 50 per cent to 25 per cent on all investments after a specified date, may lead to a surge of investment, particularly into the sharemarket, prior to the change.

“Unlike property, share investing is generally positively geared with the ASX dividend yield plus franking credits about 5.5 per cent, which is higher than most borrowing costs.

“For long term investors, moving cash into shares before these changes commence will lock in the significant tax advantages of capital gains being a 50 per cent discount to taxable income.

“Over the longer term, while the advantage will be diminished, growth assets will still provide some tax advantages over income assets – such as term deposit and bonds – with the reduced discount of 25 per cent.”

He says ownership structures – whether it is investing in lower earning spouse’s name, or setting up investment structures through a family trust and investment company – will become even more important with increased personal tax rates.

“If all beneficiaries are in the highest tax bracket, an investment company may be the most tax effective structure to invest long term wealth. The capital gains tax rate is not discounted, but the 30 per cent tax rate is now lower than the 25 per cent discount to the top marginal tax rate plus Medicare levy of 35.25 per cent.”

Loss of franking credit tax refund

“The loss of franking credit tax refunds is one of the more controversial changes, given how retirees will be impacted depending on whether they receive the Age Pension or, strangely, whether they are in a superannuation fund that has more members in the accumulation than pension phase and can utilise all of the franking credits.

“Most SMSFs currently receive a tax refund of these franking credits and appear to be particularly disadvantaged against the larger industry funds.

“It will be interesting to see whether Labor proposes any changes, as this measure disadvantages those that currently fall just outside the Age Pension assets limit of $848,000 (for a couple that own a home).

“Over the longer term, while these changes decrease the attractiveness of Australian shares – in particular the high yielding shares such as bank stocks – they remain a better income solution than international shares and, with the current low interest rates, than term deposits and other fixed interest investments.

“It is difficult to see companies changing their shareholder offers such as Share Buy Backs, given the large super funds are bigger shareholders than SMSFs; however in the future, whether an individual or a SMSF participates in the offer would depend on whether they will benefit from the franking credits.

“These issues are likely to dominate discussion for investors during 2019, particularly in the lead-up to the early Federal Budget, and the election itself, meaning it is still likely there will be some adjustments to any or all of these proposals,” Mr Philpot says.

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Jonathan Philpot

HLB Mann Judd Sydney has launched a new business, HLB Insurance Services, to operate as part of its Wealth Management division.

The new business has been formed through a joint venture with leading risk specialist practice MBS Insurance.

It will deliver personal risk protection strategies for individuals, SMSF and business clients which enables individuals to protect their income, families and lifestyle. Business owners can protect the equity in their business, insure for key person risk and protect their employees.

The new business will be led by Andrew Kennedy, who has been in the Wealth Management division of HLB Mann Judd since 2007.

Mr Kennedy said that the service formalises the long-standing relationship between HLB Mann Judd and the highly regarded risk insurance specialists at MBS Insurance.

“HLB Insurance Services brings together our client-focussed approach with MBS’s industry expertise and proven insurance administration capabilities, to broaden and improve upon the wealth advisory services we are able to provide,” Mr Kennedy said.

“We will be working closely with clients to ensure they have appropriate cover for their financial risk, as well as assisting clients when claims need to be made, helping to expedite claims so that clients can access much needed funds quickly and simply.

“Our aim is to make the discussion about insurance needs, and the process of applying for and claiming on insurance, as simple as possible for our clients,” he said.

HLB Mann Judd wealth management partner, Jonathan Philpot, who was one of the drivers of the initiative within HLB Mann Judd, said the firm had identified insurance as a key area for the firm’s clients.

“The low level of understanding of the personal insurance offering, including the different types of insurance and the level of cover needed, requires a professional solution, something that unfortunately has not been provided by some in this industry.

“Also, the level of change in the personal insurance market means that insurance is no longer a ‘set-and-forget’ part of client’s financial plan. Professional management and reviews of clients’ portfolio is vital to ensure their needs and objectives are adequately covered by the strategies that have been put in place,” he said.

“Adherence to the highest standards of best practice and dedicated business infrastructure provides a comprehensive risk offering to clients,” said Drew Burden, director of MBS.

“We are excited to be to working with HLB Mann Judd as collectively we bring together the best of our respective organisations to create a new way to support clients to protect their financial futures.”

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