Alexis Gray

Vanguard Australia has hosted its annual adviser roadshow virtually, featuring Global CEO Tim Buckley, Asia-Pacific Chief Economist Qian Wang and Senior Economist Alexis Gray.

This year’s theme ‘Forward’ heralds Vanguard’s commitment to supporting advisers manage client relationships and build their businesses in a world that is increasingly digitally enabled.

Speaking to nearly one thousand financial advisers, Mr Buckley acknowledged the new challenges facing advisers in the wake of COVID-19 and discussed ways they can more effectively manage business demands.

“Embrace advice technology,” said Mr Buckley. “It’s not a matter of beating robo[advisers], but rather streamlining your operations and driving more consistent, robust answers. Technology allows advisers to automate many rules-based activities such as portfolio management and rebalancing. It can simplify some of the more challenging financial planning tasks”.

Mr Buckley also reiterated why advisers are a highly valued part of Vanguard’s business and emphasised the importance of continuing to forge strong partnerships with advisers in Australia.

“Our mission is to take a stand for all investors, treat them fairly and give them the best chance for investment success. Our formula just has a few steps to it: deliver strong fund performance, pair that with trusted advice, and wrap both in a world class client experience. This formula delivers whether working directly with clients or through like-minded advisers.

Mr Buckley also provided insight into how Vanguard helped clients navigate the COVID-19 crisis.

“With markets reeling and economies shut down to contain the virus, investors were understandably worried. But our message to investors was clear and time tested and that is: stay the course. Don’t let short term volatility disrupt your long term portfolio because you’re diversified for a reason,” said Mr Buckley.

Developing a technology ecosystem for advisers

In line with Vanguard’s commitment to developing a technological ecosystem that helps enable advisers to meet client needs, Vanguard Australia Head of Intermediary, Rebecca Pope, announced the upcoming launch of Vanguard Retirement Income Builder.

The new digital tool will be an innovative way for advisers to work with their clients in determining investment, retirement income and wealth drawdown strategies.

“Vanguard Retirement Income Builder will help address the chief concern of many in or approaching retirement of how long their money will last” said Ms Pope. “This is a powerful tool which has been thoughtfully designed with a client friendly interface, to provide advisers a practical application of our total returns approach to retirement income”.

The Retirement Income Builder tool is set to launch in the coming weeks. More details will be provided when available.

Australia likely to outperform most developed market economies amid global recovery

Ms Wang and Ms Gray also highlighted to attending advisers the major themes of Vanguard’s 2021 Economic and Market Outlook: Approaching the Dawn, noting Australia’s economy is expected to normalise more quickly than other countries in 2021.

“Compared to other developed markets, Australia has been relatively successful in containing the virus so economic activity has not suffered as much. As a result, we expect GDP in Australia to return to pre-pandemic levels by mid-year, which is faster than most developed markets” said Ms Gray.

Furthermore, despite unprecedented government spending to support economies through the pandemic, government debt levels are sustainable and fiscal stimulus is likely to remain in place.

In response to concerns that there will be inflation consequences when government support is eventually unwound, Ms Wang said “high fiscal spending and easing monetary policy are no guarantee of higher inflation, especially in developed countries. In 2021, we are expecting more of a cyclical reflation with demand recovery to push up inflation, but we see this as a temporary overshooting rather than a sustained increase given structural forces such as technology advancement and globalisation”.

Ms Gray provided an overview of Vanguard’s long term return expectations noting that “despite the pandemic, our 10-year outlook for both Australian and international equities is better than a year ago, with median returns of between 5 -7 per cent expected. This is largely due to a drop in interest rates and long term bond yields, which are supportive of higher equity valuations. Bonds still have an important role to play in portfolios as a diversifier, rather than being evaluated as a growth asset”.

As detailed in Approaching the Dawn, Vanguard’s outlook for the global economy hinges critically on health outcomes and the production of an effective vaccine.

See the recording of Vanguard’s 2021 Virtual Adviser Roadshow.

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Tim Buckley

A new briefing note published yesterday finds that renewables are the lowest cost, sustainable solution for Australia’s energy policy crisis and potentially one of Australia’s largest export industries of the future.

The briefing note Why Renewables are the Solution for Australia: The low-cost source of new electricity generation highlights recent technological advances that have made renewables one of Australia’s fastest growing industries, and Australia a world leader in battery storage.

Author Tim Buckley, IEEFA’s Director of Energy Finance Studies Australasia, says the integration of renewable electricity generation is already being achieved at a world leading scale in the Australian Capital Territory, Tasmania and South Australia, with Victoria and Queensland recently lifting ambitions for 50% renewables by 2030 and unlocking large scale regional investment and employment opportunities as a result.

“The expanding ability to integrate domestic renewables adds resilience to Australia’s electricity grid while providing sustainable national energy-security benefits,” says Mr Buckley.

“It also delivers on our international obligations of the Paris Agreement.”

The briefing note compares the fossil fuel and renewable energy industries, noting the fossil fuel industry is still massively subsidised by Australian taxpayers via diesel fuel rebates, free water and carbon emissions, tax-payer funded enabling infrastructure and long dated royalty holidays (as offered to Adani).

“The renewable energy industry no longer requires major subsidies going forward, beyond policy clarity,” says Mr Buckley.

“Most fossil fuel projects in Australia are owned by foreign multinationals who use tax-haven based offshore marketing hubs and who also have a history of paying next to no corporate tax in Australia – ever.

“There is no other private industry in Australia so dependent on using public, finite assets for private, foreign, largely tax-free gain at such a cost to the community.”

With renewables now the low-cost source of new electricity generation, solar and wind projects are being built across Australia at just A$40-50/megawatt hour (MWh), down some 70% in the last three years.

In contrast, a new coal-fired power plant would cost over A$100/MWh (and up to A$150/MWh including a carbon cost and the higher cost of capital requirements).

“Renewables are deflationary,” says Mr Buckley. “Once built there is no fuel cost, with proponents primarily wearing only the interest cost on their debt capital.

“And like storage costs, renewable costs are expected to continue to fall some 10% annually over the coming decade due to economies of scale and massive ongoing technology gains.

“Further, renewables are clean and sustainable, use almost no water, and once built, create no air or particulate pollution, nor do they emit carbon emissions.”

Thermal coal-fired power plants are struggling to get debt or equity financing, heightened by over 100 major global lenders recently exiting thermal coal-fired power, and Australia’s three largest electricity generators, Energy Australia, Origin Energy and AGL, all ruling out any involvement in new coal-fired plants.

“There is a major pivot towards renewables globally and Australia should have been at the head of that market shift,” says Mr Buckley.

“There have been major technological advances in firming our electricity supply, and our markets are responding, making Australia a world leader in adopting new battery technology and rooftop solar.”

“With multiple proposals and investments under construction in utility scale batteries underway in Australia, there is a clear endorsement of the bankability and viability of this technology solution.

“Investing in renewable energy infrastructure builds our engineering and scientific capacity, leverages our financial capacity, creates multiple jobs, and builds export industries of the future.”

In addition to investment in renewables, Australia needs to reintroduce a whole-of-economy price on carbon emissions as the low-cost solution to achieving the deep decarbonisation of our entire economy.

Australia must also belatedly consider an outright ban on any new thermal coal mine development, entirely consistent with our Paris Climate commitments, and particularly given Australia is a top three exported emissions nation globally.

“The inevitability of renewables is not happening fast enough in Australia to deliver on Paris,” says Mr Buckley.

“Without a national energy policy, this leaves Australia with a growing stranded asset risk, as recently highlighted by both the Reserve Bank of Australia and the Australian Prudential Regulatory Authority, as well as the Bank of England.

“Australia must step up and take advantage of this increasingly low cost, sustainable solution for Australia’s energy future – today,” says Mr Buckley.

Read the briefing note.

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