They have seen the whites of the enemy’s eyes and beat a hasty retreat. Given the correlation of equity markets with the progression of quantitative easing, the prospect of tighter monetary conditions, particularly in the US, sent shivers through markets in the final quarter of 2018. Show More
Investors have had stimuli like QE and low interest rates to help drive growth in recent years. While the US leads a small retreat of liquidity, the fundamental parts of our future, such as technology and disruption, are progressing just fine and they’re the drivers of real wealth. We recently... Show More
Progress in data analysis and artificial intelligence has done little to alleviate the propensity of people to gravitate towards euphoria and panic together. October saw a fair amount of euphoria give way. Commentators will invariably insert the requisite ‘catalysts’ to explain recent markets falls, aided a little by hindsight. We... Show More
Three of the tailwinds for ASX investors across the past decade — policy with respect to interest rates, trade, and regulation — have turned into headwinds. While profit may be hit, it is also likely that multiples will revert to something more like normal. Show More
Ten years ago, US investment bank Lehman Brothers filed for bankruptcy, marking the most symbolic moment of the global financial crisis. It remains the largest bankruptcy filing in US history. The demise of Lehman on 15 September 2008 was just the tip of the iceberg. Little did we know at... Show More
It has long been difficult to place rationale around valuations in certain areas of the market. While the supermodels get all the spotlights, it’s the cardigan wearing brigade that seem more like a solid investment, allowing scope for many different futures — both good and not so good — without... Show More
The US stock market is on its longest bull-run in history. It began on 9 March 2009 and, so far, has lasted nine years, five months and 13 days. As of today, it beats the great equities performance of the 1990s. Show More
Elon Musk, the divisive entrepreneur, has recently made headlines with the below tweet. In a subsequent blog post, Musk made clear his reasons for wanting to take his electric vehicle company, Tesla, away from the stockmarket. He expressed his frustration at the distraction caused by wild swings in the Tesla... Show More
Reinvestment is a vexing issue for investors. At one extreme, where physical capital is not a barrier to entry, global best practice sees aggressive investment in order to attempt to sustain competitive advantage. Show More
Value investing has a long and illustrious history, championed by none other than Benjamin Graham, the man who arguably invented scientific stock analysis in the 1930s. Show More
It is now passé to say the Australian equity market is becoming fully valued, led by the TIHCs — Technology, Infrastructure, Healthcare and China-facing consumer stocks — where multiples are at record levels. The bigger question is whether this is, in fact, just a natural state of affairs. Shouldn’t investors... Show More
Schroders Australia has completed its third broker insights survey, diving into how brokers are investing. Volatility has pushed the need to protect capital to the top of the priority list. Show More
The Royal Commission has shown banking, financial advice, and mortgage broking to be sorely lacking on the basics of looking after the customer. It seems that incentives to lend more money and charge more fees were somewhat more powerful than those aimed at improving customer wellbeing. Show More
Twice a year Livewire partners with Schroders Australia to conduct a survey into the asset allocation strategies of Australian brokers. In April 2017 the survey highlighted that a growth bias adopted by many brokers had been a winning strategy. By September we saw that diversification had replaced growth as the... Show More
Following the 2017 annual reporting season Schroders has again surveyed Australian brokers to gain insight into their asset allocation views. The inaugural survey six months ago highlighted the top three objectives for participating brokers were to generate income, maximise returns including franking credits, and protect capital. Show More
For decades, the prevailing view of financial markets was one of rational actors creating efficient prices. In recent years, particularly in the wake of the GFC, investors have increasingly adopted a very different view of how markets operate. Loss aversion bias, anchoring, and herding (among others) have all become popular... Show More
Results from the inaugural stockbroker asset allocation survey were published in April this year. It’s the only information available on how this important part of the market is implementing portfolios. Three interesting points to arise were that generating income was listed as the most important objective, portfolios were heavily skewed... Show More
Diversifying away from the index is a significant challenge for many investors. The recent dominance of just a few industries means that many portfolios lack true diversification, exposing them to economic downtrends. Andrew Fleming, deputy Head of Australian Equities at Schroders, says it is time to think differently about investing.... Show More
The rise of passive investing over the last decade has been remarkable, and the “active v passive” debate hasn’t abated, but the debate tends to focus on how much of the market is passively managed and less so on the capital flows i.e. who is buying the stock of companies... Show More
Institutional asset managers and retail financial planners have been providing information on their investment allocations for years. As far as we are aware there is nothing available in the stockbroker advised space to understand how broker equivalent portfolios are positioned and how they are being implemented. We can make assumptions,... Show More
Hi Wendy, this was written by the Australian Equity team at Schroders run by Martin Conlon and Andrew Fleming.
Thanks Michael. For every company we value, we determine "sustainable earnings", which is an average level of profit we expect a company to make in the future; this may often be a long way from current earnings. We feel that the Australian banks will earn (approximately 25%) less in the future than they do currently, especially as credit growth slows and credit costs and other regulatory penalties rise. Having said that, the current earnings multiple attaching to the Banks is relatively low, whereas for many ASX companies, and especially growth oriented industrials, multiples are very high. Hence, even as profits fall, it need not be that the Banks are ultimately poor investments, especially from this point relative to other companies listed on the ASX. Put another way; in recent years, multiples have tended to be pro cyclical, that is, as earnings have risen, so have multiples, and vice versa. In the past year; that has started to reverse so that as an investor you may invest in a company which has earnings growing/being upgraded but still underperforms (as Wisetech Global, say, has in the past year) or alternatively a company where earnings are falling/being downgraded but where the share price has outperformed (as Chorus, say, has in the past year). Of course, for most companies, multiples tend to still follow earnings, but there are now exceptions to the rule starting to emerge when multiples get to extremes, and we would expect this to continue apace. Hope this helps. Regards Schroders Australia
Hi Tim, there will always be some active managers who underperform and some who outperform over different time periods. Interestingly if we go back a few years there were some consistent periods of outperformance by the average active manager. We would always caution any of these statistics (both the positive and negative ones) as 1) they don’t cover the full universe of funds, 2) they are not asset weighted and 3) the fees that are used are generally not the fee for investment but include a number of other fees. As noted above there is recent research that demonstrates institutional active management accounts have outperformed passive benchmarks. As the head of a passive ETF provider I'm sure you have your own views, but hopefully this is useful a contribution to the topic.
Hi Albert, The issue is that many “index” funds are not investing along broad market capitalisation weights as many of them are not broad market index funds. That is what is creating distortions.
Hi Graeme, The active vs passive debate is really the subject of many other papers....but we should be aware of the fact that anyone who is not a market cap based passive investor is by definition an active investor. This covers both professional and non-professional investors, pooled and segregated funds, retail and institutional, offshore and onshore. A recent academic paper by Gerakos, Linnainmaa and Morse covering $17 trillion of assets under management shows that institutional active management accounts have outperformed passive benchmarks.
Thanks for your question Patrick. In terms of growth we are referring to more traditional measures of “momentum growth”. We prefer to focus on measures of Value and Quality. Quality investing aims to offer investors a more stable form of growth investing and a far more consistent return profile than traditional growth managers. We focus on identifying companies that are profitable, offer stable growth and are financially strong while avoiding ‘glamour’ or thematic stocks which we believe carry a higher risk of disappointment. Value investing is a style of investing which focuses on companies whose shares appear under-priced; these may include shares that are trading at, for example, high dividend yields or low price-to-earning or price-to-book ratios. Our measure of Value is much more broadly based (30+ value measures) than a single measure. (I’ve included our broad definitions in the attached image on the original post.)