2017 July Newsletter

July is here and the good news is that the shortest day and longest night are behind us. It’s also the start of the new financial year which is always a good time to reflect on your financial progress over the past 12 months and plan your strategy for the year ahead.

Australia’s economic performance defied the odds in the 2016-17 financial year, notching up more than 25 years without a recession – a global first. Annual economic growth eased from 2.4 per cent to 1.7 per cent in the March quarter, reflecting the unwinding of the mining boom, adverse weather events and geopolitical instability. Consumer confidence also eased as annual wages growth slowed to around 2 percent, just above the annual inflation rate of 1.7 percent. The ANZ/Roy Morgan consumer confidence rating fell 4.3 per cent over the year to 111.8 at the end of June. However, there are positive signs for the future with home building at record levels, infrastructure spending on the rise across the country and unemployment at 4-year lows, down from 5.7 per cent to 5.5 per cent in May.

Local investors also have reason to celebrate, with Australian shares up close to 13 percent in the year to June, their best performance in three years. The Aussie dollar has traded within a narrow band between US72c and US78c all year, to close around US76c. The cash rate remains at a record low of 1.5 percent and while the Reserve Bank appears content to sit on the sidelines for now, most commentators expect the next move will be a modest rate rise. in at the lower end of the Reserve Bank’s 2-3 per cent target band, due to a soft jobs market and low wages growth.

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Time to review transition to retirement pensions

Amid the major reforms to superannuation that took effect on July 1, some significant changes to the tax treatment of your Transition to Retirement Pension (TRIP) may have flown under the radar. Some individuals will be affected more than others, so if you have a TRIP or are thinking about starting one, now is the time to review your strategy. 

The Government’s super reforms were designed to improve the sustainability, flexibility and integrity of the system. According to the Tax Office, the changes to TRIPs were designed to ensure that they’re not used primarily for tax purposes.i 

What is a TRIP?

A TRIP allows you to access up to 10 percent of your super in the lead-up to retirement. The idea is that you can supplement your employment income while you continue to work full or part-time. The tax benefit comes from replacing employment income taxed at your marginal rate with concessionally-taxed income from super. 

When combined with salary sacrifice, a TRIP strategy also allows you to boost your super without sacrificing some or any of your after-tax income. 

As you would expect with super, there are strict rules around eligibility. For starters, you must have reached preservation age; this is currently 56, rising progressively to age 60 for everyone born after June 1964. Then there are maximum (10 per cent) and minimum (4 percent) amounts you can withdraw from your TRIP account balance each financial year. And you can’t withdraw your money in a lump sum, it must be received as an income stream unless you retire, turn 65 or satisfy another condition of release. 

What are the changes?

The main change relates to the taxation of earnings on investments used to fund your TRIP. From July 1, earnings on these investments are no longer tax-free. Instead, they are now taxed at the 15 percent rate that applies to earnings from assets held in the accumulation phase of super. 

The good news is that payments you receive from your TRIP will continue to be taxed as they were previously. That is, payments are tax-free if you are aged over 60, or taxed at your marginal rate with a 15 per cent tax offset if you are aged between 56 and 60. 

Another of the super reforms will limit the appeal of TRIPS for high-income earners. That’s because the income threshold at which individuals begin to pay contributions tax at the higher rate of 30 percent, instead of the normal super rate of 15 per cent, has been lowered from $300,000 to $250,000. 

New limits on concessional (before tax) super contributions may also limit the potential benefit of the popular salary sacrifice strategy when combined with a TRIP. From 1 July, the maximum concessional contribution (including Super Guarantee payments and salary sacrifice arrangements) is $25,000 a year for everyone. Previously anyone over 49 could contribute up to $35,000 a year this way. 

What should I do?

While TRIPS are still a tax effective way to manage your finances in the lead up to retirement, the new rules mean some people could be better off pursuing other strategies. In some cases, high-income earners who already have a TRIP and satisfy a condition of release, such as retiring or changing jobs after turning 60, may be better switching it off or converting to a normal account-based pension. 

At the very least, if you have a TRIP or are thinking of starting one and you haven’t already done so, you should review whether it's still the best option for you going forward. The new super rules are complex and their impact will depend on your overall financial situation so it’s important to seek professional advice before you act. If you think you may be affected or you would simply like to discuss your options in the lead up to retirement, don’t hesitate to give us a call. 

i https://www.ato.gov.au/individuals/super/super-changes/change-to-transition-to-retirement-income-streams/

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Global markets navigate a sea of uncertainty

It’s almost a decade since the global financial crisis created havoc in financial markets. While the global economy continues to show signs of recovery, political uncertainty in Europe and the United States is creating fresh confusion on global markets as investors wait to see how current events play out. 

It started just over a year ago when Britain voted to leave the European Union. ‘Brexit’ was followed by the surprise election of President Trump in the United States. Then the relatively unknown Emmanuel Macron won the French Presidential election. And most recently, UK Prime Minister Theresa May gambled on a general election to strengthen her hand going into the Brexit negotiations with the EU, only to end up with a hung parliament. 

That’s a lot of unpredictable outcomes for one year. As every investor knows, markets don’t respond well to uncertainty. So what can we expect in the months ahead? 

Brexit talks begin

Brexit negotiations are finally underway but Britain’s lack of political unity may prolong talks and weaken its hand. The process involves two stages – first, there are technical negotiations over who gets what in the divorce. This will be followed by trade talks about the nature of Britain’s relationship with the EU and its 27 member states going forward. 

Whichever way the talks go there are likely to be financial winners and losers. The early market response has been to sell down the value of the British currency and shares, although a weaker pound is good news for companies with foreign earnings. 

The market has responded more positively to President Macron’s victory and the success of his new party’s candidates in France’s June elections. Macron has promised market-friendly reforms to boost the sluggish French economy. 

As the Trump trade deflates

The market’s early positive response to the election of President Trump has lost momentum as key policy changes including tax cuts and infrastructure spending which were intended to boost economic growth now look in doubt. 

With the focus on political uncertainty on both sides of the Atlantic, the US Federal Reserve’s latest rate rise barely registered on financial markets. The Fed raised its key interest rate for the third time in six months to a range of 1 per cent to 1.25 per cent, with one more rise anticipated this year. This signalled the central bank’s ongoing confidence in the slow but steady economic recovery. 

Markets appear to be playing a waiting game, with no clear signal to push the US dollar or bond yields higher. After a record-beating run, US shares have held onto their gains but drifted sideways in recent months. The S&P 500 index rose about 18 percent in the year to June.i 

Australia’s growth continues

Closer to home, Australia’s record-breaking economic run continues. While growth slowed to 1.7 percent in the March quarter, it was a far cry from the recession some pundits were predicting. 

The residential property boom in Sydney and Melbourne is also cooling, with prices barely moving in the three months to May.ii While this is good news for homebuyers, it also gives the Reserve Bank more room to lower interest rates if needed. In recent months, the Aussie dollar has traded in a narrow band around US75c. This is up from its low of US68c in January last year, but longer term the trend is likely to be down as the gap between local and US interest rates closes and foreign money looks for better returns elsewhere. 

Australian shares have performed well, up more than 11 percent in the year to June.iii But to put this in perspective, along with the US market rise of 18 per cent, French, German and UK shares rose around 27 per cent, 34 per cent and 22 per cent respectively while Japanese shares were up 29 percent.iv 

Looking ahead

For local investors, Australian shares remain attractive for their yields but global shares are likely to continue to provide superior returns going forward. 

If you would like to discuss your investment strategy in the light of current world political and economic events, don’t hesitate to give us a call. 

i All market figures as at June 27. 
ii https://www.corelogic.com.au/news/multiple-indicators-point-to-softer-housing-market-conditions 
iii http://www.marketindex.com.au/asx200 
iv https://tradingeconomics.com/stocks

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Technology to get you moving

If the ancient Greek Olympians could see the way the average Joe Athlete works out today... well, they might not even recognise it as exercise. Thanks to modern technology and the way the internet helps spread fads, the last few years have seen some truly weird and wonderful fitness trends emerge. 

If you’ve recently spotted someone wearing what looks like two watches at once, chances are that at least one of their accessories was a wearable fitness tracker. Some of these gadgets look like watches, and others are disguised as simple bracelets with hidden buttons or one-way-mirror-style displays. Basic models track steps and time, whilst advanced models track everything from distance (using GPS) to heart rate zones tailored to your height, weight and age. 

Challenge yourself with apps

Then there are the smartphone apps that take you beyond your normal running playlist. Take Strava for example.i If you like a bit of healthy competition, Strava lets you track and record your running and riding via GPS. Users are able to compare their performance over time and compete with other users for best times. 

Other apps purposefully encourage walking a healthy distance. The 10,000 step challenge is a popular one, using GPS to track the number of steps you take per day, with the ultimate aim of walking the equivalent of eight kilometres. 

Tech to help with healthy eating

On the other side of the wellness coin, medical professionals have worked with engineers to develop some fascinating tools for helping people to correct their eating habits. For example, the HAPIfork uses haptic feedback, and a smartphone app, to encourage fast eaters to cool their jets.ii 

For those who struggle to cook whole foods from scratch, the humble food processor has had some welcome makeovers over the years. Today’s WiFi-enabled models connect to mobile apps and can cook or chill as well as process. They’ll do just about everything for you save plating up and pouring you a nice drink to go with your meal. 

A cost effective way to stay healthy

The great thing about this new technology is that getting a hand with your health and wellbeing can be very cost effective. Some of the most popular phone and tablet apps can even be downloaded free of charge. But while apps may help keep you engaged and motivated, that’s not to say you can (or should) get rid of your personal trainer or dietician. Rather, technology and ‘fun’ fitness classes are a great way to complement your existing routine. 

Three popular gadgets and apps

	Fitbit is perhaps the most well-known wearable fitness tracker on the market. Depending on the model you get, it can track everything from your steps and altitude travelled, to your heart rate and sleeping patterns. You can set goals, look for patterns in your stats, and even share your info with your trainer or doctor.
	Couch to 5K is a smartphone app that’s popular with those new to running or trying to get back into shape. It provides a staged approach to developing stamina and fitness, working up to running five kilometres.
	Calorie Counter by MyFitnessPal is a nutrition and fitness app that’s great for those who have trouble balancing calories in versus calories out. It integrates with a variety of fitness trackers, as well as being a standalone app.

What’s next?

So what’s next for the fitness industry in 2017? Well, if game fans have their way, you’ll see more virtual reality fitness games. There’s one out right now where you can sit on the stationary bike and suddenly you’re not just cycling, you’re riding the Tour de France in the Alps. 

There is a lot of choices out there and it’s really up to you to find the device or app that’s going to keep you enthusiastic and challenged enough to meet your fitness goals. Even if you’re just looking for some inspiration to get you off the couch - pick up your phone or grab a fitness tracker and get moving. 

i https://www.strava.com 
ii https://www.hapi.com/product/hapifork

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Monthly Fund Profile: Platinum International Fund

What does it invest in?

Platinum International aims to provide capital growth over the long term by investing globally into between 70 and 140 listed securities that are believed to be undervalued by the market. They also have the option of short selling securities that it considers overvalued. 

What is its performance?

Performance	1 Month	3 Months	1 Year	3 Years	5 Year
Platinum International	4.14%	11.39%	17.84%	12.14%	17.27%
Benchmark (MSCI)	2.67%	8.51%	14.37%	13.45%	17.57%
Outperformance	1.47%	2.88%	3.47%	-1.31%	-0.30%

Potential benefits to your portfolio

Platinum International remains among the best global equities strategies out there. It has always taken a different approach to the herd and that’s a major source of its strength. Manager Kerr Neilson generally ignores global market indices, choosing instead to search the globe without reservation for underappreciated stocks. As a result, this portfolio typically has very distinct features, including substantial underweights to large developed markets and meaningful stakes in emerging markets. It often has 5-10% in small caps, below-average exposure to giant multinationals and sector tilts. Geographically speaking, it has a large exposure to Asian Pacific markets and relatively little exposure to the US and European markets.

Today, the passive bandwagon (investments via ETFs) is posing an increasing risk to investors. The appeal is simply that markets have delivered strong returns and hence the relative value of stock picking and risk management appear diminished. Platinum is an active offering which means that it does not simply just track the index. This is beneficial to one’s portfolio especially during a market down turn event such as during the Global Financial Crisis.

Outlook

In General, markets continue to look health, with the French election the latest non-event to grab all the headlines. In the Fund, the key drivers have been Asia Pacific; cyclicals led by technology and financials; and digging deep below the mega-caps has added value. Samsung Electronics was the stand out contributor, however the decision to take short positions cist the Fund in strong markets.

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Please note this information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial advisor, whether the information is appropriate in light of your particular needs and circumstances.

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