The big four banks are getting even more powerful – at Australians' expense

I recently read an article that the returns on three of Australia’s big banks’ savings accounts had halved over the past year and thought I’d share some insight as to why this happened. Having worked in the finance industry for 20 years you get an insiders perspective and I thought I'd explain how the recent Productivity and Royal Commissions were challenging how these institutions were being run.

In short, financial institutions make a large chunk of their revenue from the margin differential, that is, the difference between what they offer their deposit customers and the rate they loan their funds out to borrowers. So, for example, a bank may offer their deposit clients a rate of 1.5% and then lend those funds out to borrowers for 4%, making a margin of 2.5%. This may not seem much, however when you consider the major banks have a combined home loan book of approximately $845 billion, then that differential equates to approximately $2 billion. Then consider this is just for home loans and there are even larger margins to be made via business lending, personal loans, investment lending and credit cards.

I’ve attached an interesting article that articulates this in more detail and explores how the banks have passed on higher borrowing costs, reduced deposit rates and have preserved and in some cases expanded their margins.

Bonds vs Term Deposits – the juice is worth the squeeze

With Term Deposit rates at an all-time low and with $874 billion as of November 2017 currently sitting in TDs it’s time for investors to consider alternatives. This article compares TDs with Bonds and looks at why investors should be looking at bonds to receive a more competitive return. PE Capital’s Monthly Yield Fund invests in corporate bonds in order to provide investors with a competitive return, a safe and stable investment and liquidity for when funds are required to be returned.

Are you parking your money in a bank term deposit, rather than making it work for you?

An interesting article looking at those Australian households who have invested $874 billion dollars into Term Deposits. The article explains why you should be smart when placing your funds into TDs and looks at Corporate Bonds as a possible alternative. We at PE Capital invest a portion of our Monthly Yield Fund into Corporate Bonds as we feel it provides a safe investment alternative, offers an attractive return and provides investors with liquidity.

What is portfolio diversification?

By Sam Osborne, Director, Capital at PE Capital


A recent report commissioned by a large financial services group highlighted that many SMSF portfolio’s are not as diversified as their trustees believe.


A common misunderstanding is that portfolio diversification can be achieved by investing in a large number of different ASX listed shares. Particularly if those shares provide exposure to different sectors of the share market, for example, banks, mining, agriculture, manufacturing, etc.


From the report, it appears many SMSF trustees wish to have a more diversified portfolio but;


(a) they don’t know why

(b) they don’t know what “diversification” actually means

and (c) they don’t know how to achieve diversification


To answer each question individually.


(a)    Why? The reason why asset class diversification (as distinct from equity sector diversification) is important is that it reduces portfolio risk. To put it simply, when the share market falls, generally the whole share market falls, not just a particular sector. Therefore, as an investor in the share market, your whole portfolio has fallen in value. By reducing portfolio risk, the portfolio should not suffer the large falls which are typical of more concentrated portfolio allocations.

(b)    What does “diversification” mean? As illustrated above, diversification does not mean “diversified across different sectors of the share market”. It actually means diversified across different asset classes.

(c)    How can SMSF trustees achieve a truly diversified (by asset class) portfolio?


First, we need to understand what the different asset classes are. Then we need to understand how SMSF trustees can gain access to the different asset classes.


To address this, SMSF investors should study the approach professional asset allocators take to combat portfolio risk. These professionals, who include fund managers and advisers, allocate funds across a wide range of asset classes. These include:


·         domestic shares

·         international shares

·         fixed interest

·         real estate

·         government bonds

·         commodities

·         cash

·         private equity

·         hedge funds

·         currency

·         derivatives

·         venture capital




Gaining access to different asset classes can be achieved through the following means:


·         Managed Funds

·         Exchanged Traded Funds (ETF’s)

·         Direct shares

·         Real Estate Investment Trusts (REIT’s)

·         Listed Investment Companies (LIC’s) and Listed Investment Trusts (LIT’s)

·         Private syndicates

·         Term Deposits

·         Cash Management Accounts


Obviously, each SMSF trustee will have different needs, views and preferences around asset allocation and how they choose to achieve their desired investment exposure. The crucial thing to remember is that true diversification lowers portfolio risk and this can only be achieved by diversifying across asset classes, not just across sectors in the share market.


Next week I will be discussing the benefits of portfolio diversification.


If you’d like to learn more on this or other relevant topics, please look around our website or contact Sam directly on



Super Reform Proposal

Attached is a video looking at the findings by the Productivity Commission at inefficiencies with Australia’s superannuation industry.


What’s interesting is that they highlight 2 things that are structurally incorrect, 1. That employees need to add a new account when they change employees (this is costing investors $2.6 billion per year in fees/ premiums) and 2. Underperforming funds which on average is costing up to 40% of retirement income or in dollar terms approximately $658,000.


The recommendation going forward is to set up an independent panel of experts to choose best of breed solutions and to have one account so duplication and unnecessary fees and commissions aren’t charged.


For more information on how PE Capital can assist you with providing competitive alternative solutions, please visit us at




The PE Capital Team

The difference between holding shares and bond

This article from XTB explains the core differences between investors holding shares as opposed to bonds. When you’re a shareholder you are a part owner of the company while if you’re a bondholder the company owes you money.


So, when there’s a time of negative sentiment or a poor profit expected, the share and bonds price react differently. Shares would most likely fall as the perceived value of the worth of the company is less than before.  However, for bonds the bondholder is still owed the same amount of debt and as the company still has assets and cash in the bank then the debtholder knows with certainty that they will be repaid.  This ensures that bond prices are less volatile and as seen with the attached AMP example, bond prices have consistently outperformed equity (5 times) over the last 18 months.


This is why PE Capital invests a significant component of its Monthly Yield Fund into bonds.


smsf expo.jpg

PE Capital were delighted to participate in the inaugural Melbourne SMSF Expo last weekend at the Melbourne Exhibition Centre. This event involved 70 exhibitors and a number of high profile speakers. It was the first event run in Australia by the SMSF Association which focused specifically on SMSF trustees and their needs.


It was a fantastic opportunity for PE Capital to talk directly with investors, to be able to launch a number of additional features to our Commercial Property Income Fund (CPIF) and Monthly Yield Fund (MYF)and to educate and build awareness around our brand.


It was also great to understand what SMSF trustees were concerned about, for example falling income streams, a lack of diversification in their portfolios and investment security. All of which are consistent with current SMSF literature.


Overall, it was a great event and we were pleased to be inundated with attendees seeking our type of investment solutions which offer competitive returns, regular income, access to commercial property alternative assets and a well-structure, diversified investment.  


Going forward, we look forward to working with the SMSF Association in developing this Trustee event further and would like to thank all those that made the Expo possible. For those that couldn’t make it, we would be happy to take you through how our investment funds may be able to assist you.


We look forward to hearing from you.


All the best


The PE Capital Team


For more information, please contact Jason Huang on 0430 107 109 or

RBA may not raise rates until 2019

An interesting article by Shane Oliver (Chief Economist at AMP) discussing the expectations of no change to Australia’s official RBA cash rate until 2019. What is interesting is that the RBA has changed its view on the Australian economy (around economic growth rates and a potential property bubble) and that we mirror the US Federal Reserve with rate rises (Fed Reserve raised rates 3 times in 2017 and is expected to raise rates a further 4 to 5 times in 2018) compared to no change in Australia over that same period.


The team at PE Capital is pleased to congratulate Travis Mahoney, our sponsored athlete, on his place in this years Commonwealth Games swim team.


Travis shares "I’m beyond happy to have qualified for my second and more importantly a home Commonwealth games. Not long to go now, super excited to race in front of a home crowd."


We will be eagerly following your progress Travis and we're backing you 100%

The PE Capital team and community would like to wish Travis Mahoney - Rio Olympian - all the best for the Australian Swimming Trials commencing today and running through to Saturday.


The Hancock Prospecting Australian Swimming Trial is just five weeks before the Commonwealth Games and in the same pool so we’re hoping all the hard work Travis has been putting in pays off.


Travis will be competing in the 200 and 400 metre medley events so good luck from the team at PE Capital.

The holy grail for your SMSF – diversification AND attractive income

Did you know the average SMSF investor has around two-thirds of their capital in shares and cash?* When you are relying on the income from dividends to fund your lifestyle it can be tempting to put all your eggs in one basket, despite share market volatility being a key cause of concern for SMSF investors.

However, diversification does not need to come at the expense of attractive income. The solution may be an investment opportunity you walk past every day.

Over the last 30 years, commercial property investments like shopping malls, office towers and industrial estates have consistently delivered healthy distributions, even in a low interest rate environment. Depending on your situation, they could also help you create a more diversified and reliable income stream — especially if much of your wealth is already tied up in shares, cash and residential property.

The high-yielding property alternative

While Australian residential housing has a history of exceptional capital gains, its income potential is more limited, particularly when prices are elevated. Sydney house prices are up nearly 75% and Melbourne house prices are up nearly 50% in the last 5 years. That’s why institutional investors and wealthy individuals have historically turned to commercial property as a rewarding alternative.


















Create a more diversified income stream

Commercial property also has the potential to reduce overall portfolio risk due to its traditionally low correlation to asset classes like Australian shares — meaning they’re less likely to underperform at the same time. This is because with commercial property, tenants are typically locked into leases for 3 to 10 years and are obliged to pay a steady rent even if their profitability has declined.

Three ways commercial property could help you diversify

  • Stable distributions. Earn income from long-term leases with well-resourced corporate and government tenants and built-in annual rent increases.
  • A hedge against inflation. Historically, commercial property values have tended to rise at rates similar to inflation, helping to preserve the real value of your capital.
  • Potential gains when rates are low. Commercial property asset values generally rise when interest rates are low and investors are willing to pay more for yield, helping to offset lower returns on your cash investments.

Is cash no longer king?

An interesting article by the Financial Observer commenting on why investors should be looking for alternatives to term deposits. One such alternative is exchange traded bonds (XTB’s) which, has a slightly higher risk profile but pays a substantially larger coupon and has greater liquidity. The team at PE Capital agree with this and as a result have invested approximately 40% of the Y Fund directly into an XTB separately managed account.