Rates aren’t moving anytime soon

An interesting article by XTB looking at how an official RBA cash rate rises isn’t likely to happen anytime soon. Earlier this year financial analysts/ economists predicted that there may have been a rate rise late in 2018, early 2019, however this has now been pushed out with an expectation that this may now occur in late 2020. As the official RBA cash rate sets the tone for the financial industry’s deposit and loan rates, this is good news for borrowers (as lending rates will remain low) however not so good for investors sitting on cash with low rates likely to continue.

 

The article offers an alternative for investors currently sitting in cash in the form of corporate bonds and highlights the differences in relation to risks, returns and liquidity. At PE Capital, we offer the Monthly Yield Fund that includes XTB corporate bonds so are already advocates of this alternative solution.

If you would like to know more then please visit us at www.pecapital.com.au or call as on 03 9081 0633.

 

Regards

 

Anthony Mann

am@pecapital.com.au

Why commercial real estate is a good option for investors

In a recent AMP Capital article (see attached) commercial real estate/ property was being positioned as a good option for investors. Used as a part of a multi asset portfolio, commercial property can provide an attractive rate of return compared to its underlying risk, a low correlation to other assets which assists with diversification and lowering risk as well as providing additional protection in relation to inflation (i.e. the costs of living).

 

The additional benefits for investors looking to invest in commercial property are:

  • Gearing/ borrowings on commercial property tend to be quite low which promotes stability and lowers risk
  • That it is a great fit for Australia’s current economy with its roaring population, high infrastructure spending and positive business confidence
  • That this class has outperformed other classes by delivering the highest risk-adjusted returns over the past 20 years
  • That it is a lower volatile asset class due to a high proportion of returns being generated by income rather than capital appreciation due to having longer-term lease agreements of 15 years plus.

 

The team at PE Capital understand the commercial property assets markets and benefits of being involved. As a result, PE Capital have developed a number of solutions for investors to become involved in this growing asset class and invite you to get in contact to understand how commercial property investments may be a good option for you.

 

Regards

 

Anthony Mann

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Anthony Mann

am@pecapital.com.au

Thompsons Road - Cranbourne

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The current duplication of Thompsons Road will markedly increase the traffic flow along the west/east corridor of Cranbourne North through to Clyde North and beyond. This particular development will include a Puma petrol station along with a drive through and five retail outlets and a workshop. Complementing this will be a group of 14 factoriettes at the rear to service the trade and service demand of the region.

 

This large parcel of land once developed will be a significant addition to the Cranbourne commercial landscape and will become a major focus for the local residents.

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Amstel Development - Cranbourne

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At PE Capital we have completed the first stage of a development in Cranbourne. The development is part of the old Amstel golf course. This development includes a 7-Eleven fuel station and convenience store along with a drive through tenancy next door which has Oporto as its covenant. These two tenancies have long 15-year leases with annual increases and options for further periods. There is one stand-alone tenancy which is attracting interest from several potential businesses including an American style smokehouse, kebabs, an Indian restaurant and a café. To complement this development, we have sold a portion of our land to McDonalds who are currently building their new restaurant. Alongside the new McDonalds store we are commencing building a childcare centre within the next two months.

 

This combined service centre is located on the busy Cranbourne-Frankston Road and has direct exposure to approximately 30,000 vehicles per day. Cranbourne is part of the City of Casey which is currently the fastest growing municipality in Australia.

 

We have invested in this location for its exposure, growth and acceptance by tenants and investors alike, for the opportunity which this site has afforded us. It is the gateway development to the ‘Canopy’ housing development currently being built by the Brown property group which will consist of over 600 homes.

 

The first stage of this development was completed in June 2018 and the childcare and McDonalds are expected to be open by early 2019.

 

For further details you can contact Rowan Walters, Senior Development Manager, at PE Capital on 0433 103 102 or email rw@pecapital.com.au

 

We have approximately 10 projects currently under construction or in the development stage and these include another 7-Eleven outlet in Truganina as part of a larger development. We also have developments in other outer Melbourne locations that provide value and opportunity.

These include Wollert, Cranbourne North, Mount Duneed, Armstrong Creek and Springvale. We are also looking at several opportunities in the Brisbane- Gold Coast area as this has been identified as offering real value, demand and opportunity for all our stakeholders.

 
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Rowan Walters

rw@pecapital.com.au

0433 103 102

When diversification makes sense

Diversification is often described simply as not having all your investment eggs in the one basket. It can also be described as investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country). Taking this definition into consideration over my time in the finance industry I have seen many examples where diversification hasn’t been properly understood including:

  • An investor believing, they were diversified by having shares in all of the big banks (which is a single security in a single industry in a single market).
  • An investor holding 2/3 of their portfolio in blue chip Australian shares (which is a single security, in multiple industries in a single market).
  • An investor holding their portfolio in cash, term deposits and debentures (which is a single security, in a single industry in a single market).

 

Although these may seem extreme examples, on average Australian Self Managed Super Fund (SMSF) trustees hold on average approximately 23% of their portfolio in cash and around 40% in Australian shares. Although this may be considered a sound portfolio strategy, cash investments are paying less than 2% and Australian shares approximately 4.3% with 80% of SMSF pre-retirees concerned about not being able to afford their preferred lifestyle in retirement.

 

There are a number of investors that feel that diversification is overrated as they believe diversification brings higher overall costs, additional accounting and tracking of investments and the potential risk of significant underperformance. However, with such solutions such as managed funds, Electronically Traded Funds (ETFs) and exchange traded bonds available it has never been more affordable to diversify your portfolio and invest in a variety of asset classes, industries and countries. If done correctly diversification can also offer investors access to non-traditional/ alternative investments which can improve returns, lower risk and volatility.

 

Attached is an article that explores practical ways to diversify your portfolio and which reinforces our unlisted commercial property fund offers, so if you’d like to know more then please get in contact and we’ll take you through how we can assist with the diversification of your portfolio.

 Anthony Mann  am@pecapital.com.au  03 9081 0631

Anthony Mann

am@pecapital.com.au

03 9081 0631

Still no signs of movement at the RBA

Many years ago, when I worked in Taiwan there was a common joke regarding a monorail that was about to be completed in 5 years’ time. The joke was that no matter when you were asked (i.e. in 5 years’ time) that it was perpetually going to take around another 5 years to complete.

 

Although I’m sure this is not the case with the official RBA cash rate there is an increasing amount of chatter pushing the next rate rise even further out (now final quarter 2019) and as per the attached article from XTB it may not even be a full 25 basis point rise. Saying that a lot of investors hold a significant part of their portfolios in cash and with rates at historical lows it may be time to investigate other cash options.

 

 

 

 

 

Anthony Mann

Chief Operating Officer

am@pecapital.com.au

03 9081 0631

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 so@pecapital.com.au

 

 

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 http://www.pecapital.com.au

 

Regards

 

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

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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 jh@pecapital.com.au

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.

CONGRATULATIONS TRAVIS MAHONEY

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.