10 essential reasons why you need an adviser
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Connection Point is a publication by ClearView Financial Advice. The Newsletter Contains information and advice on multiple topics such as life insurance, investment success, ageism and the small-cap market. If these topics take your interest, don’t forget to take a look at the PDF below.
Connection Point Newsletter PDF
We hope you enjoy the latest edition of Connection Point. Please contact our office if you would like to discuss anything in this edition.
Investing in global equity markets delivers diversification benefits for Australian investors who are typically overweight domestic equities and therefore heavily exposed to banks and miners. The global equity universe provides broad investment opportunities in sectors typically under-represented in Australia such as information technology which is 23 per cent of the S&P 500 but only 1 per cent of the ASX 200.
But investing internationally introduces currency risk into portfolios.
The value of a global share denominated in a foreign currency is determined not just by the share price but also the exchange rate between the foreign currency and an investor’s local currency. For instance, the Vanguard International Shares Index Fund delivered a return of 4.6% for the six months to June 30, 2017 but because the Australian dollar rallied from $US0.72 to $US0.77 during that period, the hedged variant of this fund delivered 9.19%. The differential between the performance of both funds continues to widen with the exchange rate at end-August at $US0.80.
Given this trend, it’s understandably tempting for investors to switch their global investments to hedged options. However, currency hedging should be viewed from the perspective of risk management rather than return enhancement.
While the short-term performance of ClearView’s implemented model portfolios have been hurt by the rising Australian dollar given the global equity portion of our models is unhedged, we strongly believe the risks associated with hedged investments are higher than unhedged for a number of reasons.
Firstly, the Australian dollar is globally viewed as a risk-on highly-cyclical currency driven by global growth dynamics. This means that when equity markets rise, the Australian dollar tends to rise. When commodity prices are increasing, the dollar tends to rally but falls when markets pull back.
Currently, a synchronised global recovery is underway fuelled by improving wage growth in the US, stabilisation of China’s economy and increasing corporate earnings in Europe and Japan. As a result, financial markets believe stimulus is no longer required.
Equity markets are rallying, particularly cyclical shares like mining and resources companies. This coupled with global growth has triggered the substantial strengthening of the Australian dollar.
However there are concerns about the sustainability of this rally. It may be sustainable in emerging economies throughout Asia and Europe but it’s difficult to believe a US-driven recovery will last.
The US cyclically adjusted price-to-earnings (PE) ratio is at its second highest in history reflecting extreme overvaluation. Current valuations are second only to the tech boom.
The difference is that the tech boom (bubble) was driven by an investment thematic while today’s ‘bubble’ has been driven by the quantitative easing strategy of central banks. This injection of capital into the economy has sent investors flocking to riskier assets in a bid to earn a return above cash, driving up the value of stocks.
If this bubble was to burst hard and fast, a la the tech bust, every country would be adversely affected given the US is the largest global economy.
On the home front, another bubble is emerging caused by the Reserve Bank of Australia’s quantitative easing strategy. In some capital cities, namely Sydney and Melbourne, there are concerns record low interest rates have created a housing bubble.
Usually during periods when a country’s local currency is climbing too high too fast, the central bank will cut rates to cool the market down. However, the RBA is currently unable to respond in such a way. On the flipside, it can’t circumvent a bubble by raising rates either as this will likely cause the Australian dollar to rally further.
Furthermore, it’s difficult to believe a commodity driven recovery will last. Iron ore is in structural oversupply and inventories stored in Chinese ports are at historically high levels. With China’s economy rebalancing away from resource intensive construction in favour of services and consumption, the longer term demand for steel is expected to be flat at best.
The key drivers of the inflated Australian dollar are elevated commodity prices, a US economy that’s priced for perfection and a hamstrung RBA. These short-term trends are not unsustainable which is why an unhedged strategy remains strong. When offshore markets (particularly the US) start to fall, unhedged investments are expected to earn a higher return than hedged investments because the fall in the Australian dollar is offset by the fall in offshore equity values.
While it’s never easy to watch a client’s relative returns stumble, the Kay Review published in 2012 suggests that acting on short-term trends rarely results in a positive impact on long-term investment performance. In fact, it commonly results in investors buying high and selling low or what’s popularly described as catching falling knives. The falling knife in this case is a sharp correction in US shares. If history is anything to go by, long term portfolio positioning is paramount to withstand a crippling global event.
Additionally, there has been an increasing trend for fund managers to release unhedged and hedged variants of their international equity funds, forcing financial advisers to make a call on hedging. To address this, advisers may consider investing in a professionally-managed fund that makes currency decisions on behalf of investors.
To see the original article go to: https://www.clearview.com.au/News-Resources/Articles/Currency-hedging
Trauma insurance was first introduced in South Africa in 1983 by Dr Marius Barnard to give people much-needed financial protection against serious medical conditions like cancer, heart attack, stroke or an accident.
In the 34 years since, trauma insurance remains just as important as ever.
Looking specifically at cancer, it’s a disease that does not discriminate. It can strike anyone, at any time.
Anyone who has battled cancer or watched a loved one suffer from the disease knows how distressing it is. From diagnosis to treatment to remission (for those who live to be cancer-free), the process is often long and painful which is why appropriate trauma cover is so important.
Encouragingly, the overall cancer mortality rate continues to fall due to early detection and more effective treatments but this means more people are living with cancer.
There are numerous forms of cancer treatments including surgery, chemotherapy, radiotherapy, hormone therapy, immunotherapy and targeted therapy. These treatments can be used in isolation or in conjunction with one another to try and reduce, minimise or eliminate cancer.
In the past 25 years, the five-year cancer survival rate has improved significantly to 68 per cent for men and 69 per cent for women.
However, the survival rate varies depending on the form of cancer.
For example, men have a 95 per cent survival rate for prostate cancer and women have a 90 per cent survival rate for breast cancer but the survival rate for lung cancer (14 per cent for men and 19 per cent for women) and pancreatic cancer (8 per cent for men and women) is dramatically lower.
It’s estimated that the average personal, financial cost of cancer is approximately $114,500 although the financial burden of brain cancer and leukaemia is much greater; $325,000 and $258,000 respectively. On the other hand, the average financial cost of prostate and breast cancer is around $64,000 while melanoma costs around $32,100.
Financial costs, which include treatment and medicines plus both loss of personal income and loss of income for spouses/carers, are a crude way to look at the impact of cancer which also has an enormous psychological and social impact but as Dr Marius Barnard famously stated in 1983: “A medical doctor can a repair a man physically, but only insurers can repair a patient’s finances”.
Fortunately, trauma insurance policies issued in Australia today have a much wider application than the original policies issued in the early 1980s. The first policies were designed as a form of health insurance to cover medical bills and doctors’ fees but individuals today enjoy greater benefits and choice.
Lump sum payments can be used to pay for non-traditional treatments, modifications to their residence or to compensate a spouse for taking time off work to care for a sick partner.
ClearView LifeSolutions continuously monitors and improves its cancer definitions and exceeds the Financial Services Council’s standards for Minimum Medical Definitions.
The statistics
- Around 134,000 Australians will be diagnosed with cancer (72,000 men and 62,000 women) in 2017 and around 48,000 people will die from cancer.
- From birth to age 24, the top 3 diagnosed cancers are leukaemia, lymphoma, and brain cancer. In this age group, over 1,600 new sufferers are diagnosed each year.
- The top 3 diagnosed cancers for people between the ages of 25-49 years are breast cancer, melanoma and colorectal cancer. In this age group, there 16,000 new sufferers are diagnosed each year.
- The top 3 diagnosed cancers for people between the ages of 50-64 are breast cancer, prostate cancer and colorectal cancer. In this age group, there are about 38,000 new sufferers are diagnosed each year.
For the original article, click here: https://www.clearview.com.au/News-Resources/Articles/The-enduring-relevance-of-trauma-insurance