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As I See It: July 2020

Greetings as we bid farewell to an extraordinary financial year and our 30th year together at Virtue & Partners.

It has been an unprecedented time for all of us as we deal with the personal restrictions imposed by the Corona-virus and the ongoing economic consequences of standing down a substantial part of the national workforce for the last three months. With a very diverse client base, we have been dealing first hand with the impact of clients losing jobs and their livelihoods and I want to thank all team members who have worked most weekends when help was most needed.  While equity markets have improved substantially from their lows of late March, current conditions remain fragile as we seek as a community to fully comprehend the enormity of the last few months.  With the exception of Victoria, the country is slowly getting back to normal but with no significant overseas travel expected for at least 12 months according to Qantas.  For the time being cautious has to be the primary thought as we closely monitor developments overseas where the loss of life has of course been much greater.

The ASX 200 Accumulation Index (AXJOA) which includes dividends paid was actually down 7.7% for the 12 months to 30 June 2020, which all things considered was a manageable result when compared with cash rates close to Zero as the benchmark risk free rate (the losses were mainly confined to the banking sector) which will also impact on dividends paid.  Investors should of course be looking at a longer time horizon. The five year picture does show the rewards of patience in the market and taking a diversified approach to stock selection.   Market corrections are a function of efficient forward looking indicators  and as we saw  in an extreme example a few months ago swings of 35% down and then up again do happen (just not very often).  Indeed it was unfortunate that nearly 2 Million eligible  Australians accessed up to $10k of their super right at the bottom of the market actually receiving only $7500 on average. 

The below two charts compare the last 12 months to the previous 5 years of the ASX 200 Accumulation Index (AXJOA).

Source: https://au.investing.com/indices/s-p-asx-200-accumulated

As I have alluded to in recent newsletters the US equity equivalents are actually up for the 12 months  reflecting the strong performance of global technology companies.   Between them Facebook, Amazon, Alphabet (Google) and Netflix made up much of the growth in the index demonstrating that global subscription based models that are both scalable and have controllable labour costs are able to perform well in spite of the effect of the Corona-virus.  The question becomes are these stock now overvalued and priced for perfection.  Generally, we have accessed these shares for clients via global ETF’s but for those clients interested we now have a facility to buy these individual shares direct on one of our newer platform providers.

Interest rates both here and overseas remain at ‘emergency levels’ with the RBA rate remaining at 0.25% and fixed interest mortgages for 2 years now available at close to 2.00%.  So this is an excellent time to consider locking in some of your mortgages to provide some certainty as to future rates.  Our mortgage business remains very busy particularly with first home buyers.  Haydn and his team are ready to move quickly to help you benefit from the current situation haydn.dale@virtueandpartners.com.au.   In the short term property prices seem to be holding up but clearly stable employment will be crucial to this remaining  the case.   On the investment property side It should be possible to attract foreign students back to our Universities subject to a suitable quarantine period on arrival and new migrants could be treated similarly (as they were at Manly Quarantine Station nearly 100 years ago).  So while risks abound I am hopeful that confidence will slowly improve as we come into Spring.

Naturally we are all working long hours in the practice at year end  including mastering the use of ZOOM as an alternative method of communication so take your pick on your preferred option including the old fashioned phone 02 99778800.  I am also pleased to announce the launch of our new improved Website which goes live any day now www.virtueandpartners.com.au.   As always thank you for your support and encouragement we are utter focused on providing great advice and outstanding service to our community and welcome the many referrals receive from clients.

With my best wishes

Posted by Dr Tony Virtue, Principal


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