Presentation on theme: "Economic & Market Overview Malcolm Palmer Managing Partner Joseph Palmer & Sons."— Presentation transcript:
Economic & Market Overview Malcolm Palmer Managing Partner Joseph Palmer & Sons
‘General Advice’ Warning On behalf of Joseph Palmer & Sons: Any advice contained in this presentation has been prepared without taking account of your objectives, financial situation or needs; and …because of that, you should, before acting on any advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs; and …if any advice relates to the acquisition, or possible acquisition of a particular financial product - you should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product.
Topics - What’s happening? Economics Quantitative Easing & Global Interest Rates China European banking Commodities Markets Australian shares Global shares Australian Interest rates & Currency Sterling Managed Account Equity portfolios Fixed Interest portfolios Performance Reporting
What’s happening with QE and Global Interest Rates? QE is working, but…… The US Federal Reserve is walking the taper tightrope, reducing the monetary stimulus ahead of interest rate rises QE will end in inflation….unless the Federal Reserve can (by luck?) coincide money supply contraction (net bond maturities) with consumer price rises Some degree of market dislocation will accompany the end of QE
What’s happening with US Interest rates?
What’s happening with European interest rates ?
What’s happening in China’s economy? China’s debt to GDP is now considerably higher than its peers Source: Morningstar
What’s happening to Chinese real estate? Real estate prices are now falling in 55 of China’s largest 70 cities. Source: Morningstar
What’s happening with the European banking system? European Central Bank (ECB) takes regulatory control of 128 European banks on 4 th November 2014 A ‘Stress Test’ of European banks is being conducted, with a report due in late of October The stress test is likely to reveal some further asset problems and represents a short-term market risk Bank shares prices in Europe are falling
European bank share prices have fallen considerably in 2014
What’s happening with commodity prices? Metal prices have slumped due to weakening Chinese demand and higher stockpiles
Investment Market Outlook
What’s happening with Australian shares?
The Australian Stock Market – priced to perfection!!! Forecast Capital Return3.16% Forecast Dividend3.81% Market Return6.97% Risk Free Rate3.49% Required Market Return6.98% Current Excess/Deficit-0.02%
What’s happening with the shares in the Sterling Managed Account? Shares removed Leighton APA Group Sims Metal Management Shares added Santos Sydney Airport Westfield Corporation
Corporate actions aplenty!! Telstra – tax effective share buyback, most valuable for zero tax paying entities such as pension funds QBE Insurance – Share Purchase Plan offer at a large discount to market price Brambles – Recall division separated and sold from the Sterling models Westfield – Scentre (Australian & NZ assets) separated from overseas assets Commonwealth Bank – new offer or PERLS VII hybrid
Investment Process – how assets are selected Relative Value Analysis explained Market timing – yield based analysis Asset allocation –Growth Assets (Shares & Property) –Defensive Assets (Interest bearing investments)
Primary Process Methodologies Equity Risk Premium Relative PE Ratios Price to Earnings Growth Portfolio construction is neutral, not biased to growth or value styles Portfolio not indexed weighted Fairly concentrated portfolio – typically 15 to 25 stocks ASX 100 constituent universe
Relative yield on corporate earnings is at highest level in recent history
Dividend yield considerably higher than the long-term average
How the Sterling Portfolios are Managed Approach to Managing Sterling Client Portfolios: “In the short term, the market is a voting machine. In the long term, it is a weighing machine.” – Warren Buffet We take a long- term value growth approach to investments We will hold tactical positions where our experience enables us to foresee an opportunity Volatility (on the upside and downside) can bring wealth creation opportunities. Our main focus is on building wealth and preserving it Portfolio management requires sophisticated research in order to identify those securities which, at any one time, are either undervalued or overvalued
How new money is invested We identify the investments to be held within each asset class, to comprise a model portfolio We will selectively and progressively purchase/undertake investments targeted within the respective model portfolio, as market opportunities arise - We consider risk v. reward. - Where are interest rates heading? Short term v. long term. - Which are the best companies to invest in, and why?
Transition Portfolio assets Managing Transitioned Assets/Assets in the Transition Portfolio: We will identify assets held within a Transition Portfolio, that are not held within our model portfolio We will research the asset and consider any corporate activity/corporate actions/income payments that may be pending We will form an exit strategy, based on the market circumstances of the asset to be sold and the asset/s we seek to buy within our model portfolio Risk assessment is a key decision criteria
We will identify assets held within a Transition Portfolio, that are held within our model portfolio - We will check the current weighting of the asset relative to the respective asset weighting in our model portfolio - We will consider other stocks held within the same industry and determine whether we should reduce or add to the identified asset We will selectively and progressively exit/purchase/undertake investments with a view to move towards our respective model portfolio
Corporate Actions Corporate actions are assessed an acted upon based on their investment merit IAS will notify our Investment Managers of a corporate action relating to an investment held within the beneficiaries account. The Investment Managers are to respond to IAS with an investment decision, before an applicable cut-off date. IAS will process the paperwork and arrange any required funds transfer. The Corporate Action is reflected in each of the respective beneficiaries account.
Questions please Thank you, Malcolm Palmer Joseph Palmer & Sons