Dennis

Research Insights – Market Commentary February 2022

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Research Insights – Market Commentary February 2022

Rising inflation, ongoing supply constraints from COVID related issues and a war shaped investor returns during the month. Whilst the world speculated that the President of Russia was bluffing that he would invade Ukraine, Vladimir Putin unfortunately and probably regretfully on his part called that bluff and invaded Ukraine. Investment markets that were battling higher inflation and central bank tightening monetary policy are now facing more headaches with even higher commodity prices and further supply chain disruptions.

In an attempt to squeeze Russia economically, trade sanctions and restrictions to Russia’s access to global banking transactions have been implemented. Russia is one of the world’s three largest producers of both oil and wheat and these sanctions have seen oil prices rise above US$100 a barrel and wheat hit a multi decade high further exacerbating global inflation. Bond markets are currently battling with rising inflation (pushing yields higher) with investors also looking for a safe haven (buying government bonds for protection and pushing yields lower). Gold, as you would expect in a time of uncertainty, has also risen in value and is close to US$2,000 an ounce.

The inflation impulse manifesting itself in rising yields coupled with even higher commodity prices saw Australian large cap equities deliver a positive return in February of 2.4% which was driven by Financials and Materials stocks that together make up over 50% of the domestic stock market. Global equities were negative in the month as investors priced in a series of US rate hikes and also disruption to European markets due to the Russia-Ukraine conflict. Currency hedged International equities fell 2.8% whilst a rising Australian dollar, up 2.6% buying US$0.7252, increased losses for international unhedged equity investors to -5.5%.

Australian government bond yields moved higher in February with the Australian 10-year government bond yield increasing by 24bps to 2.14% and the 2-year government bond rising 22bps to 1.10%. US yields rose, with the 10-year government bond yield gaining 5bps to close at 1.83% and the 2-year government bond yield increasing by 25bps to 1.43%.

Benchmark Returns

Important information
RESEARCH INSIGHTS IS A PUBLICATION OF AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LIMITED ABN 26 098 725 145 (AUPFS). ANY ADVICE IN THIS ARTICLE IS GENERAL ADVICE ONLY AND DOES NOT TAKE INTO ACCOUNT THE OBJECTIVES, FINANCIAL SITUATION OR NEEDS OF ANY PARTICULAR PERSON. IT DOES NOT REPRESENT LEGAL, TAX OR PERSONAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. YOU SHOULD OBTAIN FINANCIAL ADVICE RELEVANT TO YOUR CIRCUMSTANCES BEFORE MAKING PRODUCT DECISIONS. WHERE APPROPRIATE, SEEK PROFESSIONAL ADVICE FROM A FINANCIAL ADVISER. WHERE A PARTICULAR FINANCIAL PRODUCT IS MENTIONED, YOU SHOULD CONSIDER THE PRODUCT DISCLOSURE STATEMENT BEFORE MAKING ANY DECISIONS IN RELATION TO THE PRODUCT AND WE MAKE NO GUARANTEES REGARDING FUTURE PERFORMANCE OR IN RELATION TO ANY PARTICULAR OUTCOME. WHILST EVERY CARE HAS BEEN TAKEN IN THE PREPARATION OF THIS INFORMATION, IT MAY NOT REMAIN CURRENT AFTER THE DATE OF PUBLICATION AND AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LTD (AUPFS) AND ITS RELATED BODIES CORPORATE MAKE NO REPRESENTATION AS TO ITS ACCURACY OR COMPLETENESS.

Research Insights – Market Commentary January 2022

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Research Insights – Market Commentary January 2022

In January equity markets reacted to further COVID related supply chain issues, higher inflation prints, rising bond yields, political tensions between Russia and Ukraine, and increasingly likely central bank cash rate hikes.  Many equity indices fell more than 10% intra-month before market participants “bought the dip” late in January, stemming losses. These share market movements provided a rude awakening for complacent investors who now realise markets in fact do go down as well as up.

 

In an attempt to reduce the potential of run-away inflation, central bank rhetoric has once again shifted, with quantitative easing programs being shuttered, cash rate hikes being brought forward and the magnitude of such rate hikes increasing. For example, some forecasters now expect the US Federal Reserve to raise rates up to seven times in 2022, with an end-year  cash rate of 2.75% to 3%.  Australian investors forecast the RBA rate to reach 1.0% by December 2022, following the most recent inflation print of +1.3% for the December 2021 quarter and +3.5% for calendar 2021, well above the target band of 2-3%.

 

One factor that will continue to impact on market sentiment is the resolution (militarily or otherwise) of Russian / Ukraine tensions.  Russia has used its energy pipelines to Europe as leverage, with the result that energy prices (a key component of core inflation) increased around 40% in the month of January.

 

Australian equities were down 6.5% in January, small caps fell further than larger companies in the month.  Currency hedged International equities fell 5.1% whilst a falling Australian dollar, down 2.8% buying US$0.7062,  moderated losses for unhedged investors – the MSCI ex-Australia unhedged index delivered -2.2%.  Passive bond holders lost 1.0% in the month, while listed Australian Property reacted to rising bond yields falling by 9.5%.

 

Australian government bond yields moved higher in January with the 10-year government bond yield increasing by 23bps to 1.90% and the 2-year government bond rising 29bps to 0.88%. US yields rose, with the 10-year government bond yield gaining 27bps to close at 1.78% and the 2-year government bond yield increasing by 45bps to 1.18%. Notably, the German 10-year government bond yield closed January above zero percent after spending nearly three years in negative territory.

Benchmark Returns 

Important information

RESEARCH INSIGHTS IS A PUBLICATION OF AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LIMITED ABN 26 098 725 145 (AUPFS). ANY ADVICE IN THIS ARTICLE IS GENERAL ADVICE ONLY AND DOES NOT TAKE INTO ACCOUNT THE OBJECTIVES, FINANCIAL SITUATION OR NEEDS OF ANY PARTICULAR PERSON. IT DOES NOT REPRESENT LEGAL, TAX OR PERSONAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. YOU SHOULD OBTAIN FINANCIAL ADVICE RELEVANT TO YOUR CIRCUMSTANCES BEFORE MAKING PRODUCT DECISIONS. WHERE APPROPRIATE, SEEK PROFESSIONAL ADVICE FROM A FINANCIAL ADVISER. WHERE A PARTICULAR FINANCIAL PRODUCT IS MENTIONED, YOU SHOULD CONSIDER THE PRODUCT DISCLOSURE STATEMENT BEFORE MAKING ANY DECISIONS IN RELATION TO THE PRODUCT AND WE MAKE NO GUARANTEES REGARDING FUTURE PERFORMANCE OR IN RELATION TO ANY PARTICULAR OUTCOME. WHILST EVERY CARE HAS BEEN TAKEN IN THE PREPARATION OF THIS INFORMATION, IT MAY NOT REMAIN CURRENT AFTER THE DATE OF PUBLICATION AND AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LTD (AUPFS) AND ITS RELATED BODIES CORPORATE MAKE NO REPRESENTATION AS TO ITS ACCURACY OR COMPLETENESS.

How can the value of financial advice be measured?

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How can the value of financial advice be measured?

The financial benefits of professional advice can often out-weigh the cost.

The ‘value’ of financial advice can be considered both tangible and intangible—and will have different meanings for different people.

For some, the value of advice received will be measured by how much tax was saved, the age at which retirement was reached, the improvement in benefit entitlements or the final worth of an investment portfolio. Many will measure the ‘value’ against the cost of paying for that advice.

For others, the focus will be relative to a sense of wellbeing, peace of mind, having financial security and control over decisions made. This ‘intangible’ value of this advice is harder to measure and cannot be as easily weighed up against the cost of that advice. For example, how much is the right amount to pay for peace of mind and for financial freedom? The answer to this will vary from person to person.

How financial advice can be valuable 

Recent reports indicate that over a third of Australians are dissatisfied with their financial situation.1 

We believe that financial advice can play a significant role in helping to change this outcome. Professional financial advice can make a world of difference emotionally, behaviourally and financially.

Emotional 

Financial advice can have a big impact on overall wellbeing and financial security. The help of a qualified financial adviser can provide greater peace of mind and better clarity or management over finances. Research had found that:

  • People with a financial adviser feel 15 per cent more financially secure than those without.2
  • Over three-quarters of people with a financial adviser say it contributes to greater peace of mind.3
  • More than 80 per cent of people with a financial adviser report greater confidence with their financial decision making.3

Behavioural 

Behavioural coaching is one of the most valuable services a financial adviser provides to their clients. They can help clients maintain a long-term perspective and stay disciplined towards achieving goals. For example, emotion can play a significant role when investing in the share market. Abandoning a planned investment strategy, chasing short term market volatility or past performance, could result in costly losses, in turn impacting overall financial security. But with the steady guidance of a financial adviser these common behavioural tendencies can be avoided.

A financial adviser will also help adjust money habits, with research indicating that:

  • Over 50 per cent of people say financial advice has helped them to save more.3
  • Sixty percent of people with a financial adviser feel better equipped to handle sudden, one-off costs.3
  • Half of people with a financial adviser say they could cover living expenses for six months or longer if they were suddenly unable to work. Compared to only a quarter of people without a financial adviser.3

Financial 

In terms of financial benefits, Russell Investments estimates that financial advisers can deliver 5.2% p.a. or more of value each year for clients.4 This means for example, a financial adviser charging an advice fee of $3,250 to a client with a $250,000 balance can potentially deliver $13,250 of value – that’s $10,000 extra value to the client.5

Similarly, a recent Financial Services Council report by Rice Warner assessed the value derived from different levels of advice.6 They found:

  • At any age, for average Australians, financial advice will likely add value to both an individual’s superannuation and personal wealth by the time they retire.
  • Savings and investment advice, taken at a young age, provides the greatest increase in funds at retirement. This is because younger individuals have a greater investment period over which to compound the benefits of higher rates of return.
  • Irrespective of wealth, for an individual aged 40, approximately half the value of the ‘full’ advice scenario is from ‘simple’ advice in respect of savings.

Financial advice is not just beneficial for the wealthy, those with lower economic wealth can potentially gain more from advice than those who are wealthy. This reflects the tendency for this group to save less of their disposable income (in proportional terms) and allocate assets to safe but low- yielding asset classes (such as cash and term deposits).

How financial advice can help at any life stage 

Financial advice has tangible and intangible benefits as previously mentioned. But it can also help individuals navigate challenges and opportunities that present themselves within all life stages, as outlined in Graph 1.

A professional financial adviser can help provide a unique individual plan to help improve financial security throughout all life stages and keep the ‘big-picture’ in sight.

 

1 University of Melbourne (2019) How Australians feel about their finances and financial service providers. Retrieved from www.unimelb.edu.au/__data/assets/pdf_file/0005/3145613/Consumer_Research_Report.pdf

2 Australian Unity (14 May 2019) Research finds financial advice brings benefits beyond the dollar

3 AFA (2018) Value of Advice. Retrieved from www.loomisfinancial.com.au/wp-content/uploads/2018/12/afa_Value-of-Advice-report_oct_2018_final.pdf

4 Russell Investments (2020) Value of an Adviser Report. Retrieved from https://russellinvestments.com/au/support/financial-adviser/business-solutions/practice-management/value-of-an-adviser

5 Russel Investments (2020) In challenging times, financial advisers still deliver value of 5.2%p.a. or more to their clients https://russellinvestments.com/au/about-us/press/2020/in-challenging-timesfinancial-advisers-still-deliver-value

6 Financial Services Council & Rice Warner (August 2020) Future of Advice. Retrieved from https://www.ricewarner.com/wp-content/uploads/2020/10/RW-Future-of-Advice-Report.pdf

 

Important information

This is a publication of Australian Unity Personal Financial Services Limited ABN 26 098 725 145 (AUPFS), AFSL 234459. Its contents are current to the date of publication only, and whilst all care has been taken in its preparation, AUPFS accepts no liability for errors or omissions. This report is general in nature and does not take into account the objectives or circumstances of any particular individual or entity. It cannot be relied upon as a substitute for personal financial, taxation or legal advice.

The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and permanently delete the material from your computer system. We cannot guarantee that this e-mail is virus-free. You should scan attachments with the latest virus scan before opening. We will not be liable for any loss, cost or damage of any kind whatsoever caused by any receipt or use of this e-mail and attachments.

Research Insights – Market Commentary December 2021

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The fast spreading but less dangerous COVID-19 variant Omicron couldn’t derail markets in December; equity markets achieved positive returns for the month, and delivered spectacular gains for the calendar year.

Equity market gains have occurred despite the surge in actual inflation (for example, Australia’s headline CPI increased +3.0% in the year to September) and expected inflation – typically, high inflation leads to turbulent share markets. One source of calm for equity markets has been central banks’ continued commitment to “do whatever it takes” to support economies, including quantitative easing, yield curve targeting and maintaining low official cash rates for an extended period. These actions have kept bond yields low, although yields have crept higher during the year – for reference Australia’s 10-year government bond yield increased 0.7% during calendar 2021 (1.67%, versus starting yield of 0.97%) yet the cash rate is still anchored at 0.1%.

Australian equities were positive in December and over the 12 months to the end of December have delivered a total return of over 17%. International equities were positive in December and for 2021 currency hedged international equities gained 23.9%.  A lower Australian dollar over the year bolstered unhedged investors’ returns to an even more impressive gain of 29.6%. In context and taking into consideration the uncertainty that pervaded over this period the returns are exceptional.  Australian REITs performed particularly strongly in the month +4.9% and over 12 months thanks to the reopening of economies delivered a great return of 26.1%.

Australian government bond yields moved slightly lower in December with the Australian 10-year government bond yield decreasing by 2ps to 1.67% and the 2-year government bond falling 5bps to 0.59%. US yields rose, with the 10-year government bond yield gaining 7ps to close at 1.51% and the 2-year government bond yield increasing by 17bps to 0.73%.

For 2021 investors who took more risk were rewarded handsomely with equities (both domestic and international) providing strong double-digit returns. Conversely, investors with a passive exposure to Australian fixed interest, perceived to be less risky, suffered a negative return for the year. Whilst strong returns from growth assets are welcomed the year ahead will prove challenging. Surging COVID-19 cases, rising inflation and an unwinding of accommodative central bank policy settings all appear headwinds going into 2022. As always investors need to remember the adage of past performance is not indicative of future performance and certainly the well-known saying of caveat emptor has never been truer moving into 2022.

Benchmark Returns 

Important information
RESEARCH INSIGHTS IS A PUBLICATION OF AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LIMITED ABN 26 098 725 145 (AUPFS). ANY ADVICE IN THIS ARTICLE IS GENERAL ADVICE ONLY AND DOES NOT TAKE INTO ACCOUNT THE OBJECTIVES, FINANCIAL SITUATION OR NEEDS OF ANY PARTICULAR PERSON. IT DOES NOT REPRESENT LEGAL, TAX OR PERSONAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. YOU SHOULD OBTAIN FINANCIAL ADVICE RELEVANT TO YOUR CIRCUMSTANCES BEFORE MAKING PRODUCT DECISIONS. WHERE APPROPRIATE, SEEK PROFESSIONAL ADVICE FROM A FINANCIAL ADVISER. WHERE A PARTICULAR FINANCIAL PRODUCT IS MENTIONED, YOU SHOULD CONSIDER THE PRODUCT DISCLOSURE STATEMENT BEFORE MAKING ANY DECISIONS IN RELATION TO THE PRODUCT AND WE MAKE NO GUARANTEES REGARDING FUTURE PERFORMANCE OR IN RELATION TO ANY PARTICULAR OUTCOME. WHILST EVERY CARE HAS BEEN TAKEN IN THE PREPARATION OF THIS INFORMATION, IT MAY NOT REMAIN CURRENT AFTER THE DATE OF PUBLICATION AND AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LTD (AUPFS) AND ITS RELATED BODIES CORPORATE MAKE NO REPRESENTATION AS TO ITS ACCURACY OR COMPLETENESS.

Reclaiming lost time with your family

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After two years of pandemic lockdowns, grandparents are making up for lost time

 

“While the final weeks of 2021 will no doubt be filled with long-awaited family dinners and outings, it is the long-term care grandparents give that will offer the strongest impact to families.”

 

Key points

  • Grandparents have missed out on a significant amount of time with their grandchildren due to the COVID-19 lockdowns.
  • There are myriad ways grandparents can make up for this lost time, including assisting with their grandchildren’s education costs.
  • Grandparents and their family relationships play a critical role in our overall wellbeing.

Time is one of life’s few resources that becomes so much more valuable as we age.

The COVID-19 pandemic has been tough for all Australians; necessary but isolating lockdowns have resulted in missed birthdays, missed hugs, missed dinners around the dining table.

Many of us are grieving the critical family time lost and social milestones missed due to lockdowns. But for grandparents separated from their families, the loss of two years is much more significant.

In Australia, grandparents play a critical role in supporting their grandchildren and families. Before the pandemic, about 50 per cent of children under five were in grandparent care once a week, and around 80 per cent of children had regular face-to-face contact with grandparents.

The role of grandparents also extended to the education journey. Grandparents played an instrumental support role in taking their grandkids to school, picking them up, and helping them with homework.

The pandemic’s disruption prevented grandparents from providing this care.

Caring for loved ones

While the final weeks of 2021 will no doubt be filled with long-awaited family dinners and outings, it is the long-term care grandparents give that will offer the strongest impact to families.

For grandparents wanting to make up lost time, looking after grandchildren regularly and taking them on outings will not only rekindle important bonds with grandchildren, but will also provide much-needed relief to pandemic-affected parents.

Many families have experienced financial strain due to business closures and stay-at-home orders, with uncertainty driving lower consumer spending for non-essential expenses.

In addition to this, many parents have spent months homeschooling with very little relief. By being able to care for grandchildren again, grandparents can help parents re-establish normal working routines without childcare expenses, and even spoil children with ‘non-essential’ treats that many parents have stopped buying.

Finding different ways to help

After a period where grandparents have been unable to attend or volunteer at school or help with homework, some grandparents may choose to make up for lost time by contributing to rapidly rising education expenses.

According to the ABS’ latest Household Expenditure Survey, education expenses among households had increased by 44 per cent over six years. While fees vary between public and private school systems, parents of the nation’s elite independent schools can expect to pay up to $40,000 per-year for Year 12 tuition. On top of this, there are plenty of additional costs for uniforms, stationery, and extracurricular activities.

With many parents experiencing financial strain and long-term uncertainty, contributing to these costs gives grandparents the opportunity to ease the burden on families at an important time.

One such option for grandparents looking to help is to save for their grandchild’s education. An education savings bond is one popular way of achieving this. This investment product is established with an initial contribution and then serviced through regular payments to grow capital.

There are also other ways of approaching this goal, including setting up a trust, saving through a superannuation fund or redrawing on the home mortgage.

Why relationships matter for our wellbeing

The pandemic has reinforced our need for family and other connections to thrive and feel valued. Active and healthy relationships with other people stop us from feeling isolated and create a sense of security that, no matter what life throws at us, we don’t have to face it alone.

If we don’t have strong relationships in our lives, the opposite can feel true – we feel unloved and unimportant, and less equipped to tackle life’s obstacles.

As a result, our relationships are crucial to our overall wellbeing. They influence how we rate our happiness, and help us to maintain a strong connection to our community, which also supports better wellbeing.

In partnership with Deakin University, Australian Unity has been tracking the wellbeing of Australians for more than 20 years through the Australian Unity Wellbeing Index. The Wellbeing Index identifies relationships as one of the seven “domains”, or areas, of wellbeing, along with standard of living, health, community connectedness, safety, achieving in life and future security.

Indeed, the Wellbeing Index goes one step further than this, identifying relationships as part of the “golden triangle of happiness”, along with financial control and a sense of purpose.

The pandemic has been a strong reminder of the critical role grandparents play for our overall wellbeing. And with so much lost time to make up in the years ahead, there are myriad ways grandparents can support the lives of grandchildren and family members where it matters most.

 

Disclaimer: Information provided in this article is of a general nature. Australian Unity accepts no responsibility for the accuracy of any of the opinions, advice, representations or information contained in this publication. Readers should rely on their own advice and enquiries in making decisions affecting their own health, wellbeing or interest.