GPL Financial Group GPL Partners

September 2016

Market Update – August 2016


Report supplied by Zenith Investment Partners



Key Points: 

  • The RBA cut the overnight cash rate to 1.50% during the August board meeting. The rate was kept at 1.50% during the September board meeting. 
  • In fixed income, the 3 Month Bank Bill Swap Rate and the 10 Year Australian Bond Rate fell by -0.09% and -0.06%, respectively, in August.
  • Spreads on Australian corporate debt fell in August, as indicated by the -9.70 points decline over the month of the iTraxx Australian Index to 99.97. 
  • Australian shares fell over the month, with the All Ordinaries Index and the S&P/ASX 200 Index declining by -2.03% and -2.33%, respectively. 
  • Domestic listed property fell by -3.35%, slightly underperforming the broader share market.
  • Global equities reported mixed results in various regions, with the US being the worst performer, declining by -0.17%. Hong Kong added 4.96% to be the best performer, as measured by the Hang Seng Index. 
  • Gold and Iron Ore prices reversed their recent uptrend, declining by -3.05% and -1.65% respectively in August. Oil price recovered by 7.45% for the month. The overall CRB Spot Commodity Index fell by -1.33% in US Dollar terms.
  • The Australian Dollar fell against most currencies in August; by -0.11% against the US Dollar, -0.74% against the Euro, and -0.59% versus the Japanese Yen. The AUD rose 0.56% against the British Pound, indicating a further depreciation of the Pound.
  • The Australian Trade Weighted Index (TWI) fell by -0.32% over the month, ending August at 63.20.
  • Share market volatility rose by 1.55% in the US, and fell by -0.52% in Australia.


Please click on the following link to gain access to this resource.

Click here to view the August 2016 Market Report

 Source:       Zenith Investment Partners


The gymnastics of keeping your portfolio balanced


One of the great things about the summer Olympic Games is that every four years you get to appreciate athletes and sports that don't enjoy saturation-level TV coverage.



Gymnastics is a personal favourite with the different apparatus that challenge and showcase athletic grace, strength, technical abilities and blend them together into real-life drama. There are few other sports where there is the constant risk factor that comes from the slightest slip or loss of balance.

No-one needs to tell a gymnast the value of maintaining balance. And no-one watching Olympic gymnasts is in any doubt about the hard work and dedication – usually from a young age – that has gone into getting to that point.

Investors on the other hand often grapple with the issue of balance. At investor education seminars it is not uncommon to hear investors describe themselves as “property” investors or “share” investors or even as members of the ultra-conservative group that trust nothing other than bank deposits.

Building a balanced portfolio is not nearly as hard as making an Olympic gymnastic team but it does require discipline and a level of self-awareness particularly on how much risk you are comfortable taking.

The good news for investors is that unlike gymnastic routines, one small slip is unlikely to be devastating in terms of long-term portfolio performance. However, allowing portfolios to slip too far out of your risk comfort zone can be significant – particularly when a major market event like a global financial crisis comes along.

So there are two key issues for investors – setting the right asset allocation and rebalancing to stay within your risk “flags”.

Understanding where to plant your risk “flags” has to be driven by your personal situation – age, financial situation, health, earnings capacity. If you are in career-best form, naturally your capacity to take risk will be significantly higher than the person about to retire.

The simplest way for most people is to invest in a multi-sector product offered by fund managers that typically are designed around a target level of risk – they range in flavours from conservative, balanced, growth or high growth.

The same applies with superannuation for retirement savings – the default MySuper products typically cluster around a 70/30 growth to income asset split but you can opt for lower or higher exposures to growth assets. With both super and non-super funds the rebalancing of the portfolio happens automatically.

It is when you drill down into the component parts of a portfolio that the complexity increases. The good news for investors who do not want to spend a lot of time on things like their portfolio's asset allocation is that well-tested market solutions are available.

There are a significant group of people who have opted – via setting up a self-managed super fund – to be more engaged in managing their investments (particularly their super but let's assume non-super investments as well). More engagement/involvement by investors is generally regarded as a good thing and around half of SMSFs work with a range of professional advisers to manage and invest their fund.

But the results of the recent Vanguard/Investment Trends survey highlights the fact that a lot of SMSFs have relatively concentrated portfolios. The survey of more than 3500 SMSF trustees found that 38 per cent of their portfolio is invested in Australian shares. And of those, 28 per cent have at least half their share portfolio in bank/financial companies.

This raises the issue of concentration risk within SMSF portfolios – an ongoing debate within the super industry and financial advisory circles over many years. The reasons behind the concentrated Australian share portfolios is reasonably well understood – about half the assets are in pension or drawdown mode and high dividend payout shares are attractive courtesy of the dividend imputation system providing tax credits and the income stream that provides. Wind back time to a few years ago and term deposits were also paying respectable yields so one of the primary objectives – to pay an income stream – could be comfortably achieved with the simple combination of share dividends and cash investments.

About now, given worldwide declining interest rates that Australia is not immune from, the average SMSF portfolio may be feeling like a gymnast that has just discovered their standard routine is no longer working as it did in the past.

The question is how to recover that sense of balance.

The Investment Trends research suggests SMSFs are already taking steps on the journey to diversify their asset allocation because the use of managed funds and ETFs has been rising steadily in recent years.

SMSF trustees are also flagging that they need – and are seeking – more advice.

So while setting the right asset allocation at a fund's portfolio level is important the process of building a broader, holistic financial plan that takes into account assets both within and outside the SMSF that widens the frame of the asset allocation question can help get the balance right between the risks and potential returns.

This article first appeared in the Australian Financial Review on 7 September 2016.


Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
11 September 2016
29 August 2016

‘Winners and Losers’ from new super proposals


After the government announced it will be shaking up its budgetary super measures – including scrapping the $500,000 lifetime cap on non-concessional contributions – Rice Warner outlined a list of key “winners and losers” from the new proposals.



As reported last week, several revisions were announced to the superannuation proposals, the most significant being:

  • The replacement of the $500,000 non-concessional lifetime cap with an annual allowance of $100,000, reduced from $180,000 a year;
  • The introduction of restrictions on non-concessional caps when a balance of $1.6 million is reached; and
  • Non-concessional contributions will be allowed up until the age of 74, increased from 65. Additionally, working individuals will be able to make concessional contributions until the age of 74 and non-working individuals until age 65.

With a more concrete view of what the superannuation system will look like in the future, Rice Warner said it is clear who will benefit or be disadvantaged from the proposals.

“Younger superannuants or those with smaller balances wishing to accumulate significant tax-concessional retirement savings will find it easier now to reach the $1.6 million cap for pension accounts. Given the reduced cap on concessional contributions [of] $25,000 a year, there will be an increased importance of non-concessional contributions in augmenting balances,” Rice Warner said in a statement.

“Members who have already made more than $500,000 in non-concessional contributions since 2007 but have less than $1.6 million in their superannuation account will also be better off. They can continue to make post-tax contributions to their superannuation account.”

With changes affecting those with large balances tightened, the losers will be wealthier Australians.

Members with balances exceeding $1.6 million will be unable to make non-concessional contributions, while those who have retired and are older than 65 will not be able to make concessional contributions out of investment earnings.

“The government was going to allow those over 65 to make non-concessional contributions as long as they remained below the lifetime limit of $500,000. This has now been restricted to those who are still working between 65 and 74, [although] the definition of ‘working’ has a low bar – you only need 40 hours within a 30-day period once a year,” Rice Warner said.

However, despite these revisions, Rice Warner said only a minority of Australians will be affected.

“Overall, these groups represent only a small fraction of the superannuation population. For the majority of members, interaction with super will be business as usual and they will wonder what the fuss is all about.” 


Monday, 19 September 2016

Making a fairer and more sustainable Superannuation System


Australian Government – Superannuation fact sheets



The following link is to a Federal Government publication that contains all the current Superannuation fact sheet.  Please click on this link to read more on the following:

Fact sheet 01: A superannuation system that is sustainable, flexible and has integrity

Fact sheet 02: Introducing a $1.6 million transfer balance cap

Fact sheet 03: Reforming the taxation of concessional contributions

Fact sheet 04: Annual non-concessional contributions cap

Fact sheet 05: Changes to defined benefit schemes

Fact sheet 06: Supporting Australians to save for their retirement by introducing the Low Income Superannuation Tax Offset

Fact sheet 07: Improving access to concessional contributions

Fact sheet 08: Allowing catch‑up concessional contributions

Fact sheet 09: Extending the spouse tax offset

Fact sheet 10: Enhancing choice in retirement income products

Fact sheet 11: Improve integrity of transition to retirement income streams

Fact sheet 12: Improving governance and transparency

Fact sheet 13: Impacts on key groups


Superannuation Facts Sheets 2016



Checking in on our 2016 economic outlook – and looking ahead


At the end of 2015, Vanguard Senior Economist Roger Aliaga-Diaz, Ph.D., and Vanguard's Investment Strategy Group published an economic and market outlook for 2016 and beyond.



Although their outlook was not bearish, the authors cautioned that global growth would likely remain “frustratingly fragile” and that investors should expect continued volatility. We sat down with Roger recently for an update.

A lot has happened since the beginning of the year. We've seen wild stock market swings, discouraging data from China, shifting signals from the data-dependent Federal Reserve about further policy rate hikes, and the United Kingdom's recent vote to leave the European Union. Has any of this resulted in material changes to Vanguard's outlook?

Things will catch us off guard, like Brexit or China's currency volatility earlier in the year. But to give credit where credit is due, more of our team's outlook has proved to have been on-point than off-base. That said, we're far from complacent; we know that we have to continue to evaluate market forces in this uncertain environment and adjust our forecasts accordingly.

One of our key expectations has been that the United States economy would remain resilient despite global economic fragility. We didn't expect it to grow at 4% as it did in the “good old days” when expansion was being fueled in part by debt-financed consumer spending. We have been projecting 2%, which is a more sustainable, balanced growth rate, and full employment in the United States, which would result in a slowing of job growth. We are pleased to see both outcomes playing out in the data, as these are signs that the US economy is remaining resilient.

Unlike many in the industry, we didn't believe that emerging markets would see a cyclical rebound this year, because there's a structural need for debt deleveraging. The Federal Reserve not raising the federal funds rate has probably been supportive, as have more stable commodity prices. We still think, however, that these economies need to recalibrate to a new business model and that this will likely be a long and difficult process.

The sharp drop in commodity prices, including oil, at the beginning of the year certainly surprised us, as we had believed that the global deflationary bias would ease. As we expected, however, core inflation in developed markets, while still low by historical standards, has stopped falling – and in the United States, it's slowly moving in the right direction.

We were one of the few in the industry to underscore the importance of holding high-quality fixed income for diversification purposes, even in times of low interest rates. Yes, returns from bonds are low, and are expected to stay low going forward. But investors should appreciate that bonds will continue to act as ballast for portfolios in times of stock market stress. That was clear in the market reaction to Brexit – an outcome, by the way, that we were not expecting.

There's been a lot of talk in the financial press about divergence in monetary policy around the world. Where did you stand on that late last year, and has your outlook shifted since then?

We were expecting to see a very gradual, or “dovish”, tightening by the Federal Reserve, with an extended pause in short-term interest rates at around 1%. With Brexit, it now looks like it will take the Fed longer to get there – we're now thinking we might see one policy rate hike towards the end of this year. The timing of further hikes is less important than the terminal policy rate – the level at which the Fed stops tightening. In contrast, the European Central Bank and the Bank of Japan have policy rates in negative territory, and they may further expand their extraordinarily easy monetary policies.

That might sound like divergence, but the bigger picture is that they are all very near zero. If you take a step back and look at the historical differences in US policy rates compared with those of Europe and Japan, they've usually been 300 basis points or more. So the current differences in policy rates are trivial. In fact, I'd actually categorise what we're experiencing right now as a rare period of convergence in central bank policy, one that reflects global structural forces of lower trend growth, demographics and debt deleveraging.

Moreover, we believe that the ability of other central banks to continue easing policy, including how much deeper they can go into negative rates, is very limited. I'd argue that we are getting to the limits of what central bank action can do. We haven't seen these unconventional monetary policies, whether they involve quantitative easing or negative rates, really do much to stimulate lending and investment. In order for us to see a greater cyclical thrust above trend growth, we'll probably have to first see some coordination between monetary and fiscal policies, particularly with respect to infrastructure spending.

Japan is a great example. Abenomics and its three arrows of fiscal stimulus, monetary easing and structural reforms were announced back in 2012, but that program hasn't been as successful as policymakers had hoped. It got a lot of press coverage and there were some early wins, but clearly there's been an over-reliance on the monetary policy arrow. And we haven't seen much of the promised structural reforms at all in areas where it's needed, such as the labour market.

And just a word or two about negative rates, as I get asked about this a lot and it's not very intuitive: some investors are leery of diversifying their bond holdings to include bonds with negative yields, like those seen in Japan and much of Europe. But buying an international bond with a negative yield doesn't mean you're locking in a loss. Unlike domestic bonds, international bonds come with a currency effect – which happens when the currency is converted to the investor's home-base currency – that should offset the yield differential between domestic and international bonds. For US investors, for example, a 10-year German bund would be expected to yield in US dollars as much as its US Treasury counterpart.

A defining event in the first half of the year was Brexit – the United Kingdom voting to leave the European Union. What are some of the near-term and long-term consequences of that likely to be?

The uncertainty generated by the vote to leave the European Union will likely start to show up in UK data on consumer purchases and home buying, and also in business investment and foreign direct investment.

On the monetary policy side, action by the Bank of England to cut policy rates or provide additional quantitative easing could help mitigate the fallout; on the fiscal side, so could some easing up on austerity measures. [Note: On 4 August 2016, the Bank of England announced economic stimulus measures that included a 0.25% rate cut.] The depreciation of the British pound can also help at the margin, through exports.

But all this probably won't be enough to offset the scale of the downturn in sentiment we're likely to see among consumers and businesses. Looking further out, it's hard to predict how negotiations to access the European Union's single market will go, but we do know that it will be some time until we start gaining some clarity on the type of deal the United Kingdom can strike with the European Union. There is a lot at stake for the United Kingdom in these negotiations – keep in mind that almost 50% of British exports go to the European Union, and an even higher percentage of imports into the United Kingdom come from the European Union.

So a cloud of uncertainty is setting over the UK economy, and we're likely going to see a brief recession this year or early next year. That's a significant change from the beginning of this year, when we were expecting the Bank of England to consider raising policy rates.

We'll see some fallout in the European Union as well. Its economy, which has only been growing at around 1%, is likely to decelerate further. The farther you move away from Europe, the less the impact you're likely to see. That's assuming financial conditions remain robust – which is a big “if”, because headline risk is not going to go away overnight.

I have to add that the unexpected outcome of the Brexit vote was a reminder of what we've said many times, that we should “treat the future with the deference it deserves”. And this also applies to other issues that the vote brought to the fore: unity within the European Union, public opinion on trade globalisation and the momentum of anti-establishment movements, to name just a few.

Concerns about growth in China sent global markets sharply lower early in the year. Did that catch you off guard?

Well, we mentioned that “growth scares” were to be expected, and China proved a case in point. Global stock markets retrenched on fresh signs of slowing in the world's second-largest economy along with unexpected movements in its currency and sharp stock market losses.

We were not expecting – and still do not expect – to see a hard landing, though. The Chinese government has ample policy tools to cushion an economic slowdown and recent data for Q2 growth seem to confirm this expectation. That said, maintaining a relatively steady pace of growth while rebalancing the economy away from investment and exports will remain challenging. It won't be a linear process, and potential policy missteps can't be ruled out. We've also noted that there's a growing buildup of leverage in the Chinese economy that policymakers need to address, and we don't expect to see how that story plays out before the end of this year.

You said you were “guarded, not bearish” about the outlook for market returns, given not-cheap stock valuations and the limited income on offer from bonds. In an environment like this, what's the right approach for investors to take?

Lower global trend growth and lower fixed-income yields relative to historical norms are likely to translate into a more challenging and volatile investment environment. However, our long-term return expectations are muted but positive. Patient investors with broadly diversified portfolios are likely to be rewarded over the next decade with fair inflation-adjusted returns. So our guarded outlook doesn't warrant some radically new investment strategy. The principles of portfolio construction still hold true, even in such an environment.

Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
29 August 2016

Advisers the key to retirement stability, research shows


A new study has found that while a majority of Australians feel unprepared for retirement …..

….. those who engage a financial planner are three times more likely to feel confident about their retirement nest egg.



The Australia Today white paper, released today by MLC in partnership with research firm IPSOS, explored the attitudes and perceptions of Australians towards their financial security and how they expect to live in retirement.

The survey of more than 2,000 people revealed that 66 per cent of Australians feel unprepared to retire.

However it also indicated that Australians who seek professional financial advice are three times more likely feel confident about retiring.

Women felt less prepared than men, with 74 per cent of women feeling unstable about retiring compared with 57 per cent of men, while 79 per cent of Millennials also felt unprepared.

Executive general manager, wealth advice, Greg Miller said that despite Australia's having an incredibly strong superannuation and retirement system, too many Australians are uncertain about their retirement savings.

“This research shows that regardless of age and income, the majority of Australians are feeling unprepared for retirement,” Mr Miller said.

“The constant political tinkering [with] the super system has also confused the conversation, and we run the risk of Australians becoming ambivalent to planning for retirement due to this confusion.

“Advisers regularly experience this uncertainty in super first-hand among their clients,” said Mr Miller. “If we can get policy certainty around super, advisers will be better able to help more Australians understand the value of super and saving for their retirement.”

Executive general manager, superannuation and investment platforms, Paul Carter says that more needs to be done as a nation to help the situation.

“We need to help Australians equip themselves with the knowledge and information they need to progress on their paths to a self-funded retirement,” he said.

“By doing so, we not only improve our quality of life but also reduce the budgetary burden of an ageing population for future generations.”


Monday, 22 August 2016

The toughest tasks for self-managed super


What are the hardest aspects of running your self-managed super fund (SMSF)?



Is it the paperwork, all of the investment rules or the fundamental challenge of choosing where to invest your money?

If you named choosing investments for your SMSF as the toughest task, you would be far from alone.

A comprehensive survey for the Vanguard/Investment Trends 2016 Self-Managed Super Fund Reports, released during the past week, asked SMSF trustees to list the hardest aspects of running an SMSF. Their main responses included:

  • Investment selection (43 per cent). This percentage has risen over the past year as SMSF trustees, along with other investors, attempt to come to terms with the low-interest environment and widespread expectations for more challenging and volatile investment conditions over the medium-to-long term. (See Vanguard's economic and investment outlook, Australian edition, from our Investment Strategy Group.)
  • Administration and regulation (40 per cent). This includes having trouble keeping track of changes in the rules.
  • A lack of time including to review and plan for their SMSFs (24 per cent).

Interestingly, 22 per cent of respondents to the survey did not find any aspect of running their fund difficult.

The finding that more SMSF trustees have difficulty choosing investments would also partly explain another finding from the survey that a large proportion of SMSFs recognise that they have unmet needs for advice.

An estimated 255,000 SMSFs – out of 572,000 funds at the time of the survey – had unmet needs for advice. This is the largest number recorded by Investment Trends over the years.

“Advice needs most often relate to retirement,” the report comments, “though more [SMSFs] are citing investment-related advice gaps.”

For instance, an estimated 146,000 SMSFs have broad unmet needs for advice on retirement strategies while 139,000 have unmet needs for investment advice. And an estimated 100,000 funds have unmet needs for advice on tax optimisation.

Drilling down on more specific unmet needs for advice, SMSFs recognise their need for advice on inheritance and estate planning (an estimated 61,000 funds), SMSF pension strategies (57,000), age pension and other social security entitlements (55,000 funds), investment strategy/portfolio review (52,000), identifying undervalued assets (51,000), Exchange Traded Funds (46,000), offshore investing (43,000), trying to ensure members don't outlive their savings (42,000 funds) and protecting assets against market falls (39,000).

The finding that 44 per cent of Australia's SMSFs recognise that they have unmet needs for professional advice is extremely positive. This should lead to more fund trustees working with advisers to set appropriate asset allocations for their diversified portfolios, checking on the adequacy of their retirement savings and setting suitable retirement income strategies for retired members.


By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
15 August 2016

Lawyer warns on ‘adverse’ death taxes with insurance


An industry lawyer has urged SMSF practitioners to carefully scrutinise any life insurance arrangements …..

….. that flow through superannuation, with payments to non-dependants continuing to result in “adverse tax ramifications”.



Estate Planning Equation director Allan Swan says where the ownership of a life insurance policy is in a superannuation fund, SMSF practitioners need to think carefully about its tax ramifications.

“If we have life insurance that flows via a superannuation fund and out as death benefits, and it’s paid as a pension to say a surviving spouse, we don’t have adverse tax ramifications,” Mr Swan said. 

In situations where it is paid to an estate and goes to a surviving spouse and young children, there are also no significant tax ramifications.

“[However], if it goes to non-dependants, non-dependants for tax purposes or it gets paid to a testamentary trust that includes non-independents, the ATO gets a 15 per cent death benefits tax by virtue of it being paid to the non-dependant, plus a 15 per cent surcharge because it’s coming out as an untaxed amount, plus any levies that might be applicable,” Mr Swan said.

“So we’ll see a tax bill of 34 per cent on life insurance coming via super being paid into an estate or being paid into a testamentary trust that includes say grandchildren, nieces and nephews – too wider class of beneficiaries.”

If a testamentary trust is being used and a super fund is involved, Mr Swan said SMSF practitioners should advise their clients to limit that to people who are death benefit dependant for the purposes of the Tax Act to ensure there is no taxation problem.

Typically, death benefit dependants are a surviving spouse and/or children who are either still minors or are still financially dependent or in an interdependency relationship.

“So if they fall into any or those categories, then the trust is limited to just those beneficiaries and can’t be widened, then we’ve got a trust that won’t expose people to death benefits tax,” Mr Swan said.

“There’s effectively a 30 per cent levy rate applying to life insurance funded death benefits. We’re talking about a very high tax rate historically, in terms of death duties.”



Monday, 22 August 2016

Don’t get distracted by super changes


It is understandable that the continuing widespread coverage of key federal Budget proposals for super may distract some …..

….. super fund members from focusing on their contribution strategies for 2016-17. 



The two proposed measures getting much of the attention are the indexed $500,000 lifetime cap on non-concessional contributions (intended to include contributions from July 2007) and the reduction of the annual cap on concessional contributions to an indexed $25,000. 

As these proposals work through the parliamentary process, we can expect much more debate and commentary along the way.

In the meantime, life goes on for super fund members and so should their strategies to contribute to super where appropriate. 

Many fund members would now be thinking and taking specialised advice about whether the Budget's super proposals are really going to affect them over the next year or so even if passed into law in their present form. Much will depend on a member's personal circumstances and the particular proposals in question. 

First regarding the proposed $500,000 lifetime cap on non-concessional contributions, which is proposed to take effect from Budget night, May 3. (The Government wants the lifetime cap to replace the standard $180,000 non-concessional annual cap.) 

A call to the tax office will readily give fund members the total of their non-concessional contributions made between July 2007 and June 30, 2015. And your super fund can immediately provide a list of any subsequent non-concessional contributions. A financial adviser could, of course, also provide you with this information. 

Fund members who have made extra-large non-concessional contributions in the past or are intending to do so are particularly likely to consider gaining professional advice – especially if the contributions will take them close to the planned lifetime cap. 

Regarding the proposal to reduce the annual concessional cap from $30,000 currently for members aged under 49 (or $35,000 for members 49 or over) down to $25,000. 

Critically, the Government proposes that this measure come into effect from July 2017. This means, of course, that members can maximise their concessional contributions in 2016-17 within the existing larger caps.

And before being worried about the possible impact on your contributions in 2017-18 and beyond, it is worth reviewing how much you have typically contributed as concessional contributions in past financial years. Concessional contributions comprise super guarantee, salary-sacrificed and personally-deductible contributions (where applicable).


By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
26 July 2016