Month: November 2019

November 2019 – End of Month Update … and Mayfair Platinum

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.  The Slack Investor followed overseas markets had rises all round this month. The ASX200 (+2.7%), a recovering FTSE100 (+1.4%), and a booming S&P500 (+3.1%).

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 29.1%. This has been steadily reducing since a peak at 41% three months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”

All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Mayfair Platinum – “Investing has changed” – No it hasn’t!

Full-paged ads spread across the Australian press in in the last few months. Mayfair 101 launches Mayfair Platinum. These ads were everywhere, paid plugs in the AFR, News Ltd, Finance sites, “influencers”, roadshow, and google ads.

There has been a barrage of advertisements in the press. Mayfair 101 says “We’ve been listening closely to investors who are frustrated by the sustained fall in interest rates. ” Their M+ Fixed Income product offers a juicy 5.45% for a 12-month term. Slack Investor is worried that this grand media campaign may fool some investors into thinking this vehicle is just as safe as bank deposits.

” M Core Fixed Income is a secured, asset-backed investment product that provides the benefit of the Group’s extensive diversification strategy coupled with our Australian real estate portfolio including our recent strategic investment in Mission Beach and Dunk Island. “

Mayfair 101 Managing Director James Mawhinney, commenting on one of their products – from the Mayfair Platinum site.

Hang on Mr Mahwinney … did you say “secured” … you definitely didn’t say safe! By a quick comparison of their products, it seems that you don’t even get security with a paltry $100K invest – you need $250K to get the “secured asset backing” of their M Core product.

Mayfair 101 launches Mayfair Platinum, it “provides customers the opportunity to earn return rates between 3.65 and 6.45% p.a.

Mayfair 101 has been aiming a recent massive ad blitz to cashed up investors who are frustrated with the low returns offered by bank term deposits. They have been very successful since they set up in 2017, rapidly growing their fund to $100m in April 2019 and aiming for $250m. Mayfair advertising is littered with lines like “Tired of term deposit rates?”, “A popular cash and term deposit alternative…”, “Do you qualify?” – this campaign has plenty of fizz.

Slack Investor knows a bit about North Queensland, and the beautiful Mission Beach and Dunk Island area. There have been a number of tourist booms in the past, but each time they have been defeated by either a tropical cyclone, distance to international airport, rising interest rates, or a domestic tourism downturn. Tourism investments are definitely risky!

As well as cyclone ravaged Dunk Island, the parent company Mayfair 101 has investments in technology and cryptocurrency companies, and according to the Guardian, another abandoned island, in Venice – an area suffering from heavy flooding this month.

“In the modern age of investing, we are mindful that profit-generation is no longer the sole benchmark for a company’s success”

James Mawhinney Mayfair 101, from The Guardian

Sorry Mr Mawhinney , I’m not sure where you live, but in the Slack Investor world, profit generation is definitely the most important benchmark! At best, the Mayfair products seem speculative investments that carry a good deal of risk – a long way from the safety of the government guarantee for bank term deposits (up to $250K).

One of the few advantages of getting older is that you get to see the cyclic nature of investment. A good reminder of 35 years of investor busts can be found in the Chanticleer Reviews. Mayfair … You’re “investor-facing division” is not getting any of Slack Investor’s money. Despite the slick presentations and corporate glitz – this, as my mother used to say, “has got a real smell about it! “

I cannot give financial advice, but Slack Investor would not invest in Mayfair Platinum, and, if I had invested, I would take out my money as soon as I could (while the Mayfair distribution and withdrawal record is still intact). I would try other types of investment such as higher yield industrial shares or industrial/office REIT’s if I wanted higher returns than bank deposits.  These latter vehicles also have risk attached …. but, I’ll wager, much less risk than tourist property speculation, tech companies, and cryptocurrency plays.

It may take some years, but this Mayfair 101 thing … it’s not going to end well for the punters!

What’s that smell? … Banks!

With great thanks and acknowledgement to the insightful and talented Randy Glasbergen

KPMG have just reported that banks are starting to lose their shine and the big 4 banks in Australia have reached a “turning point”. Slack Investor would argue that, after a pretty good recovery post the GFC, Australian Banks have been in decline since early 2015. NAB is the last to confess this reporting season … They are all businesses that will find growth difficult.

With its full-year profit of $4.8 billion, down 13.6 per cent, it joined ANZ, Commonwealth and Westpac in announcing a big decline in earnings.

From abc news
The ASX Bank Index since 2000. Except for the GFC 2008/9, the banks have performed well – as well as paying high dividends. Things changed in March 2015 where, despite temporary recoveries, there has been a general decline in share price. From Investing.com

Self Managed Super Funds are a great place to park your super money for the hands-on investor. But, they are not for everyone. You really need to have a real interest in investing and at least $200 000 in your super savings. According to ATO Data, at 31 December 2017, the most commonly held SMSF share investments (by investment size) are below: There are a lot of banks!

Commonwealth Bank
Westpac Banking Corporation
National Australia Bank
Magellan Global Fund
BHP Billiton Limited
Platinum International Fund
ANZ Limited
Telstra Corporation
CSL
Wesfarmers

Not a bad portfolio for the past 10 years … but, the tide for the banks has already turned with low interest rates affecting margins, increased competition from the more nimble digital banks, the Hayne Royal commission “blowback” forcing the banks to separate from their profitable wealth management businesses, and recent dividend cuts announced. A closer look at the top 5 SMSF shares with financial statistics from the excellent marketscreener.com. The 1-yr returns over the past year for each stock are lifted from marketindex.com.au .

SMSF 2017 Top 5 Shares P/E 2020Yield %ROE %1-yr Ret %
Commonwealth BankCBA155.51312.4
Westpac BankWBC145.911-3.7
National BankNAB1261216.7
BHP BillitonBHP125.32210.9
ANZ ANZ12612-3.9
Average 135.7146.5

Slack Investor can understand the lure of juicy bank dividends for SMSF funds. But, if the dividend is coming with a reducing share price due to the bank business shrinking – then this is not a good deal – and perhaps look to higher yield industrial shares or industrial/office REITs for that cherished income rather than banks.

Sing the praises for Return on Equity (ROE) and Earnings per Share (EPS) Growth

This is one of the first financial statistics that I look at when deciding on a company to buy. Return on Equity is a company’s Net Profit ÷ Average Shareholder Equity. If a company had a net worth of $10 million and made a profit of $2 million, its ROE would be 2/10 x 100 = 20%.

High ROE companies generate a lot of cash – this cash they can then use to grow their business. If they also have a good increase in their Earnings Per Share (EPS) – Slack Investor would classify them as “Growth” Companies.

CSL Earnings per Share- and projected EPS for 2022 -2024

Generally, companies with a ROE of >15% get Slack Investor’s attention but some businesses require lot of infrastructure before they can generate profit. For this reason ROE is best used to compare companies in the same industry. For contrast with the 2017 SMSF, let’s have a look at Slack Investor’s Top 5 stocks from the Portfolio page (This is not advice!). Data gathered from marketscreener.com and marketindex.com.au .

Slack Investor Top 5 Shares P/E 2020Yield %ROE %1-yr Ret %
CSL LtdCSL381.23538.3
Altium LtdALU461.63144.9
Cochlear LtdCOH411.73826
Macquarie Group LtdMQG164.41611.5
REA Group LtdREA401.33527.9
Average 362.03129.7

The average ROE for the Slack Portfolio is much higher than for the 2017 SMSF top 5 (31% vs 14%) . They also all have a projected increasing Earnings per Share (EPS) – and this indicates the Slack preference for growth companies.

However, with growth comes volatility and the Slack Investor top 5 would not suit those who rely on their investments for income. The Slack portfolio would probably suit an investor with a longer term view and a separate income. If you are still working and want to grow your wealth through shares … then the ROE should be one of your guiding lights for company selection.

The Real October 2019 – End of Month Update … and Australia’s debt binge

Apologies to my faithful email subscribers, two days ago an unfinished version of this post was released into the ether. Slack Investor has rudimentary skills in the blogging arts and didn’t know how to recall the post. Anyway … this is what it was supposed to look like – with all information updated!

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.  The Slack Investor followed overseas markets are a mixed bag with a flat ASX200 (-0.4%), and a dropping Brexit plagued FTSE100 (-2.2%). The good old US has shrugged off chants of “Lock him up” for their president and the S&P500 has had a monthly increase of 2.4%.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 31.0%, this has been gradually dropping since a peak at 41% two months ago. However, the current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Household debt – the couch is getting a little uncomfortable

According to 55,000 respondents to the ABC’s Australia Talks National Survey, debt is a major problem for the nation.

On an individual level, 37 per cent are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally …

Australia Talks National Survey
From the Reserve Bank Australia

Australia may not be in the top four countries for Rugby these days but we are one of the world leaders in terms of household debt. In fact, we are second only to Switzerland. I am ashamed to say Australia’s Household Debt is world class and edging towards 200% of income. With such a big chunk of our disposable income leaking to debt, it is no wonder that recent interest rate cuts are not having much effect on the economy as Australian consumers try to tighten the belts. According to the Reserve Bank, it seems that, with stagnant wages growth, most are coping with their debt by reducing their consumption.

Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.

From macrobusiness.com.au

Debt can be multi-headed with mortgage, credit card, personal loans and education components. The ME Bank survey has found that there is stress in some parts of the community. If your employment income is steady, in these reducing interest rate times, the fortunate have been able to keep up existing monthly payments to reduce overall debt. This is a good strategy. Most Australian homeowners are ahead of their payments – so there is a bit of a buffer. RBA statistics show that the average borrower is almost 36 months ahead of their required payments. Though, there are worrying signs in some households.

Of households with debt, there was an increase in the
number expecting they ‘will not be able to meet their
required minimum payments on their debt’ and ‘can just
manage to make minimum payments on their debt’ in
the next 6–12 months – 43% combined compared to
38% in December 2017.

ME Bank survey 

With the number of mature-age Australians carrying mortgage debt into retirement increasing rapidly, many are intending to use a portion of their super (which was supposed to fund retirement!) to try to extinguish their debts when they retire. The ME Bank Survey found that even with compulsory superannuation, only around 18% of households expect to ‘fund retirement with their own super’ (down four points in the past six months). The proportion of households expecting to ‘use both private savings and the government pension’ increased two points to 42%.

I hope that our politicians have a plan for all of this – although, as this involves a bit of thinking beyond the next election, I doubt it!