News

2024, THE OUTLOOK FOR THE YEAR AHEAD 

Inflation remains the main concern. Most economists are predicting no more rate rises. Even a reduction towards the end of 2024. 

The US economy has been remarkedly resilient during 2023. Will it continue? 

Recession is still the key risk in 2024. Why? Because interest may have already been increased too much. History tells us that when interest rates rise as rapidly as they have, a recession follows. As one commentator put it, “A Day of reckoning follows”. 

We now have positive interest rates. That is, interest rates are giving a positive return after an adjustment is made for inflation. This is generally good for the economy. 

Hopefully I am wrong, but it would not surprise me if interest rates rose at least one more time. If they do a “hard landing” or recession is more likely.  Not so much in Australia but in the US.  

Where to invest in 2024? 

• Continue to increase exposure to Fixed Interest and cash. 
• For direct shares consider Westpac, ResMed, Ramsay and A2 Milk company. Also consider a small cap fund manager. Smaller companies are likely to do well during 2024. 
• International Shares and property keep steady with small increases. 
• Invest in property for yield only. 

Last year I said to increase exposure to Lithium stocks. This has proved to be wrong. The price of Lithium is back to where it was in late 2021. Gold stocks though have been good for portfolios. 

I look forward to our next review meeting. 

Yours Faithfully, 

Steve Burge 

2023, THE OUTLOOK FOR THE YEAR AHEAD 

The 2022 concerns of inflation, the war, and the hangover from COVID will affect 2023. 

World banks are on a mission to control inflation. They will succeed by raising interest rates. 

Interest rates have increased rapidly; the increases are not over yet. A fear now is that interest rates will be increased by too much. The current rate in Australia is 3.1% the consensus is that the RBA will increase rates to maximum 3.85%.  

If inflation begins to ease, stock markets are likely to increase rapidly. 

Recession seems much more likely especially in the US, Europe, and parts of Asia. Here in Australia? My view is that we will again be the lucky country. We have resources that are in demand!  

Where to invest in 2023? 

• Increase exposure to Fixed Interest. 
• For direct shares consider Lithium stocks, Health stocks, some banks and gold stocks. 

• International Shares and property keep steady with small increases. 
• Dollar cost averaging is likely to be a good strategy. This is the process of regular saving as asset values decline giving you more of the assets at a cheaper price to make a profit on when prices increase.  
• Invest in property for yield only. 

Last year fixed interest underperformed. It was the first year for many years that Australian Shares, International Shares, Property and Fixed Interest all reduced in value at the same time. 

I believe that 2023 will see a rebound of value for Fixed Interest. That said, high volatility is likely to persist. 

As always have faith in your strategy over the medium to long term (4-7years) and feel free to call me with any concerns about your wealth creation. 

I look forward to our next review meeting. 

Yours Faithfully, 

Steve Burge 

This time last year I wrote, “the word for 2020 was COVID”.  2021 has again been dominated by the pandemic and its COVID variants. 2022 may well be the year that we all accept that COVID is here to stay and learn to live with it.

Last year I wrote, “If the COVID vaccines prove to be the answer to the COVID pandemic, 2021 may well be a good year for financial markets. Cautious optimism is the outlook from most fund managers”.  2021 was a good year for well diversified portfolios.

The economic concern for 2022 is inflation caused by supply shortages and high demand caused by COVID. Initially inflation was thought to be a transitional effect of COVID. However, inflation has stayed more persistent than expected and higher than expected.

Commodity stock or stocks related to commodities tend to do best in a high inflation environment. Commodity stocks include Newcrest Mining (Gold), Rio (Iron ore), BHP (diversified mining), Woodside (Oil) and others.

Financial stimulus from Governments round the world is likely to be reduced during 2022, known as quantitative easing. This could lead to less money being lent by banks or making it harder to get a loan. Hopefully, quantitative easing will not be eased too quickly which may lead to a rapid retreat of equity prices. Not good for portfolios

Oil prices are predicted to rise during 2022 and 2023.

My theme for suggested investment during 2022 is Newcrest mining, Woodside and an increased exposure to fixed interest and Bonds.

Volatility is again likely to continue in 2022 so again remain confident in your portfolio and its long-term strategy.

My view is that 2022 will be an interesting year. A year that is even more difficult to predict. Not many voices are suggesting a recession, but it cannot be completely ruled out. Be cautious this year is my advice.

The major banks have already started to increase their fixed mortgage rates. This is a sure sign that they expect interest rates to increase.

The word for 2020 was COVID. COVID caused a steep drop in equity prices. In fact, a record drop in equity markets. The record drop in prices, was followed by another record, the best ever short term 50day rally. The COVID period gave us the worst economic crisis for 80 years.

If the COVID vaccines prove to be the answer to the COVID pandemic, 2021 may well be a good year for financial markets. Cautious optimism is the outlook from most fund managers. Much will be determined by the confidence of consumers. Will the vaccine help people to feel happy to travel again?

Governments round the world are committed to financial stimulus and have signalled that interest rates will remain low.

Low interest rates will be good for dividend paying stocks. 2020 saw dividends stocks, particularly banks, fall out of favour. Fully franked dividends tend to offer a better return than cash rates. Dividend paying stocks had a bad 2020 but are likely to come back in favour in 2021.

Iron ore prices have been very hot during 2020. However, predictions are suggesting that iron prices will moderate during 2021.

Volatility is very likely to continue in 2021 so be confident with your long-term strategy. The election of Joe Biden has reduced some of the volatility. I think the world has welcomed the prospect of some normality in US politics and its place in the world.

In general terms, I am looking forward to a good year for markets. Health care stocks should do well, so too technology and emerging markets, particularly Asia.

Australian Shares

• RIO has had a good year, up 23% and BHP up 18%
• Galaxy Resources up 49%
• Virgin Money (VUK) down 49%.

International Shares

• Hold steady but consider increasing exposure to Emerging Markets.

Property

• Domestic real estate is looking strong with a recent recovery. I will be interested to see if the current market strength continues.
• Commercial property should recover as the world gets back to work.

Interest Rates

• My view is, that we should still plan for increases especially when taking on more debt.

Generally, keep investing in quality good yielding shares. Consider increasing your portfolios allocation to Emerging Markets and property.

Consider reducing exposure to mining stocks and increasing exposure to dividend yielding stocks and health care.

Consider investing in post COVID stocks like Qantas, Sydney Airports and Transurban.

I look forward to our next meeting and as always please feel free to contact me any time.

Yours Sincerely,

Steve Burge

Last year I said, “There will not be many easy gains to be had in 2019”. Well, 2019 finished with markets having reached highs. The returns gained in 2019, in a well diversified portfolio, were quite spectacular.

2020, what might we expect? World tensions due to the trade war between China and the US, more recently tensions escalating in the Middle East, will probably slow the world economy.

Watching the UK general election, as I did, was staggering. A result nobody expected. The massive majority won by Boris Johnson and the Conservative Party, has eased the threat of a “hard Brexit”. Brexit though will happen. My view is that the UK getting out of Europe will present opportunities for Australia. The UK Pound is also likely to strengthen against the Australian Dollar. Companies with UK Pound exposure are likely to benefit as a result.

In general terms, expect lower than normal growth, low inflation and more volatility.

The risk of an outright recession in the US, the UK and Australia, is low but not out of the question. Bond markets have been predicting a recession within 18 months for the last six months!

The consequence of low interest rates has been to encourage borrowing and speculation rather than savings. Savers with portfolios have been forced to chase yields. This in turn could artificially inflate assets further. Long term, very low interest rates are not good for economies. We only have to look to Japan and Europe for evidence. So called “Zombie” companies can survive by paying much less for their debt. With normal interest rates Zombie companies do not survive allowing more efficient companies to make greater profits, create more jobs and invest more.

Low interest rates have also encouraged “buy-backs” rather than expansion. There were a lot of “buy-backs” in 2019.

As a strategy, Emerging Markets might do well in 2020, so I would encourage some investment in Emerging Markets.

I still favour the strategy of reducing the risk to your portfolio in favour of the steady gains that fixed interest offer. This strategy will be obtained by buying bonds and fixed interest, as the income from the growth assets (shares and property) that you currently hold, builds up your cash account. 

Australian Shares

• Ramsay has had a good year, up 26%.
• CYB now Virgin Money (VUK) also had a good year, up 7%.

International Shares

• Hold steady but consider increasing exposure to Emerging Markets.

Property

• Domestic real estate is likely to be patchy and, in my view, generally weak.
• Commercial property steady.

Interest Rates

• My view is that we should plan for increases.

Generally, keep investing in quality good yielding shares. Consider increasing your portfolios allocation to Emerging Markets and Fixed Interest.

I look forward to our next meeting and as always please feel free to contact me any time.

Yours Sincerely,

Steve Burge

2018, all was going so well until October! Volatility had returned. There will not be many easy gains to be had in 2019.

2018 has seen interest rates rise globally. This in turn, has had an impact on Bond yields and the “risk free” rate to which assets are valued.

Looking to 2019, fundamentally the world looks in OK shape. However, 2019 might be a year when international fund managers look outside the US for gains. The world is not just made up of investment opportunities in the US, despite the views of Donald Trump.

The rise of populism is a concern, especially for the larger institutions that we have relied on over the years.

Last year I said that it may be time to consider buying bonds and fixed interest. I maintain this is still the correct strategy albeit with a caveat. The caveat being that the traditional diversification effects of bonds to equities may not be so successful in 2019.

As interest rates increase, the value of bonds will decrease. The cash rate, also referred to as the “risk-free rate”, is the rate to which assets are valued. When interest rates increase this may cause a rethink about the valuations of assets, in a downward direction. Investors will ask, “Am I getting adequate compensation for the risk of holding shares when I can obtain a good return from cash?”

My belief is that the strategy of reducing the risk in your portfolio in favour of the steady gains cash and fixed interest offer is the way to proceed in 2019. This strategy will be obtained buying bonds and fixed interest as the income from the growth assets (shares and property) that you currently hold builds up your cash account.

Australian Shares

• 2018 continued to see Telstra and the banks decline
• In 2018 resources continued to do well. Although Lithium miners declined.
• The Reserve Bank of Australia (RBA) is likely to increase rates in 2019.
• Finding value in Australian shares in 2019 is not as difficult as last year due to falls in 2018. I favour the banks, AMP, CYB and Ramsay.

International Shares

• As mentioned above, the world is not just the US and whilst a recession is not expected a slow-down is.
• Fund managers will be looking away from America.

Property (Commercial)

• Still likely to offer yield only on listed Real Estate Investment Trusts.
• Possible exception to this is well targeted direct property trusts with reputable managers. Beware the liquidity trap with direct property trusts.
• My thoughts on domestic real estate is that it is difficult to see what will spark a price increase. Interest rates are likely to increase and the community has high debt levels. Not generally conditions under which real estate prices increase.

Interest Rates

• Expect increases globally.

Last year I said I liked Amcor, AGL, Stockland, Retail Food Group (RFG), Brambles, Ramsay Health and for those not averse to some “spice” in their portfolio, Evolution Mining.

All the above picks, apart from Evolution mining, were down. RFG was a disaster and Brambles was flat.

The fact that a gold miner like Evolution mining increased in value, reflects the worlds assessment of risk. Gold tends to do well in a volatile risky world.

This year I recommend that you build up bonds and fixed interest, although where appropriate the banks are looking like good value. The Royal commission into the banks, due early this year, if favourable, will likely see the banks increase in value.

I continue to like Ramsay health and also CYB as a hedge against the UK pound Oz dollar exchange.

I look forward to our next meeting and as always please feel free to contact me any time.

Yours Sincerely,

Steve Burge

Following on from an eventful but rewarding 2017, what could possibly go wrong in 2018?!

In 2017 there was concern about Brexit and President Trump. This year my concern is interest rates. Not that I expect them to go shooting up, just that the powers that be might hike them a little too quickly thereby killing the good economic conditions.

Perhaps we should be worried about Kim Jong Un and Amazon? Possibly, although surely the world will learn how to contain North Korea and surely he does not have a death wish?

Amazon is here and so far so good.

Looking to 2018, the world looks in very good shape. My view is that 2018 will be a year for sticking to your investment strategy. And, that it may be time to consider buying bonds and fixed interest, as the cash in your portfolio increases.

In other words, reduce the risk in your portfolio in favour of steady gains, not by selling the growth assets of shares and property but by buying bonds and fixed interest, as the income from the growth assets builds up your cash account.

Australian Shares

• Last year some of the big detractors within your portfolio were in the industrial sector; Telstra down heavily, retail down heavily (more about confidence than Amazon), Media down heavily and banks pretty much a flat line.
• Resources did well; BHP, Galaxy, RIO up.
• Wage growth is still subdued, a puzzle as we have low unemployment.
• The Reserve Bank of Australia (RBA) is likely to increase rates.
• Finding value in Australian shares is difficult. Possibly consider Retail Food Group, Amcor, AGL and Stockland. For those who like gold mining with risk, Evolution Mining. As you know I do not generally favour gold stocks other than Newcrest.
• Also worth looking at Ramsay for health care exposure and Brambles as I expect the US dollar to strengthen against the Aussie dollar.

International Shares

• The world is looking good especially emerging markets which had a good 2017.
• America up, Europe up, Japan up, the UK up during 2017 and likely to continue.
• Do we have a goldilocks, (not too hot and not too cold) global economy for 2018?
• I remain optimistic for 2018. Companies that can benefit from higher interest rates will be the winners.

Property (Commercial)

• Still likely to offer yield only on listed Real Estate Investment Trusts.
• Possible exception to this is well targeted direct property trusts with reputable managers. Beware the liquidity trap with direct property trusts.

Interest Rates

• Expect increases generally globally.

Last year I said that the UK Pound will likely improve in value, as the terms of Brexit become clearer. Stocks like CYBG PLC, (the Clydesdale and the Yorkshire Bank), Wesfarmers and Henderson, should all benefit from this.

During 2017 CYB was up approximately 19%, Henderson approximately 25% and Wesfarmers approximately 6.5%. Nice to get a prediction right but it was a good year!

I also said stocks with US dollar exposure, Macquarie Group, Amcor, Brambles and CSL should benefit from the Trump effect.

During 2017 Macquarie up approximately 13%, Amcor basically flat, Brambles down approximately -20% and CSL up approximately 39%.

I continue to recommend, as I did last year, to hold banks for yield and buy health care. This year I also recommend that you build up bonds and fixed interest.

Ramsay health has had a small loss during 2017, basically flat. As mentioned earlier, worth considering as the world ages. Ramsay has exposure in the UK and Europe as well as Australia.

I look forward to our next meeting and as always please feel free to contact me any time.

Yours Sincerely,

Steve Burge

2017 has started well. Will it continue?

At the start of 2016 the world was worrying about Chinese growth fears. This fear, contributed to volatility, the like of which had not been experienced since 2011.

It was difficult to achieve a positive return in 2016. It was a year when taking on more risk was not always rewarded.

Australian Shares

• Last year the concern was China. This year the concern is Brexit and President Donald Trump (PDT).
• The Australian Economy contracted in the September quarter but is not expected to go into a recession.
• Low wage growth is subduing spending. This is bad for profits and jobs.
• Employment growth has continued to disappoint.
• Commodity prices have lifted and if this continues does offer some hope.
• The Reserve Bank of Australia (RBA) is likely to leave rates on hold.
• Investment Value should be found in aged care as our population ages.
• Banks are likely to continue to offer a good yield but muted growth.
• Continue to look for stocks with exposure to the UK Pound and US dollar.

International Shares

• “Sell on the rumour, buy on the news.” This sums up PDT’s win.
• The big fiscal stimulus promised by PDT, plus planned corporate and personal tax cuts has seen the American market reach new highs.
• Has, or will the market get ahead of itself? The risk to watch out for?
• US valuations are above their long term average. US interest rates are likely to increase. Increased rates are not good for firms holding debt.
• We are unlikely to really know what effect the PDT administration will have on the American economy until February at the earliest. That said, so far it is looking good.
• The UK government might have to navigate a very hostile Brexit environment. However, I believe the pound will increase at some point.
• Europe seems mixed but OK. The risks include: the fragile Italian banks; that Brexit will cause other countries to leave the EU; and that “popular” politics will bring in the far right to help govern.
• Still cautious in Japan, China and Asia, although China is projected to grow at about 6% this year.

Property (Commercial)

• Late in the commercial property cycle, so maintain 10-12%. Likely to offer yield only.

Interest Rates

• Expect increases generally globally.

2017 looks like being a very interesting year.  If PDT can control his thin skin, his temper and his Twitter diplomacy, he may move the American economy in the right direction.

Some of the risk is that the American economy will falter under too much protectionism and an expanding deficit to satisfy promised tax cuts. However, in the traditional Australian way, we will give PDT a “fair shake of the sauce bottle”!

My advice is to stick to your intended portfolio strategy but to look for areas that offer opportunities. In other words, look for small tactical adjustments within your strategy, rather than changing your whole strategy.

I believe that the UK Pound will improve, as the terms of Brexit become clearer. Stocks like CYBG PLC, (the Clydesdale and the Yorkshire Bank), Wesfarmers and Henderson, should all benefit from this.

Stocks with US dollar exposure, Macquarie Bank, Amcor, Brambles and CSL should benefit from the Trump effect.

Hold banks for yield and buy heath care.

Having a well-diversified portfolio with quality assets should give you faith that you can weather the storms and other challenges of 2017.

The next few years may turn out to be more challenging than the previous few.  We are in a low growth, low return era. Real returns of 4-5%pa will be good.

I look forward to our next meeting and as always please feel free to contact me anytime.

Yours Sincerely,

Steve Burge

There is no doubt that Brexit was a shock to many. However, there may be some opportunities that arise as a result of the decision.

Basically, companies with UK pound earnings are now cheaper than a few weeks ago. This is because the UK pound is weak against the A$ as a result of Brexit.

As time passes, I believe that the pound will recover. Therefore, those Australian listed companies will increase in value (in A$ terms) even if the companies themselves, do not increase in value. This is similar to when the A$ was strong against the US$. Significant rewards have been gained for investors in CSL, Amcor and Brambles who purchased these companies 18 months ago when the US$ was weak against the A$S.

The following is a list of direct shares that could benefit in the long term from Brexit.

• CYBG PLC is a holding company that owns the Clydesdale and Yorkshire bank. You may already have a small holding of this share as a result of owning the NAB.

• Wesfarmers has recently purchased Homebase, a DIY business that Wesfarmers is hoping to turn into the UK equivalent of Bunnings.

• Henderson Group PLC (HGG) is a global investment company located in London.

• Amcor, a paper and packaging company that has dealings in Europe and the UK.

• Ramsay, a health company that has dealings in Europe and the UK.

Please let me know if you would like to take advantage of this possible opportunity.

This must be considered a long term approach. It will be two years, at least, before the UK is completely decoupled from the EU.

Turmoil = Opportunity