This is the future, according to Hamish Douglass (CIO Magellan)

Link to video

I do agree with a lot of his views and that is why I am starting to think international diversification is a must especially if you have 20+ years before retirement. The world is going to be totally different place by then. You want to be owning Apple, Google, Amazon, Tencent, Alibaba, Samsung, Microsoft, Mastercard and other brands.

With the rate at which the world is changing the best way to own these businesses is through index funds/etfs. You just don't want be trying to pick a winner. It's way too hard so let the collective wisdom of the crowd decide the winners and you accept their decision and be happy with average return the market provides through indexing.

Very interesting views on future of property due to technological revolutions of driverless cars and virtual reality. It's going to be very interesting development the next 20 years I reckon for property investing.

Cheers,
Oracle.

 

Great points oracle.

It's a really interesting video and I agree with the sentiments also.

It'll really be fascinating watching it all unfold.

For me, I'll likely be weighting my super to international shares for the next 30-40 years for when I can access it.

Hopefully that does the trick and there's a few bob in there for some old man money

 

I'm sympathetic to these views but also note that Hamish is "selling his book" here which we all do. Predicting the future including winners and losers is very difficult as the world, and financial markets is a complex adaptive system.

I concur with your thoughts however. The challenge for AU investors will be letting go of franking credits and currency management. It's interesting that Vanguard's change of strategic asset allocation in its multi asset funds this year lightened both Australian shares and dropped Australian and International property. I imagine that they are informed by some of the same views.

I think that the real danger is for those that are holding Australia only market exposure in the coming decade. Long run, I expect that the ASX will still function as a market, so that there will be a case to invest in it as valuations will match business prospects, however the danger relates to value destruction caused by rebasing the market due to new realities. Given the concentration anything that puts a hole in bank earnings would sink our market.

Something like a 50/50 AU/International split perhaps with some hedged component for International seems like a reasonable starting point balancing out risk, currency and tax considerations. Not advice etc.

 

Yes, it is going to be a challenge for the All Ords to return historical 10%-11% going forward.

@Il Falco what are your views on emerging market / asia ex Japan exposure and asset allocation? In the past I remember you favouring developed market companies over developing market companies. Is the view still same or changed?

The returns for MSCI Asia Ex Japan are respectable 9.85% since 2000 in spite of just returning 2.5% over last 10 years. See here

The returns for MSCI emerging market are respectable 10.05% since 2000 in spite of just returning 0.60% over the last 10 years. See here

I am debating with myself how much allocation should asia/emerging markets weigh in my portfolio.

Cheers,
Oracle.

 

And there's always someone wanting to mess with the system

Cut imputation to fund company tax cut: academics

The Turnbull government could fund its company tax cuts by dumping dividend imputation in favour of a dividend discount or a Trump-style broadening of the base by denying interest deductions by companies.

Citing concerns about how Australia will afford to lower its corporate rate to 25 per cent, leading academics have modelled a series of reform options.

They include abolishing dividend imputation entirely, which would generate $11.1 billion a year at the 30 per cent rate.

Investors to lose dividend tax credits in 'epic proportions' under tax-cut plan

Institutional investors and superannuation funds face franking credit losses of "epic proportions" unless the government deals with the adverse effect of the interplay between a lower corporate tax rate and dividend imputation, experts warn.

The problem arises because under the Enterprise Tax Plan, tax is payable on a company's current-year turnover, whereas franking is based on the past year's turnover.

That means tax is paid at 30 per cent but credits can only be franked at 27.5 per cent, leaving a 2.5 percentage point credit that either gets trapped in the company or is pocketed by the government, which needs to find $25 billion to pay for the first phase of its plan.

While the mismatch only affects smaller companies at the moment, if the government manages to get its full plan through the Senate, shareholders in the nation's biggest companies will be short-changed.

 

Quote..
You want to be owning Apple, Google, Amazon, Tencent, Alibaba, Samsung, Microsoft, Mastercard and other brands.


Thanks for the link--He seems to understand the way Amazon works-and Amazon studies our acquisition habits and it can also be a form of superstitious thinking and i know from experience--to think that the list above will be all still there in ten years time,and the start-up's just like when Amazon first listed for $$1..50 in 1997...just do the maths on Amazon alone if you bought into at that price..

 

There wouldn't be any real need to cut franking.

It's being naturally reduced as the tax rates drop. So it's attractiveness diminishes overtime also.

If tax rates go quite low, then so does franking credits.

It would raise some cash though.

But imagine the cry about robbing Aussie mum and dad super funds and picking on retirees who depend on it.

Would be a brave move!

I would imagine govt would compensate somehow perhaps with a discounted dividend tax rate or something.

I couldn't see no franking with no replacement...we'd then have up to 78% tax rates

 

Forgive my poor memory if this isn't quite right...

But I think recently MLT? and AFIC? have each brought in a new board member with tech knowledge, to help them identify technology risks in the portfolio and identify possible opportunities also.

Whether this helps or not, who knows.

But it's probably better than not doing it. And it's good to know they're taking it seriously

 

Good question and not easy to answer. My view is still the same however what if I am wrong? Things change. Equity risk premium should still present in EM. For SANF perhaps a market weight strategy might be best, say 15% of total International in EM. As far as total EM vs. say an Asia ex Japan tilt, that will come to personal views, whether one wishes to region tilt or take total market view, of course this will be informed by ones investment philosophy. Take a look at the index construction when you get a chance, they aren't worlds apart. (Vanguards products). I can probably live with 8% and 4% of 7.5% total portfolio South Africa and Russia for the added diversification that comes with the FTSE emerging markets product. My thoughts only.

 

Unfortunately they arent going to be able to do much in this market. Way too much capital for far too few opportunities.

Out of interest both MLT and AFI show higher concentration than the ASX300 index....
ASX20 58% ; MLT Top 20 67% and ASX25 63% ; AFI Top 25 70%.

 

This is in part an inevitable product of a successful buy and hold strategy.

If you weight by market cap you will have market weightings, no matter the market movements. If you skew your weightings towards successful companies and don't sell them then your portfolio is going to skew towards the big end of town over time.

Obviously things could unravel quickly.

 

Yes this is true, it’s funny how buy-hold and index comes to look very similar indeed