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Life insurance premiums are calculated based on a number of factors, such as your age, gender, health at the time of application, smoking status, occupation, lifestyle and hobbies. Your health can play one of the biggest roles in determining your premiums, so having a healthy lifestyle can have both personal and financial benefits. Do you smoke or drink? Smoking cigarettes, vaping and drinking alcohol are risk factors to your health, which is why insurers will generally ask how much you drink and smoke. Non-smokers generally pay lower premiums than smokers, and excessive alcohol consumption may attract higher premiums. Given up smoking or drinking since you took out your policy? Let your financial adviser know so they can review your policy, you might be able to reduce your premiums. Eat well and exercise regularly Regular exercise and a healthy diet have many benefits for our overall health, which is why it’s also viewed favourably by insurers. Some insurers offer discounts to customers who are enjoying a healthy lifestyle, get regular health checks and manage healthy body mass index (BMI) levels. Manage pre-existing health conditions Depending on your policy, pre-existing health conditions could result in exclusions applied to your policy or higher premiums to cover the risk. Treating your condition effectively, including making any lifestyle changes your doctor suggests, can have positive effects on your health and on the cost of your premiums. If a pre-existing condition has been successfully treated and no longer requires ongoing tests or hasn’t needed treatment for a specified period of time, your insurer may consider offering cover without any exclusions. Have dangerous hobbies? High-risk activities, such as skydiving, motorsports or skiing, or occupations that require regularly operating heavy machinery or working at heights, may attract higher premiums because of the increased risk. Being healthy is its own reward – you’re likely to live longer and feel better – but when it comes to life insurance there can be financial benefits too.   Source: TAL

Your financial health is key to the health of your wellbeing, relationships, work and home life. It’s important to have a regular checkup of your financial position to ensure you’re on track and to confirm your money is where you think it is, your investments are performing as they should, and debts are regularly serviced and not growing. A financial plan will generally work around three basic savings accounts: A buffer account which would ideally allow for three to six months of expenses. A short term savings account for large expenses such as a holiday, renovation, home deposit and school fees. A long term account where you save for big ticket items like property. And then there’s your superannuation account. Each time you do a pulse check, check each of these accounts to ensure they are still working towards your goals. At the same time, it’s important to review your outgoings to make sure you’re moving forward and not falling behind. When to check Now is a particularly important time for pulse checking. Currently, around 5 per cent of mortgage holders in Australia are spending more than they earn on repayments and other living expenses, according to the Reserve Bank. People have been meeting their shortfall through savings made during the pandemic, but overall their reserves are now falling below the six-month buffer. You should conduct a pulse check at least once a year. This is where you review your budget – what you’re spending and earning. Consider if you have underestimated or overestimated your spending – and adjust it accordingly. It’s an awareness piece. Really look at the information and investments like super – is it what you were expecting, has anything changed in the way you want it invested? Ask yourself: how are you meeting your financial goals? Is your plan on track? How are your long term savings growing? This is also a good time to review if anything has changed in your life – new relationship, new job, children, moving house, death in the family or divorce. If any of these have changed then you need to review your full plan and account for those life changes, including updating any beneficiaries. The pulse check should also include making sure your super contributions from your employer have been paid into your super fund account. Companies often pay quarterly so it’s important to make sure nothing is missed. If there are any issues here, it’s best to know as soon as possible. We’ve all heard horror stories of companies going broke and not paying staff entitlements like super. It’s your money, you’ve worked hard for it and earned it – don’t lose it. Retirees tend to have a good idea of what’s going on with their finances but people in the accumulation stage need to consciously keep a plan and budget. The more organised you are and the better your habits, the better your chance of financial success. People need to have a pulse check at least annually, but probably every six months just to check how the plan is going. For example, someone might have an emergency fund of $40,000 which is sufficient if it remains there. But when it starts going down for purchases that might not be emergencies, there needs to be a conversation – is this a genuine emergency or is the spending no longer following the plan? There also needs to be a check in that you and your partner are on the same page. Overspending can happen to anyone Over time, it can be high earners that are not good with savings, so if you fall into this category, make sure it doesn’t get out of hand. A pulse check is important for everyone at every stage of life and making sure you have it scheduled regularly is important because it’s when you leave things unchecked that a previously strong financial position can retreat.   Source: Money and Life

In retirement, every dollar counts and it is worth exploring different strategies to grow your retirement income. Here’s how do it… Use your super wisely If you’re about to retire or are in retirement, it can be tempting to take your superannuation as a lump sum payment. However, this means taking money out of a tax-friendly environment and potentially placing it in investments that could attract tax at higher rates. An alternative is to use your super savings to purchase a retirement income stream called an ‘account based pension’ or allocated pension. The earnings of an account based pension are tax-free and you enjoy a regular source of cash in much the same way your wage or salary was paid during your working days. Review your super investment mix If you choose to leave your super savings in the superannuation environment, it is important to review the way your super is invested at least annually. It can be tempting to switch all your super to low-risk investments but without some exposure to higher risk ‘growth’ assets like shares and/or property, your super savings might not benefit from potential capital growth. Consider age pension entitlements Depending on your assets and income, you may be entitled to receive a full or part payment of the age pension. Even a small part payment could see you entitled to a range of concessions including discounts on council rates and other benefits. If you are a home owner, your family home could be your most valuable asset – worth more than even your superannuation. Your home equity can provide a potential source of funds in retirement, and you may not have to sell up or move in order to benefit from that equity. Think about using home equity Your financial adviser can discuss possible options to access home equity in retirement. Source: BT

While self managed super funds are not for everyone, they do offer significant benefits. Running an SMSF successfully requires investment, legal, super and admin skills – or the ability to get help from people who have those skills. Having control over how your retirement savings are invested is one of the many benefits of SMSFs. On the flip side, the responsibilities and management skills required to run an SMSF are significant. This is because you’re accountable for your SMSFs regulatory compliance, not your accountant, financial adviser or solicitor. What is an SMSF? An SMSF is a private super fund you manage yourself, giving you more control over how your retirement savings are invested. SMSF members must be trustees (or directors of the self managed super fund corporate trustee) and are beneficiaries of their SMSF. This means SMSF members are responsible for managing the fund’s investments and compliance with super and tax laws. This hands on approach sets SMSFs apart from public super funds, which are managed by financial institutions. Benefits of SMSFs Access to more investment options Having an SMSF provides more choice and freedom to access investment options that would otherwise be unavailable through a public super fund. This includes assets like real property, art and collectibles (such as stamps and coins), as well as physical gold. Unlike investing with an industry, bank or retail super fund, your SMSF can borrow to invest in property, using a Limited Recourse Borrowing Arrangement (LRBA). This strategy is a good option to help expand your investment portfolio. However, there are restrictions and compliance requirements. The Australian Taxation Office (ATO) has warned investors of the dangers of over investing (and over borrowing) into property within SMSFs. Control If you’re a member of an SMSF, you have greater control over how your super’s invested while working, and how it’s paid when you retire. This means you can invest in many of the products available to public super funds, as well as some products that aren’t. For example, SMSFs can invest directly in real estate, rather than being restricted to property trusts as many public funds are. Tax benefits You’re entitled to the same reduced tax rates that are available through super so your investment return is taxed at a maximum of 15% (provided that your SMSF is a complying fund) rather than your personal income tax rate which could be as high as 45%. In addition, any payments received after the age of 60 are tax free. These tax benefits are common to all super funds, not just SMSFs. However, SMSFs have more flexibility to use tax strategies around capital gains, taxable income or franking credits. More scale to access opportunities Generally speaking, an SMSF can have up to six members. Bringing six investors’ money together, offers greater scale to access investment opportunities that may not be available to you as an individual investor. Having scale may also help to keep fees down. This is because you can pool your assets and share expenses, leading to potential cost savings, which means you may have more funds available for investment growth. Estate planning One often overlooked advantage of an SMSF is that they can provide greater flexibility or control with estate planning, if a member was to pass away. An SMSF trust deed may also provide how and to whom death benefits will be distributed as long as these align with super law. The deed may also allow for cascading death benefit nominations or the exclusion of certain beneficiaries. Benefits could also be distributed to beneficiaries in a tax effective way. Considerations to be aware of with SMSFs Responsibility Managing an SMSF is not easy. As the trustee, you need to ensure the fund complies with all relevant regulations otherwise you could face severe consequences for getting it wrong. If the fund is deemed to have breached its compliance responsibilities, penalties can include fines and civil or criminal proceedings. Depending on the offense, tax penalties could be increased, including fund returns being taxed at the top marginal tax rate as opposed to the concessional super rate of 15%. Expertise What investors often overlook is the financial and investment expertise required to run, or be involved in running an SMSF. As a trustee, you’ll be responsible for creating and implementing your own investment strategy – one that will need to deliver enough returns to adequately fund your retirement. This means you need to: Understand how investment markets work, including share markets. Record your investments and transactions. Ensure your fund is adequately diversified to help manage risk. You’ll also need to remain up to date on any changes to legislation that affect SMSFs as these may have compliance requirements. An understanding of how to manage legal documents, such as a trust deed, is also beneficial. However, a legal professional could help you with this. Time The administration and management of an SMSF is time intensive so if time is something you’re short of, an SMSF may not be a good option. On the other hand, many SMSF investors enjoy the sense of involvement and purpose that running their own fund brings. Higher insurance costs Public super funds can generally provide cheaper insurance to their members than SMSFs. This is because they have large memberships and can negotiate discounted bulk premiums with insurance providers. Outsourcing your SMSF to professionals If you find you don’t have the time or investment knowledge to manage your SMSF, you can outsource this to investment managers, financial advisers or other experts. This will come at an additional cost though. Minimum amount required for SMSFs There is a lot of controversy around what should be a reasonable amount to set up an SMSF. There’s no minimum amount required to set up an SMSF but depending on the fund’s complexity and structure, set up costs, administration, reporting and legal fees, it can become expensive. It’s generally more cost effective if your SMSF has a higher balance. Source: MLC

Introduction In the confusing and often seemingly illogical world of investing, investors often make various mistakes that keep them from reaching their financial  goals. This note takes a look at the nine most common mistakes. Mistake #1 Crowd support indicates a sure thing “I will tell you how to become rich…Be fearful when others are greedy. Be greedy when others are fearful”. Warren Buffett, Investor and CEO It’s normal to feel safer investing in an asset when your friends and neighbours are doing the same and media commentary is reinforcing the message that it’s the place to be. But “safety in numbers” is often doomed to failure. The trouble is that when everyone is bullish and has bought into an investment with general euphoria about it, it gets to a point where there is no one left to buy in the face of more positive supporting news but instead there are lots of people who can sell if the news turns sour. Of course, the opposite applies when everyone is pessimistic and bearish and have sold – it only takes a bit of good news to turn the value of the asset back up. So, the point of maximum opportunity is when the crowd is pessimistic (or fearful) and the point of maximum risk is when the crowd is euphoric (and greedy). Mistake #2 Current returns are a guide to the future “Past performance is not a reliable indicator of future performance”. Standard disclaimer Faced with lots of information, investors often use simplifying assumptions, or rules, in order to process it. A common one of these is that “recent returns or the current state of the economy and investment markets are a guide to the future”. So tough economic conditions and recent poor returns are expected to continue and vice versa for good returns and good economic conditions. The problem with this is that when it’s combined with the “safety in numbers” mistake, it results in investors getting in at the wrong time (e.g. after an asset has already had strong gains) or getting out at the wrong time (e.g. when it is bottoming). In other words, buying high and selling low. This is pertinent now with shares providing strong gains over the last two years – with US shares up 56%, global shares up 49% and Australian shares up 25% – despite lots of worries about interest rates, recession, commercial property and US banks, wars, elections, etc. This has brought with it a temptation to conclude we are in a “new era” where macro problems don’t matter and that even if they do central banks will protect us by slashing rates and pumping money in (the so-called “central bank put” which morphed from the “Greenspan put” many years ago) and governments will do the same with government spending. Unfortunately, we have heard the “this time is different” argument many times before only to find out that it’s not – usually when we are most complacent! The reality is that shares have done well over the last two years because they came off a big cyclical fall in 2022 and the threats have not proved that serious economically. For instance, the much feared recession has failed to appear and the war in the Middle East has not disrupted global oil supplies (so far). And the “central bank put” did not prevent the tech wreck and the GFC (both saw US shares fall around 50%) and various other share market plunges. Just because shares have had strong returns over the last two years, despite lots of worries, doesn’t mean that the cycle has been abolished and that there is nothing at all to worry about. Mistake #3 “Experts” will tell you what will happen “Economists put decimal points in their forecasts to show that they have a sense of humour”. William Gillmore Simms, Novelist and Politician The reality is that no one has a perfect crystal ball. It’s well known that forecasts as to where the share market, property market and currencies will be at a particular time have a dismal track record, so they need to be treated with care. Usually the grander the forecast, calls for “new eras of permanent prosperity” or for “great crashes ahead”, the greater the need for scepticism as either they get the timing wrong or it’s dead wrong. Market prognosticators suffer from the same psychological biases as everyone else. And sometimes forecasts themselves can set in motion policy changes that make sure they don’t happen – such as rate cuts heading off sharp house price falls in the pandemic in 2020. The key value of investment experts is to provide an understanding of the issues around an investment and to put things in context. This can provide valuable information in terms of understanding the potential for an investment. But if forecasting was so easy, the forecasters would be rich and so would have retired! Mistake #4 Shares can’t go up in a recession… “It’s so good it’s bad, it’s so bad it’s good”. Anon A common lament around in second half 2020, after share markets rebounded from their late March 2020 pandemic low, was that, “the share market is crazy as the economy is in deep recession and earnings are collapsing!” Of course, shares kept rising into 2022, economies recovered, and earnings rebounded. The reality is that share markets are forward looking, so when economic data and profits are really weak, the market has already factored it in. History tells us that the best gains in stocks are usually made when the economic news is still poor, as stocks rebound from being undervalued and unloved, helped by falling interest rates. In other words, things are so bad they are actually good for investors! Of course, the opposite applies at market tops after a sustained economic recovery has left the economy overheated with no spare capacity and rising inflation and so the share market frets about rising rates. Hence things are so good they … Read more

Superannuation funds have recorded another impressive year of returns for members with international technology and Australian banking shares driving above average returns over 2024. Concerns over inflation caused a slow start to the year, with multiple negative monthly returns recorded until October 2023. Increased confidence in the outlook for inflation and ongoing developments in artificial intelligence led a market rally from November to March and while higher than expected inflation data led to a stumble in April, returns recovered quickly to finish the year strong. Given the significant range of outcomes across different months it remains important to focus on longer term outcomes, with funds continuing to prove they can deliver good outcomes over various market cycles. All Balanced funds, those with a strategic allocation of between 60% to 76% of their portfolio invested in growth assets, are expected to deliver positive returns to members, while the top performing funds provided members with double digit returns over the financial year. Hostplus’ Indexed Balanced option was the top performing option in the SR50 Balanced (60-76) Index for the year ending June 2023, returning 12.2%, closely followed by Raiz Super’s Moderately Aggressive option and Colonial First State’s Enhanced Index Balanced option with returns of 12.1% and 11.4% respectively. Top 10 Balanced options over 12 months to 30 June 2024 Rank Option Name 1 Year % 10 Year % p.a. 1 Hostplus – Indexed Balanced 12.2 7.7 2 Raiz Super – Moderately Aggressive 12.1 – 3 CFS-FC Wsale Pers – CFS Enhanced Index Balanced 11.4 6.7 4 ESSSuper – Balanced Growth 11.1 – 5 IOOF Employer Super – MLC MultiSeries 70 10.9 7.0 6 Brighter Super – Balanced 10.6 – 7 GESB Super – My GESB Super Plan 10.4 6.6 8 Qantas Super – Growth 10.1 7.3 9 Australian Retirement Trust – Super Savings – Balanced 9.9 8.1 10 MLC MKey Business Super – MLC Balanced 9.6 7.0 SR50 Balanced (60-76) Index^ 8.8 7.0 ^ indicates interim result. Returns are after investment fees and taxes and are rounded to one decimal place; however, rankings are determined using unrounded data held by SuperRatings. Based on options included in the SR50 Balanced Index. The table above displays the top performing balanced funds for the year to 30 June 2024, as well as showing 10-year returns for options with a 10 year performance history, an important consideration given the long-term nature of superannuation investments. In a repeat of 2023, funds with a higher exposure to shares and listed assets generally outperformed for the year, while those with greater exposure to unlisted property reported more subdued outcomes. As a result, members who were invested in index funds generally outperformed more actively managed options, given the strong focus on, and allocation towards, listed shares. Top 10 Balanced Index options over 12 months to 30 June 2024 Rank Option Name 1 Year % 5 Year % p.a. 1 Aware Super Future Saver – Balanced Indexed 12.9 – 2 Hostplus – Indexed Balanced 12.2 7.2 3 Rest – Balanced Indexed 12.2 7.1 4 Australian Retirement Trust – Super Savings – Balanced Index 12.1 6.6 5 Brighter Super – Indexed Balanced 12.0 7.2 6 HESTA – Indexed Balanced Growth 11.9 – 7 netwealth Super Accelerator – Index Opportunities Growth Fund 11.5 5.3 8 AustralianSuper – Indexed Diversified 11.5 7.0 9 Cbus – Indexed Diversified 11.4 – 10 NGS Super – Indexed Growth 11.4 6.0 Returns are after investment fees and taxes and are rounded to one decimal place; however, rankings are determined using unrounded data held by SuperRatings. Based on index options tracked by SuperRatings. The top performing indexed fund was Aware Super’s Future Saver – Balanced Indexed option with a return of 12.9% for the year to June, while all top 10 indexed options returned double digits to members. Top 10 MySuper Lifecycle options over 12 months to 30 June 2024 Rank Option Name Growth Assets % 1 Year % 10 Year % p.a. 1 Colonial First State Essential Super MySuper – LifeStage 1975-79 90 14.6 – 2 Colonial First State First Choice MySuper – LifeStage 1975-79 90 14.4 7.6 3 Virgin Money Super – LifeStage Tracker Born 1979 – 1983 90 13.2 – 4 Vanguard MySuper – Lifecycle Age 47 and under 90 13.2 – 5 Mine Super MySuper – Lifecycle Investment Strategy Under Age 50 95.2 12.5 8.2 6 Russell iQ Super MySuper – MySuper GoalTracker Age 50 and Under 95 12.3 – 7 GuildSuper MySuper – Growing LifeStage 75 11.6 7.5 8 Mercer SmartPath – MySuper Born 1979 – 1983 85 11.6 7.9 9 AMP SignatureSuper – MySuper 1970s 91 11.1 7.6 10 Aware Super Future Saver – MySuper Lifecycle High Growth 88 10.9 8.8 Returns are after investment fees and taxes and are rounded to one decimal place; however, rankings are determined using unrounded data held by SuperRatings. Based on MySuper Lifecycle options for a member aged 45 or under tracked by SuperRatings. Members who are invested in default options have also done well over the year with funds that have adopted a lifecycle investment style outperforming single default options. This is due to their higher allocation to shares, particularly for younger members. We have noticed a trend of lifecycle options increasing their exposure to growth assets such as shares over the past 12 months. While this has benefited members this year, higher exposure to these assets also comes with increased ups and downs, and we encourage members to learn how their fund’s investment strategy works so they are comfortable with annual and long-term performance outcomes. Top 5 Sustainable Balanced options over 12 months to 30 June 2024 Rank Option Name 1 Year % 5 Year % p.a. 1 Raiz Super – Emerald (SRI) 14.8 8.4 2 UniSuper – Sustainable Balanced 12.2 7.0 3 Vanguard Super SaveSmart – Ethically Conscious Growth 12.2 – 4 Aware Super Future Saver – Balanced Socially Conscious 11.1 7.5 5 Future Super – Balanced Index 10.1 5.3 Returns are after investment fees and taxes and are rounded to one decimal place; however, … Read more

A managed fund generates income from its investments – for example, through share dividends, interest on cash or fixed interest investments in the fund, or any gains made when fund investments (like shares) are sold. So in short, a distribution is profit or income made by a fund and paid to investors. How are distributions paid? Managed investment funds are required to pay all realised income and capital gains to investors for the financial year. Income can be paid monthly, quarterly, half yearly or yearly, depending on the fund. You may receive your distribution as a cash payment, for instance as a payment to your designated bank account, or as an amount that is reinvested back into the fund. As an investor, you should also receive a statement that outlines the amounts and types of income generated by the fund and distributed to you, which may be helpful at tax time. How are distributions calculated? The income of all individual investments in a fund for a given time period is calculated taking into account things like share dividends or interest payments. The fund’s deductible expenses (things like management fees and other payables) are then subtracted, leaving the total amount of income that can be paid out. That amount is then divided by the total number of units in the fund to provide an amount of distribution per unit. For example, if the distribution for a fund was $1 per unit and an investor owned 100 units in the fund, they would receive a distribution of $100. What does the unit price have to do with distributions? When you invest in a fund, you’re pooling your money with other investors to access a professionally managed portfolio of investments overseen by skilled investment managers. In exchange, you’re allocated a number of units that correspond to how much money you’ve invested – based on the fund’s unit price at the time of investment. Why does the unit price fall after a distribution? When you receive a distribution for the income generated by a fund’s investments, the value of the fund reduces by the amount of the total distribution. This results in a lower unit price because income from the fund’s investments is being paid from the fund to investors, reducing the total value of the fund’s assets – a figure that is divided by the total number of units owned in the fund to determine the unit price. This doesn’t mean you’ve lost money on your investment or that your investment in a particular fund has changed – rather, you retain the same number of units in the fund, which has simply decreased in value by the amount of the distribution paid to you. Distributions that are reinvested back into a fund are used to acquire more units in it. This means the value of your investment should not fall as you will be allocated additional units. Why aren’t distributions paid to super funds? While managed investment options (funds) outside of super pay distributions to investors, investment options within super do not. That’s because there is a different structure and purpose for super, which members can’t access until retirement. Generally, super balances fluctuate higher and lower over time depending on the contributions members make and the performance of the funds their super is invested in. Investment options within super contribute to super balances through the unit price, which changes daily based on the performance of each fund’s investments. Effectively, the distribution amount is retained in your super and forms part of your super balance, which over time can be used to acquire more investments in the options your super is invested in. Source: Colonial First State

While an exposure to hedge funds can provide a lift to a portfolio’s performance, they also offer the potential to generate high returns… at a risk. What’s a hedge fund and how do they work? Hedge funds typically play an important role in financial markets. In fact, when markets are volatile, hedge fund managers are often able to spot, and take advantage of, interesting investment opportunities and inconsistencies in markets that can generate extra returns for a portfolio. Alfred W Jones is widely considered to have started the first hedge fund in 1949 in the US when he raised US$100,000 to start his fund. Of this money, US$40,000 was his. Jones’ aim was to use some of the money he raised to establish the fund to minimise its losses. Back then, the fund was known as a ‘hedged’ fund. That is, it tried to hedge its investments by using different types of financial instruments to offset the risks it took on its positions. This is a trait of hedge funds that continues to this day. Hedge funds can invest in many different asset classes – shares, bonds, listed property trusts, as well as all the derivative instruments they use to hedge their positions such as options, futures and foreign exchange contracts. They can also invest in listed and unlisted investments. This style of fund also has a number of other defining features, such as investors needing a large minimum amount to invest (an initial outlay of $50,000 or more is typical). Usually only sophisticated investors or professional fund managers allocate money to them, because of the significant risks to which hedge funds are exposed – they have the potential to make, but also lose, lots of money. So it’s not usually appropriate for retail investors to have significant exposure to them, unless it’s through an investment fund managed by professionals. Hedge funds are also relatively illiquid. This means it can be hard to withdraw money from them at short notice. They are often largely unregulated, which also increases the risks to which they are exposed. For instance, unlike other managed funds, they don’t have to produce extensive disclosure documents that clearly outline their risks. In terms of fees, hedge fund managers are rewarded for the returns they produce. So while their fees can be quite high, so too can their returns. So, how do they invest? Long/short strategies This is a classic hedge fund strategy. It involves going ‘long’ on a position, and at the same time going ‘short’ on an associated position to offset any potential risks. A common example is to buy one stock in a sector in the belief its share price will rise and short, or, sell another stock in the same sector in the belief its share price will decline.   Global macro fund Global macro fund managers make their investments based on their views on what’s happening in different markets around the world, often trading off a positive view about a market with a negative view about a market. For instance, if a fund manager thinks economic growth in Asia will outstrip economic growth in Europe, it might invest in Asian shares and sell European shares. This style of fund is similar to a pure long/short fund, but typically, it’s far more leveraged. In other words, the fund manager will borrow large amounts of money to take bets on various investment themes it can express in markets right around the world. Macro funds also use derivatives to express an investment view and manage risk. Distressed debt Some hedge funds look to take positions in fixed income investments issued by businesses that are under stress or not rated as investment grade. These bonds often pay a relatively high interest rate and offer guaranteed income for the life of the bond, which can help support the hedge fund’s returns. The fund manager applies its skill to identify assets that have the potential to generate healthy returns over time, in line with its risk profile. Hedge fund of funds Another approach to hedge fund investing is to allocate to a ‘fund of funds’. This is a fund that invests in a group of hedge funds, all with different exposures and risk tolerances. The reason why investors choose to invest in a hedge fund of funds is to diversify their exposure, while maximising their potential for gains. How are hedge funds used in an investment portfolio? An allocation to hedge funds can provide an important source of diversification, not just when markets are volatile, but over time. Hedge funds invest in many different strategies that are uncorrelated to equities markets, such as fixed income funds and emerging markets opportunities, so an exposure to hedge funds has the potential to smooth out a portfolio’s returns over time. There are many different types of hedge funds, all with different target returns and investment profiles. So it’s often useful to delegate the choice of hedge funds to professional managers who are able to select funds based on their risk/return profile, to suit the investor’s objectives. Source: BT

Investing in infrastructure is about investing in the companies that provide essential services to society and earning predictable, reliable returns in the process. More than 350 infrastructure and utility companies are listed on global stock markets, with the sector having a combined market capitalisation in excess of US$4 trillion; about three times the market value of the Australian stock market[1]. The services provided by these companies are essential to the efficient function of communities, providing assets that have reliable earnings growth and stable income streams in times of market declines. As investments, infrastructure stocks exhibit unique characteristics, including reliable cash generation, inflation protection, defensiveness in declining markets, and low correlations with other asset classes creating a compelling case to include the sector in a diversified portfolio. As it is traditionally defined, infrastructure typically refers to large, tangible assets that deliver essential services. While utilities, highways and pipelines are widely regarded as infrastructure, the status of other assets, including car parks, data centres, and satellites attracts debate. Notwithstanding this complexity, the case for investing in infrastructure is clearly demonstrated by an examination of the sector’s attributes. Why invest in listed infrastructure?  As an asset class, infrastructure exhibits four distinctive characteristics: Infrastructure generates reliable cash flows – The vast majority of infrastructure assets exhibit predictable demand, limited competition and a stable regulatory environment. Infrastructure is thus well positioned to generate reliable cash flows and solid and stable earnings growth, no matter what economic conditions prevail. Infrastructure offers inflation protection – Infrastructure comes with built-in protection against inflation because regulators allow these companies to raise their prices to protect their earnings when their costs rise. Infrastructure has lower risk of capital loss – Assets that have reliable earnings growth and stable income streams are typically havens in periods when equity benchmarks decline. Infrastructure exhibits low correlations with other asset classes – Because the earnings of infrastructure companies exhibit low levels of sensitivity to economic conditions, the returns of infrastructure investments typically exhibit low correlation with other asset classes, offering diversification benefits for investors. Including infrastructure in a diversified portfolio can enhance returns and reduce portfolio risk. Infrastructure – always in demand Investing in infrastructure is about investing in the companies that provide essential services to society. We are so used to these services in our lives that perhaps we underestimate the range of essential services that are provided the world over, every minute of every day. Communication towers The phenomenal growth of the Internet and mobile devices means that communication towers play an essential role in the efficient function of a modern community. The biggest tower operators have a large reach. American Tower, for example, has nearly 226,000 towers across 25 countries in five continents[2]. Other examples of telecommunication tower stocks include Cellnex Telecom, Vantage Towers and Crown Castle International. Global mobile data traffic is expected to grow 20% p.a. over the six years to 2028. Water Water is perhaps the most essential of all infrastructure services. Australians consumed more than 13,800 gigalitres of water in FY2020-21[3], with the average household bill being $832 a year[4]. In 2020-2021, the total expenditure on distributed water by Australian households, businesses and other bodies was about $9.2 billion. Examples of global infrastructure water stocks include United Utilities of the UK and American Water Works. Humans can use only about 0.3% of the world’s supply of water[5]. Natural gas Natural gas is nearly as interwoven into our daily lives as electricity. In Australia, ~42,000 kilometres of natural gas transmission pipelines shift gas from where it is produced to demand centres[6]. Natural gas supplies ~27% of Australia’s energy needs[7]. Global natural gas consumption is expected to increase by more than 40% over the period to 2025[8]. Electricity Electricity is integral to almost every aspect of our modern lives. In the US, the power grid is made up of over 7,300 power plants, nearly 160,000 miles of high-voltage power lines, and millions of miles of low-voltage power lines and distribution transformers, connecting 145 million customers throughout the country[9]. The average US household spends US$137 per month on power[10]. Examples of global infrastructure ‘electricity’ stocks include the National Grid of the UK, WEC Energy and Xcel Energy with service territories in the USA. Electricity wasn’t ‘invented’ it was ‘discovered’ because it is present in nature. Airports In 2022, planes carried over 3.8 billion passengers worldwide through the world’s airports[11]. Airports within the global infrastructure sector include Zurich Airport, Paris Charles de Gaulle Airport, London Heathrow. Airports play a vital role in economic growth, job creation and international trade and tourism. Toll roads Toll roads have been around for thousands of years, the history of toll roads in Australia dates back to 1811 when the first toll road (Sydney-Parramatta) was built. Today the US has more than 9,500 kms of toll roads and host more than five billion trips a year[12]. Examples of global infrastructure ‘toll road’ stocks include Transurban with operations in Australia and North America, Ferrovial with toll road assets in North America. Sydney’s toll roads host an average of more 950,000 trips each day[13]. Source: Magellan Group [1] https://www.ceicdata.com/en/indicator/australia/market-capitalization [2] American Tower Overview – Q2 2023, Data as of June 30, 2023 [3] Australian Bureau of Statistics: 2020-21, total expenditure on distributed water by industry and households [4] Canstar Blue research, January 2023. [5] ngwa.org – https://www.ngwa.org/what-is-groundwater/About-groundwater/information-on-earths-water [6] Australian Pipeline and Gas Association: https://www.apga.org.au/pipeline-facts-and-figures [7] https://www.energy.gov.au/data/energy-consumption (2020- 2021) [8] https://www.energy.gov/fecm/liquefied-natural-gas-lng [9] https://www.epa.gov/green-power-markets/us-electricity-grid-markets [10] https://www.eia.gov/todayinenergy/detail.php?id=56660#13 [11] https://centreforaviation.com/analysis/reports/the-worlds-airports-the-state-of-the-industry-in-jan-2023-in-11-numbers-635413 [12] IBTTA. https://www.ibtta.org/sites/default/files/documents/MAF/2015_FactsInBrief_Final.pdf [13] https://www.parliament.nsw.gov.au/lcdocs/inquiries/2792/Report No. 16 – Road Tolling Regimes.pdf

Investors maintained a healthy risk appetite for much of October, which enabled major share markets to make further progress. Movements in the US set the tone, with the S&P 500 Index rising to fresh all-time highs during the month. Towards month end, however, subdued results from some of the largest technology firms in the US saw markets reverse direction and close the month slightly lower. Returns from bond markets were also negative. Despite a 0.50% cut to the Federal Funds rate in September, investors remain concerned that inflation could creep higher – especially if Trump pursues expansionary fiscal policies after becoming President. Treasury yields rose sharply – dragging bond valuations lower – as some of the interest rate cuts anticipated in the US for 2025 were removed from consensus forecasts. US Initial estimates suggested the US economy grew at an annual rate of 2.8% in Q3. This was marginally below expectations and was a slowdown from Q2, but nonetheless highlighted the resilience of the economy. Growth was supported by strong consumer spending, with encouraging demand for both goods and services. It seems discretionary expenditure was underpinned by a buoyant labour market and the associated impact on consumer confidence. Payrolls data showed that more than 250,000 jobs were created in September, which was more than 100,000 ahead of forecasts. Employment growth in October – released at the beginning of November – was much less strong. The labour market will therefore remain very closely monitored in the months ahead, as investors try and work out the likely interest rate path. For now, inflationary trends seem quite persistent. The Core PCE measure showed consumer prices still rising at an annual rate of 2.7% in September, which makes it less certain that policymakers will lower interest rates aggressively in the near term. Rate cuts are still anticipated both this year and next, but consensus forecasts now indicate official borrowing costs will settle around 3.5% by the end of 2025, rather than 3.0% that was anticipated at the beginning of October. Australia No formal Reserve Bank of Australia meetings were scheduled in October and so official interest rates were unchanged at 4.35% during the month. Policymakers will meet once more before the end of this year and continue to monitor incoming economic data to gauge whether changes in monetary policy settings are warranted. The ‘trimmed mean’ measure of inflation showed consumer prices rising at an annual rate of 3.5% in Q3. This was down slightly from the prior quarter, but was still above the Reserve Bank of Australia’s 2% to 3% target range. With inflation still running above target and given ongoing strength in the labour market, few observers are expecting interest rates to be lowered any time soon. Australian unemployment remained at 4.1% in September and more than 60,000 jobs were created over the month. New job adverts also increased, suggesting the unemployment rate could remain low for the foreseeable future, in turn exerting upward pressure on wages. Against this background, policymakers might even consider raising borrowing costs further, rather than lowering them as many homeowners and businesses are hoping. New Zealand Interest rates were lowered by 0.50% at the Reserve Bank of New Zealand’s October meeting, following an initial 0.25% cut in August. The annual inflation rate fell to 2.2% in Q3, down from 3.3% in Q2 and 4.0% in Q1, highlighting the extent of the moderation in pricing pressures. There appears to be excess capacity in the New Zealand economy following a recent slowdown, increasing the case for lower borrowing costs. Europe At 0.9% year-on-year, GDP growth in the Eurozone came in higher than expected in Q3. Acceleration from Q2 was supported by another strong contribution from Spain. Growth in Germany and France, the two largest economies, was also above expectations. The Olympic Games provided a boost in France, while there was an encouraging improvement in activity levels in Germany. Recent commentary from European Central Bank officials suggests policymakers are increasingly confident they are winning the fight against inflation. In turn, interest rates were lowered by 0.25% during the month; the third cut in the past five months. It seems almost certain that borrowing costs in the Eurozone will be lowered further in the months ahead. The release of the new Labour government’s first Budget was the main focus in the UK. As anticipated, the Chancellor outlined plans to raise an additional GBP40 billion through taxation in order to improve the country’s budget deficit. Asia Interest rates were lowered in China, as officials in Beijing tried to boost borrowing and investment. The one-year loan prime rate – used as a reference for consumer and business lending – was cut by a further 0.25%, following an earlier 0.10% cut in July. Separately, there was an unexpected improvement in Chinese manufacturing data following five months of deterioration. This raised hopes that recent stimulus measures may be feeding through to the real economy. The increase in factory output also supported a steady improvement in business confidence, which augurs well for investment. In Japan, the latest commentary from central bank policymakers suggested the Bank of Japan will continue to rise interest rates if the inflation target is met. Officials are expecting 2.5% inflation for the 2024 year and annual GDP growth of 0.6%. Australian dollar The revised outlook for US interest rates meant the US dollar fared very well. The greenback enjoyed its strongest month of performance in two years and appreciated against almost all major currencies worldwide, including the Australian dollar. The AUD depreciated by around 5% against the US dollar over the month. This move lifted returns from overseas assets for local investors. While returns from global shares were negative in local currency terms, e.g. they added value in AUD terms owing to currency market movements. Australian equities Australian shares lost ground in October, following five consecutive months of gains. Volatility in commodity prices, owing to ongoing geopolitical tension in the Middle East and mixed economic data from China dampened sentiment. Company news … Read more