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Clover Portfolio Update (the COVID-19 edition)

Credit: Photo by Sandro Capatti/Shutterstock: Daily life during the Coronavirus outbreak, Parma, Italy

Key Take-outs:

  • The stellar returns of 2019 were erased in full by one of the fastest (and possibly shortest) bear markets in history, with the bellwether US S&P 500 index falling 35% in the four weeks between late Feb and late March as market panic spread worldwide.
  • After the punishing drawdown, markets, particularly the US, have recovered strongly, with the S&P 500 index gaining 23.6% since its late March lows.
  • The Australian sharemarket has been less responsive, weighed down by the banking and listed property sectors.
  • The S&P/ASX 200 index fell 39% in the same late Feb to late March period, but has only recovered 18.5% to date since the March trough.
  • Despite the falls of the last three months, the longer-term return picture remains remarkably robust.
  • Clover’s positioning to favour overseas versus Australian shares has cushioned our portfolios relative to more traditional asset allocations.

To say it’s been one hell of a ride these past few weeks is an understatement.  You don’t see market volatility like this very often, and for many it probably felt like being caught in the open by a Category 5 cyclone with nowhere to hide.

Amidst the mayhem of February and March there have, however, been some important lessons, provided you’re prepared to learn from the experience. To do so, read on.

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COVID-19: New Public Health Measures and Financial Rescue Package

It’s nearing midnight as I write this, having just wrapped my head around the latest measures announced from tonight’s National Cabinet meeting of the Prime Minister and Premiers/Chief Ministers of the States and Territories.

That was after spending much of the afternoon combing through press releases and bulletins detailing the additional $66 billion economic rescue package announced by Prime Minister Scott Morrison and Treasurer Josh Frydenberg earlier today, adding to the $17.6 billion stimulus package announced on 12 March.

Events are unfolding so rapidly that the measures just announced may be superseded in short order, but as at the time of writing (11.31pm Sunday 22 March 2020 AEDT), these are the things that you should be aware of in order to play your part in helping see Australia through this COVID-19 crisis.

I’ll tackle the public health measures first and then loop back to provide some detail on the economic rescue package and things to keep in mind should you be impacted by the economic effects that will result from the required public health response.

As the situation will remain fluid for the foreseeable future, please also check in with the Commonwealth Department of Health’s COVID-19 page on a regular basis for the latest information and guidance.

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Market Plunges – an Investing Rite of Passage

5 investing biases

You never forget your first share market plunge.

It was August 1997 and there I was, a mere few months in my new role as a Para-Planner (the term for a Financial Planner in training) with the private client arm of one of the world’s largest accounting firms.

As is typical of many twenty-something year olds with a finance degree, I rated my ability as an up-and-coming share market wiz highly. I had already built up a small portfolio of direct shareholdings in what could best be described as ‘speculative’ positions, with plans to add newbie miners, biotechnology startups and the fledgling “World Wide Web” enabled tech sector.

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Coronavirus v Superhuman. Who Wins?

Here we go again. The financial headlines are once again screaming financial market annihilation and impending collapse. “ASX slammed” shouts one, while another tells of a “Wall Street crumble” and, in relation to the Dow Jones, “the biggest point drop in history”.

Everywhere you look, the financial news is currently filled with stories of share markets crashing and of investors fleeing, presumably for the safety of cash. To a novice investor these shrill warnings can’t help but create anxiety, however long-standing Clover investors will know that we’ll hear these same siren songs from time to time, without the imminent financial meltdown eventuating.

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It’s Déjà Vu All Over Again

Yes it’s that time again. Time to relive a scene that’s played out with annoying regularity. The one where skittish financial markets combine with an eyeball-chasing media to help the nervous transfer their future wealth to the patient.

Once again the headlines are screaming about financial disaster and impending doom. “Aussie stock market slumps after US-China trade war prompts Wall Street plunge” cried one earlier this week, while “Wall Street slumps as yuan slide intensifies trade fears” shrieked another.

These headlines are designed to grab your attention. That is, after all, the whole purpose of eye-catching headlines; the more dramatic they are the more likely you are to be drawn to them. And the more sales, subscriptions and ad revenue generated. Very possibly at the expense of investors who will be spooked into taking short-term, reactive, action to their long-term financial detriment.

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Frankly, the Election was a Boomer Victory over their own Kids

By the time I headed off to bed last Saturday the federal election was effectively over, with Labor leader Bill Shorten conceded that it was unlikely that Labor would win the seats required to form government.

The election result came as a surprise to many political pundits, given that most polls had predicted a comfortable Labor win in the run-up to the election.

As I write this, the Liberal/National coalition has secured 78 seats, ensuring a majority for the new Morrison government in the upcoming 46th Parliament of Australia.

Waking up to a cold Sunday morning with the previous day’s election result rattling around in my head I decided that a ride to the hills was in order. Donning copious layers of cycling gear to ward off the chill, I pointed my trusty bike in the direction of Eltham and off I rode.

Leaving early, my route took me through a still sleepy Brunswick, the inner-city suburb just north of Melbourne, out through Heidelberg and finally to Eltham, nestled at the foothills of the Shire of Nillumbik in Melbourne’s outer east.

Elated in Eltham, Bummed in Brunswick

Eltham sits in the electorate of Menzies, and the incumbent Liberal candidate, Kevin Andrews, comfortably retained his seat with a Two Candidate Preferred (TCP) vote of 57%.  Having a well-earned brekky at the Eltham shopping strip it was hard not to notice two distinct themes.

Firstly, I was surrounded by people in their mid-fifties and beyond, a demographic oft-labelled “Baby Boomers”. Secondly, these Boomers were (from their demeanour and the bits of conversation I caught), thrilled that the Coalition government had been returned for another term in office. It was fair to say that the mood in Eltham that Sunday morning was positively “chipper”.   

The ride home took me through the heart of Gen Y-centric Brunswick, in the electorate of Wills, where Labor’s Peter Khalil held off a stern challenge from The Greens. There the cafés lining ultra-hip Lygon Street told a very different story.

The mood in Brunswick was distinctly more sombre, with none of the energy pulsating around Eltham. Poker-faced twenty and thirty-something Millennials sat huddled in cafes in quiet contemplation.

In the few short hours I spent riding that day I saw the two sides of the election outcome; the winners and the also-rans. And as a Gen X, wedged between the Boomers and their Gen Y kids, I find myself asking one question: what exactly happened on Saturday 18th May and what does it mean for the various generations?

Read on to find out…

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Budget 2019/20 – Same Old, Shame Old

Treasurer Josh Frydenberg stood up in Parliament yesterday evening to deliver his maiden Budget speech as Treasurer, having inherited the job some seven months ago amidst the Liberal party in-fighting and change of leadership.

There’s a lot riding on this Budget, and it shows. In essence this Budget has one job, and one job only; to put the Coalition government in a position where it has the best chance of retaining government at the yet-to-be-called general election.

Political pundits now put the most likely date of the next election at 11 May, a mere five or so weeks away. We’ll know soon enough, as it’s expected that Prime Minister Morrison will take that drive up to Yarralumla any day now.

But back to the Budget. The Good, the Not-so-Good and the Questionable. What exactly does it contain (other than the phrase “without increasing taxes”, uttered by Treasurer Frydenberg no less than nine times during his speech)?

More importantly, how will it affect you, your nearest and dearest and your prospects for a brighter future? Read on to find out…

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2018 Investment Year in Review

Reading Time: 10 minutes

Key Take-outs

  • The comfy armchair ride global share investors experience during 2017 turned into a white-knuckled roller-coaster in 2018.
  • Key global share markets came under significant selling pressure from September on, with the US market falling sharply as the year ended.
  • After starting to fall in late 2017, residential property price falls accelerated in Sydney and Melbourne during 2018, while Hobart rose strongly.
  • Cryptocurrency, the investment mania of 2017, crashed in spectacular fashion, with Bitcoin falling 80% during 2018 .
  • 2018 proved there is no such thing as riskless returns, and that the occasional burst of volatility is the price of admission that all investors have to pay to receive returns better than Cash (i.e. 0% p.a. after inflation and before tax).
  • Low-cost diversification is still the single best way to get your fair share of market returns without flaming out on a single bet (ahem, #CryptoLife).

In our 2018 Financial Year in Review (for the year to 30 June 2018) we spoke about the unusual calm that had dominated markets during 2017, noting that “… 2017 produced a Goldilocks-like investment environment of steadily rising asset valuations.”

Unfortunately, as anyone who is familiar with the fairy tale knows, Goldilocks made herself at home in a stranger’s house, assuming it was a riskless act, only to be surprised by three angry bears unimpressed by her sense of self-entitlement.

As with Goldilocks, many share investors were lulled into a false sense of security during 2018, only to be mauled by a bear of a market.

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