With the ageing of the Australian population, the Federal Government is taking steps to make superannuation more attractive!

By enhancing the attractiveness of superannuation, the government is seeking to relieve the burden on future taxpayers for the funding of an increasing number of retirees.

Surcharge
In this year’s budget, the government announced that it was removing the unpopular super surcharge from 1 July 2005. This will save taxpayers $2.5 billion over 4 years.

The Surcharge was introduced in 1995 following the government’s election promise not to introduce any new taxes; hence the term “surcharge”. The surcharge applies to deductible superannuation contributions for high income earners (maximum rate of 12.5% for those earning more than $121,075).

The removal of the surcharge increases the incentive for high income earners to increase super contributions. By opting to increase super contributions and thereby reducing taxable income, top income earners can realise tax savings of up to 33.5%. Employees can achieve this outcome through salary sacrifice whereas the self employed can increase the annual tax deductible contributions they make; provided relevant legislative requirements are met.

Super Splitting
The government has also announced measures to allow the splitting of super contributions between spouses made from July 1, 2006.

Super splitting will allow couples to transfer benefits between separate super accounts, giving both partners the ability to have a tax-free $123,808 lump sum super payment upon retirement. In addition, both partners would be eligible for their own reasonable benefit limit. This will expand the concessional taxation boundaries for couples and will be of most benefit where one member of a couple is not working or is earning substantially less income that their partner.

In the case of a single income earning couple, super splitting could potentially double the amount of super that can be accumulated in the concessionally taxed environment.

Government Co-Contribution
One of the best returns on offer at the moment is the Government co-contribution scheme. Put simply, for ever $1 of personal super contribution, the government will match with an additional contribution of up to $1.50. That’s an immediate 150% return on your money!

The government will contribute up to a maximum of $1,500 to match a $1,000 contribution.

The maximum co-contribution is available for employees with incomes less than $28,000. For incomes above $28,000 the maximum co-contribution reduces by 5 cents
for each $1 of income. This phased out completely at an income of $58,000.

Super Choice
From 1 July 2005, most Australians will be able to choose which super fund their employer directs their super contributions to. What is not well known is that you can not automatically transfer your existing superannuation to the new super fund that you may have nominated.

The super fund that your employer has been contributing to in the past, will need to be inactive for a period of at least 6 months before you can have the balance transferred to another superannuation fund.

So, if you immediately open a new superannuation account in July and have your employer make contributions to this account, it will not be until January 2006 before you can transfer your other super account.

Self Managed Super Funds
Complying lifetime or life expectancy pensions can still be used in Self Managed Super Funds (SMSF) but only until 30 June 2005. A review of this restriction is
currently underway and a report advising any changes is expected soon.

Brendan Gallagher

Back to Top

This quarter we have caught up with Liz Norman of Platinum Asset Management and asked her to comment on the processes used by one of Australia’s more interesting global fund managers.

Platinum Asset Management Limited is an Australian based fund manager that specialises in international equities. Platinum currently manages in excess of A$14 billion. Platinum is owned by its staff.

Platinum’s investment methodology is applied with the aim of achieving absolute returns for investors by searching out undervalued listed and unlisted investments around the world. Where undervalued stocks cannot be found funds may be invested in cash. Many of the funds (depending on their mandate) can also invest in overvalued companies by employing strategies such as short selling. The idea behind short selling of shares is to profit from a fall in the share price of a particular company and is used for risk management purposes.

The key elements of Platinum’s style are:

• Utilises a bottom-up, stock selection methodology.
• Seeks absolute returns and not returns relative to any index.
• Utilises short selling of shares and indices (depending on the mandate).
• When undervalued stocks cannot be found, funds may be invested in cash.
• Actively manages currency.

Investment Process
In essence, Platinum seeks a broad range of investments whose businesses and growth
prospects are being inappropriately valued by the market. To do this, Platinum employs a team of specialist analysts who take a global perspective and apply screenings and intensive research to pin-point opportunities.

Just as there is the ebb and flow of optimism and pessimism in stock markets, similar sentiments affect the share prices of individual companies. That is to say, there are times when events that are transitory in nature have a totally disproportionate effect on a company’s share price, be it positive or negative. There is thus a tendency for shares to deviate significantly from their inherent trend line.

Platinum focuses on differentiating between truly interesting companies that are facing temporary set-backs from those which have lesser businesses and face fundamental problems. (Attractive businesses, so-called franchises, are not only those one reads about in newspapers and magazines but can be identified by their record of superior profitability and growth).

Platinum uses various devices to make sense of the universe of stocks available in a global context. These include software screening which allows for the selection of companies based on very specific criteria. In setting these “screens”, Platinum may build on a hypothesis regarding social, political, or economic change. For example, the screen might identify industry groups that are currently out of favour with investors.

There is sharing of ideas and themes amongst analysts. Apart from applying numeric skills, there is a constant input from observations of the changing social and political landscape. While physical distance from principal markets may be seen as an impediment, Platinum believes that the distance has the great advantage as acting as a filter and has a calming influence on making objective assessments. Even so, analysts are required to travel extensively to visit prospective investments, their competitors and suppliers.

Once a company has been identified as a potential opportunity, it is investigated more deeply by the analyst. This may include an analysis of material from the company itself and its competitors, reports from stockbroking analysts and industry material. In reality, this information is available to all serious participants but Platinum sees its competitive advantage in the interpretative methodology and skill used. These views are formulated into detailed reports that are scrutinised at a meeting attended by other team members.

The purpose of these team meetings is to expose areas of concern and potential flaws rather than achieving a consensus. The final decision lies not with the committee but solely between the promoter of the idea and the Chief Investment Officer (CIO).

The analyst’s investment review will highlight very specifically the achievements that are expected from the company being proposed. These vary considerably depending on the style of company involved but among other things would include sales and earnings targets. Failure to meet these targets would raise concern, and notwithstanding the price action, could result in the shares being sold. In Platinum’s experience when targets are met or exceeded, the share price tends to overshoot expectations. Flexibility in selling may allow for the market’s tendency to overreact.

The process of assembling portfolios from the shares of individual companies that have above average qualities, but which are having temporary setbacks, should produce as a by-product a portfolio with below average risk characteristics. To the extent that Platinum has difficulty finding stocks that will return more than the hurdle rate, cash will be allowed to accumulate. Moreover, with the portfolio being the product of individual stock picks, it is likely to have constituents very different from traditional benchmarks like the MSCI World Accumulation Index. In other words, the geographic or industry weightings will seldom reflect those of the MSCI.

Andrew Condell


Back to Top

The global economy hit a soft patch during the quarter. This was led by disappointing statistics from the US and growing inflationary pressure. US GDP, employment growth, retail sales and investment levels were all lower than expected which contributed to the slowdown.

The majority of sharemarkets throughout the world fell as they reacted to the slowdown in the US economy and continued high oil prices.

Europe continues to disappoint with German business and market confidence falling yet again. The consensus amongst economists is that this will improve later in the year.

Similarly in Japan, business confidence also fell. However other indicators in Japan were positive delivering mixed results overall.

In Australia, the Reserve Bank increased interest rates in March. Although there were expectations of a further rate rise, there were no further changes in April or May.

Also in Australia, employment and retail sales figures were strong. The current account deficit however, hit a record level of 7.1% of GDP. New housing loans increased more than expected during the quarter. This continues to be of concern for the Reserve Bank.

The local share market retreated rapidly, reacting to sluggish US figures and profit warnings from a number of Australian companies. Hardest hit were smaller companies, which is where most of the profit warnings came from.

Bonds continued to rally as investors switched out of equities.

Brendan Gallagher

Back to Top

There has been a dramatic change in the Listed Property Trusts (LPT’s) universe in recent years. Property trusts used to be reasonably simple; focused on rental yields, highly sensitive to interest rates and competing in a similar space with bond markets for investment dollars.

While interest rate sensitivity still remains, LPT’s are now more complex by showing more share-like characteristics. Today’s LPT’s may have exposure to debt, property development and overseas markets. None of these elements were present to any significant degree in the past. The trusts contain higher risk offset by a promise of greater returns.

Over the last two years there has been a rapid increase in the size of the market. Since 2002 the sector has grown by $20 billion, an increase of 28%. Investors have been attracted to the sector’s investment performance with a 13% average return over the last 10 years compared to 10.5% for the share market. Another contributor to the sector’s growth has been the injection of capital from the ever increasing pool of superannuation funds. The traditional income focus of LPT’s has been attractive to super fund trustees.

Consequently there has been a high level of securitisation in the Australian property market with a much higher percentage of properties being acquired by LPT’s than in any other country in the world. At present Australia represents 8% of the world’s listed real estate assets but only a minor fraction in terms of total real estate value. This means there is great potential for growth globally.

Yet while the market has rapidly grown, the number of LPT’s over the last four years has shrunk from 59 in 1999 to the present 25. This has been the result of merger and acquisition activity. As more capital has come into the market LPT managers have started to look further afield for investment opportunities. The size of the market in Australia is limited and managers are now looking to other areas to place their investment funds.

In order to have sufficient size and clout in the larger global arena some of the LPT’s (most notably Westfield), have amalgamated. The search overseas for investment opportunities is a phenomenon that occurred with equity investments some ten years ago. The willingness of investors to embrace these changes is a sign of the maturing global outlook of the Australian investor public.

Another feature of amalgamation has been the combination of property holdings with property management, development and construction activities. These property conglomerates provide greater diversity and potential for growth but also carry greater risk.

It is clear that the future for LPT’s will be far from dull. Investors now have a much more interesting range of options to choose from in this sector. This makes the need for sound advice even more pressing.

Andrew Condell

Back to Top

	Privacy Policy| Disclaimer | Resources | Contact Us
	ABN: 71 089 066 955  |  AFSL: 222 132