The cream always rises to the top

Looking around Australia’s major cities, one would be forgiven for thinking the Financial Crisis was a figment of the imagination. Although there was talk about a tightening of the belt in 2009, the much anticipated drop in sales and shops closing on every street seems to have passed us by.

There are pockets of our economy which are struggling but thanks in part to the large mine in our backyard, Australia has managed to escape relatively unscathed. The biggest legacy of the GFC for Australian tax payers is the debt our Government accumulated in stimulating our economy.

What happens when the stimulus dries up is the question troubling most financial commentators. Not only will we lose the stimulus injection but interest and debt repayment will curb our growth rates via higher taxes and/or higher inflation.

Treasury and the RBA will need to balance our newly accumulated Government debt and regulating asset bubbles with ensuring that our economy keeps expanding. We are fortunate that we are rich in the building blocks that the emerging economies require and we should perform well on a relative basis to other industrialised economies. However, we do not believe that now is the time to throw caution to the wind and investors need to remain more selective than ever.

My expectation is that whilst we have seen a significant recovery in industrialised economies like the US and Japan, their mounting debt and currency problems should see investors stick close to home for investment opportunities. This issue therefore focuses on actively managed Australian Equity Funds, Hybrids and Structured Products.

 

Cutting through the proverbial

Over the last 18 months we have spoken to a large number of clients invested in cash locked capital protected products such as Macquarie Fusion, Reflexion, HFA Octane and Perpetual Protected Investments.

I am amazed at how few investors are aware that their investment has been cash locked with very little hope of returning anything greater than the initial amount invested. To top it off, most are continuing to pay interest on the investment loan. I am adamant that more needs to be done by the product providers and advisers who recommended these products to draw awareness to the investor of their predicament and provide a realistic solution for them. After all, they are still making money out these products!

I have argued that the decision of whether it is in the interest of a client to consider cashing in and moving on or funding more into the investment could be simplified. Why the product providers can’t do this themselves is beyond me. As a result, this issue also sees us focusing on providing some guidance as to what you should do if you happen to be in one of these products.

We will be featuring a number of alternatives for investors over the coming months and encourage you to contact us if you have a CPPI/Threshold managed capital protected investment.