1 00:00:14,200 --> 00:00:17,560 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:17,640 --> 00:00:21,400 Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome Aboard Everybody. 3 00:00:21,720 --> 00:00:24,160 Speaker 1: One of my favorite shows of the year. Regular guest 4 00:00:24,239 --> 00:00:28,960 Speaker 1: Will Hamilton of Hamilton Wealth Partners goes off on a 5 00:00:29,440 --> 00:00:32,800 Speaker 1: odyssey around the world every year and he goes to 6 00:00:32,840 --> 00:00:36,720 Speaker 1: all these various investment conferences and wealth conferences extra and 7 00:00:36,760 --> 00:00:39,640 Speaker 1: he comes back on the show around this time of 8 00:00:39,720 --> 00:00:42,960 Speaker 1: the year every year and he tells us basically what 9 00:00:43,080 --> 00:00:45,640 Speaker 1: the mood is out there and what people are saying 10 00:00:45,680 --> 00:00:49,120 Speaker 1: and what really is on the table, if you like, 11 00:00:49,960 --> 00:00:54,760 Speaker 1: with wealth advisors around the world. It's always interesting. He's here, 12 00:00:55,040 --> 00:00:57,280 Speaker 1: he's back. He has no jet lag this time. For 13 00:00:57,360 --> 00:00:58,720 Speaker 1: the last time. We caught it really tight and he 14 00:00:58,800 --> 00:01:01,480 Speaker 1: did it virtually. It's the plane. We're going to talk 15 00:01:01,520 --> 00:01:04,640 Speaker 1: about rates and where on Earth they may or may 16 00:01:04,680 --> 00:01:07,680 Speaker 1: not be going. We're going to talk about the craze 17 00:01:07,720 --> 00:01:09,840 Speaker 1: for private credit and to the extent that it's going 18 00:01:09,880 --> 00:01:12,319 Speaker 1: to be any good for you should you ever deem 19 00:01:12,520 --> 00:01:17,840 Speaker 1: to go near it. Backlash on AI. Interesting had to happen. 20 00:01:18,120 --> 00:01:21,960 Speaker 1: Question is whether it's just a moment of whether it's 21 00:01:22,000 --> 00:01:24,680 Speaker 1: going to stay with us, and lots of other issues 22 00:01:24,800 --> 00:01:27,800 Speaker 1: that we've already talked about before the show. How are 23 00:01:27,800 --> 00:01:29,119 Speaker 1: you will Hamilton, welcome home? 24 00:01:29,840 --> 00:01:31,679 Speaker 2: Thank you very much, Sjames, thanks for having me. I'm 25 00:01:31,800 --> 00:01:32,520 Speaker 2: very well. Thank you. 26 00:01:33,319 --> 00:01:37,520 Speaker 1: Always good to have you. I imagine we have to 27 00:01:37,520 --> 00:01:40,080 Speaker 1: talk about rates. First of all. I just walked into 28 00:01:40,080 --> 00:01:41,800 Speaker 1: the building this morning. Two people came up to me 29 00:01:41,840 --> 00:01:43,480 Speaker 1: and said, what's going on with rates? What's going on? 30 00:01:43,520 --> 00:01:46,280 Speaker 1: Are they going down or are they going up? Off 31 00:01:46,319 --> 00:01:50,120 Speaker 1: the CPI yesterday, I said, look, I don't know, if 32 00:01:50,160 --> 00:01:52,080 Speaker 1: you want my opinion, I don't think I think's going 33 00:01:52,120 --> 00:01:53,640 Speaker 1: to happen. I don't think they're going to go up 34 00:01:53,800 --> 00:01:57,640 Speaker 1: or down in Australia this year. But informed by your 35 00:01:58,080 --> 00:02:00,680 Speaker 1: global rolling around, what do you think. 36 00:02:01,520 --> 00:02:04,600 Speaker 2: Look, let's deal with offshore and then domestically, and I 37 00:02:04,600 --> 00:02:08,360 Speaker 2: think rates are going down. Offshore Powers last night held 38 00:02:08,400 --> 00:02:11,480 Speaker 2: raids steady in the US, but has very much indicated 39 00:02:11,520 --> 00:02:14,480 Speaker 2: that potentially next month we're going to see the first 40 00:02:14,480 --> 00:02:16,840 Speaker 2: cut in the United States. We've already seen cuts in 41 00:02:16,919 --> 00:02:20,560 Speaker 2: the UK and in Europe. Rates are going down. Inflation 42 00:02:21,360 --> 00:02:24,280 Speaker 2: has appeared to be stickier. It's definitely stickier than what 43 00:02:24,360 --> 00:02:29,079 Speaker 2: people thought but inflation is going down offshore, and that's 44 00:02:29,120 --> 00:02:31,400 Speaker 2: why interest rates are going down. Not to the extent 45 00:02:31,400 --> 00:02:33,800 Speaker 2: that people thought at the beginning of the year, but 46 00:02:33,880 --> 00:02:36,880 Speaker 2: we are going to see rates trending offshore. We're trending 47 00:02:36,919 --> 00:02:40,160 Speaker 2: down now. Australia is a different matter straight because we've 48 00:02:40,200 --> 00:02:45,840 Speaker 2: got variable interest rates for mortgages. We saw interest rates 49 00:02:45,840 --> 00:02:49,640 Speaker 2: go up less than offshore. So one hundred bass points 50 00:02:49,639 --> 00:02:53,600 Speaker 2: are one full percent less in Australia than the US. 51 00:02:54,919 --> 00:02:58,400 Speaker 2: We have not tackled wage price inflation in Australia as 52 00:02:58,440 --> 00:03:04,520 Speaker 2: they have offshore, and therefore our inflation is stickier and 53 00:03:04,560 --> 00:03:12,000 Speaker 2: therefore I cannot see interest rates falling. Probably the second 54 00:03:12,080 --> 00:03:15,520 Speaker 2: quarter of next year would be the earliest you could consider, 55 00:03:15,600 --> 00:03:20,400 Speaker 2: so that April to June period is when you potentially 56 00:03:20,400 --> 00:03:24,200 Speaker 2: see rates come down, So you won't see it before 57 00:03:24,200 --> 00:03:28,920 Speaker 2: that we haven't tackled inflation. But likewise they shouldn't come 58 00:03:28,960 --> 00:03:31,799 Speaker 2: down as much because we didn't increase as much. 59 00:03:31,880 --> 00:03:33,640 Speaker 1: But you still have the opinion that they will come 60 00:03:33,680 --> 00:03:38,280 Speaker 1: down eventually. Eventually, yeah, but you still have the opinion 61 00:03:38,280 --> 00:03:39,840 Speaker 1: the next move is that it drops. 62 00:03:40,560 --> 00:03:42,480 Speaker 2: Yeah. I don't think we're going to see it. I 63 00:03:42,480 --> 00:03:44,600 Speaker 2: don't think after yesterday's figure. I don't think we're going 64 00:03:44,600 --> 00:03:45,680 Speaker 2: to see an increase, but. 65 00:03:46,360 --> 00:03:50,720 Speaker 1: Okay, very interesting. Yeah, because basically the figures aren't great, 66 00:03:51,120 --> 00:03:53,920 Speaker 1: they're really enough great for the domestic economy. That doesn't 67 00:03:53,960 --> 00:03:56,040 Speaker 1: mean the markets aren't great. Of course, the markets have 68 00:03:56,080 --> 00:03:59,720 Speaker 1: been very good so far. A little bit of a 69 00:03:59,760 --> 00:04:03,160 Speaker 1: w in the last few days, a bit of extra 70 00:04:03,240 --> 00:04:08,440 Speaker 1: volatility in the US, and of course we are in 71 00:04:08,560 --> 00:04:10,840 Speaker 1: August and we are heading towards that time of the 72 00:04:10,880 --> 00:04:13,480 Speaker 1: year where the US traders tend to lose their nerve 73 00:04:14,120 --> 00:04:19,640 Speaker 1: and if we have corrections or crashes, they come famously 74 00:04:19,640 --> 00:04:22,240 Speaker 1: come in the September October period. If there is one 75 00:04:22,279 --> 00:04:24,679 Speaker 1: this year, And I don't know what's going to happen, 76 00:04:24,880 --> 00:04:27,360 Speaker 1: but of course we should be on standby for a correction. 77 00:04:27,480 --> 00:04:31,599 Speaker 1: That's for sure. It will be triggered for it would 78 00:04:31,640 --> 00:04:35,080 Speaker 1: seem it would be triggered not by politics or by rates, 79 00:04:35,640 --> 00:04:43,239 Speaker 1: but by perhaps a backlash against the initial excitement over AI. 80 00:04:43,440 --> 00:04:47,719 Speaker 1: Excitement drove the big cap stocks. The big cap stocks 81 00:04:47,839 --> 00:04:51,279 Speaker 1: drove all markets around the world. That's why your ASX 82 00:04:52,080 --> 00:04:54,440 Speaker 1: index one did so well last year, and your US 83 00:04:54,520 --> 00:04:58,839 Speaker 1: one did twice as well. But you detected at various 84 00:04:59,040 --> 00:05:02,160 Speaker 1: meetings and conferences. What is it? Is it a skepticism, 85 00:05:02,240 --> 00:05:04,960 Speaker 1: Is it a skepticism about AI? Or is it a 86 00:05:05,000 --> 00:05:10,000 Speaker 1: skepticism about the perceived economic potential of AI that's already 87 00:05:10,040 --> 00:05:11,440 Speaker 1: built into staff prices. 88 00:05:12,240 --> 00:05:16,160 Speaker 2: So Goldman Sachs produce a report early June which everyone 89 00:05:16,160 --> 00:05:19,920 Speaker 2: seems to be talking about, and if your listeners google 90 00:05:20,480 --> 00:05:23,000 Speaker 2: this they'll be able to find it. But basically, a 91 00:05:23,120 --> 00:05:28,520 Speaker 2: trillion dollars hasn't been invested in AI, and when somebody 92 00:05:28,560 --> 00:05:31,799 Speaker 2: does something, others are playing catch up. They're doing the same, 93 00:05:32,520 --> 00:05:35,160 Speaker 2: they're trying to keep up. So will there be So 94 00:05:35,200 --> 00:05:40,160 Speaker 2: everyone's skeptical about the revenue enhancements or the productivity improvements 95 00:05:40,160 --> 00:05:43,520 Speaker 2: that come through. Where are these going to come from? 96 00:05:44,080 --> 00:05:46,840 Speaker 2: And with the extent of a trillion dollars being invested, 97 00:05:46,920 --> 00:05:49,200 Speaker 2: the argument is, this is a hell of a lot 98 00:05:49,200 --> 00:05:51,799 Speaker 2: of money, and it is it's an extraordinary amount of money, 99 00:05:51,839 --> 00:05:56,039 Speaker 2: like it's half the market cap of the Australian equity market. 100 00:05:56,360 --> 00:06:03,159 Speaker 2: This is US dollars and therefore the return required is substantial. 101 00:06:03,880 --> 00:06:06,640 Speaker 2: The argument coming out that when everyone does the same thing, 102 00:06:06,800 --> 00:06:11,000 Speaker 2: no one comes out with an advantage. And therefore, and 103 00:06:11,040 --> 00:06:13,920 Speaker 2: where are we going to see this advantage. And one 104 00:06:13,920 --> 00:06:17,240 Speaker 2: thing is it is disinflationary. That's one thing you can 105 00:06:17,360 --> 00:06:20,080 Speaker 2: be sure. And the real way to play this is 106 00:06:20,480 --> 00:06:24,800 Speaker 2: hence won of videos run is through the input players, 107 00:06:24,880 --> 00:06:27,960 Speaker 2: so your consultants, because everyone needs to get advice on 108 00:06:28,760 --> 00:06:32,720 Speaker 2: what everyone else is doing, as well as the chip manufactures, TSMC, 109 00:06:32,839 --> 00:06:35,920 Speaker 2: et cetera. But the big where we've got into the 110 00:06:36,000 --> 00:06:39,800 Speaker 2: doubt phase. So yes, there's all this investment. This is great, 111 00:06:40,279 --> 00:06:45,200 Speaker 2: but what is the quantification of the productivity improvements? Where 112 00:06:45,240 --> 00:06:48,400 Speaker 2: are they going to be or the revenue enhancements and 113 00:06:48,800 --> 00:06:50,800 Speaker 2: everyone seems to be playing the same game. 114 00:06:50,880 --> 00:06:53,359 Speaker 1: So where is the return on investment? Is that what 115 00:06:53,440 --> 00:06:58,120 Speaker 1: we're talking about? Yeah? Okay, And so the question is 116 00:07:00,080 --> 00:07:06,960 Speaker 1: do the big AI fuel stocks from the megacaps, the 117 00:07:07,000 --> 00:07:11,240 Speaker 1: facebooks and Microsofts and in videos or for that matter 118 00:07:11,280 --> 00:07:15,320 Speaker 1: and next d see Macquarie technology, do they come off 119 00:07:15,320 --> 00:07:16,800 Speaker 1: the boil after. 120 00:07:16,720 --> 00:07:20,200 Speaker 2: An incredible run for something like in the video. It's 121 00:07:20,240 --> 00:07:23,960 Speaker 2: to keep going to the extent that they have is unhealthy. 122 00:07:24,000 --> 00:07:27,040 Speaker 2: And that's when that B word bubble starts coming out. 123 00:07:27,160 --> 00:07:30,880 Speaker 2: And it's normal that things consolidate, and consolidation often means 124 00:07:30,920 --> 00:07:33,640 Speaker 2: retrace a little bit. But I do think, as everyone conceded, 125 00:07:33,680 --> 00:07:36,280 Speaker 2: there is a difference. So for those that are trying 126 00:07:36,320 --> 00:07:39,240 Speaker 2: to compare the tech cycle now with the tech cycle 127 00:07:39,320 --> 00:07:43,680 Speaker 2: back in the beginning of the century, there were companies. 128 00:07:43,680 --> 00:07:47,160 Speaker 2: Even Amazon back then wasn't making money. These companies are 129 00:07:47,280 --> 00:07:50,320 Speaker 2: making some decent money, but it's just it's healthy. I 130 00:07:50,360 --> 00:07:54,520 Speaker 2: always think that when things get on a rule like that, 131 00:07:54,680 --> 00:07:58,080 Speaker 2: it's that's where you do get bubbles, and it's unhealthy, 132 00:07:58,200 --> 00:08:01,480 Speaker 2: and it's great to see it things consolidate. 133 00:08:01,440 --> 00:08:04,200 Speaker 1: Yes, because it stops it from going crazy. And I 134 00:08:04,280 --> 00:08:06,640 Speaker 1: have seen some sort of leading figures make that point 135 00:08:06,800 --> 00:08:10,200 Speaker 1: that for anyone who's old enough to remember, it is 136 00:08:10,680 --> 00:08:16,200 Speaker 1: elevated pricing and particularly elevated pees on these companies AI 137 00:08:17,200 --> 00:08:21,400 Speaker 1: driven or linked or manufacturing companies, but they do have 138 00:08:21,520 --> 00:08:25,800 Speaker 1: revenues and some of them have profits, and that was 139 00:08:25,880 --> 00:08:29,320 Speaker 1: not the case in the dot com era. And consequently, 140 00:08:29,360 --> 00:08:31,680 Speaker 1: the theory is that then it is not a bubble. 141 00:08:32,160 --> 00:08:34,840 Speaker 1: It certainly isn't a bubble. Yet I've seen some pretty 142 00:08:34,840 --> 00:08:38,000 Speaker 1: powerful gurus, if you like, of the market making that 143 00:08:38,040 --> 00:08:41,240 Speaker 1: point in recent times. Okay, another thing you were trying 144 00:08:41,240 --> 00:08:45,720 Speaker 1: to explain to me was about the excitement and fashion 145 00:08:45,880 --> 00:08:48,880 Speaker 1: for private credit and private equity generally are on listed 146 00:08:48,960 --> 00:08:53,360 Speaker 1: investments where retail investors are late to the party has 147 00:08:53,440 --> 00:08:56,080 Speaker 1: always been going into them now and the market is 148 00:08:56,120 --> 00:08:59,520 Speaker 1: only waiting for them to come along and launching lots 149 00:08:59,559 --> 00:09:04,720 Speaker 1: of offers and products. But you came upon in terms 150 00:09:04,720 --> 00:09:07,880 Speaker 1: of a theme that you came across at different conferences, 151 00:09:08,320 --> 00:09:11,560 Speaker 1: there was a sense that not that it wouldn't work, 152 00:09:12,280 --> 00:09:16,719 Speaker 1: but there was a worry about liquidity and what that means, folks, 153 00:09:16,840 --> 00:09:18,680 Speaker 1: to make it really simple, is if you put ten 154 00:09:18,720 --> 00:09:23,240 Speaker 1: grand into an unlisted fund and a day comes for 155 00:09:23,320 --> 00:09:24,920 Speaker 1: you say I want to get that ten ground out, 156 00:09:25,400 --> 00:09:27,440 Speaker 1: they may say to you, sorry, you can't have that 157 00:09:27,520 --> 00:09:29,760 Speaker 1: money today. We can't give it to you right now. 158 00:09:30,080 --> 00:09:32,680 Speaker 1: And if you haven't had that experience, it's worth having 159 00:09:32,760 --> 00:09:35,880 Speaker 1: because it's disturbing. So what they're saying will. 160 00:09:35,880 --> 00:09:38,200 Speaker 2: Private credit seems to be the number one thing that 161 00:09:38,240 --> 00:09:41,480 Speaker 2: people are concerned about, but overall when it comes to 162 00:09:41,760 --> 00:09:45,359 Speaker 2: this alternative space. Last year the theme was the democratization 163 00:09:45,440 --> 00:09:48,240 Speaker 2: of private assets, which I really don't like that term, 164 00:09:48,320 --> 00:09:52,240 Speaker 2: but I think in full twelve months it's been a 165 00:09:52,360 --> 00:09:55,240 Speaker 2: rush and now people have realized you need to manage 166 00:09:55,280 --> 00:09:58,520 Speaker 2: liquidity and portfolios, and there's no doubt I know as 167 00:09:58,520 --> 00:10:01,640 Speaker 2: a wealth manager, we could when it comes to private 168 00:10:01,679 --> 00:10:04,120 Speaker 2: credit and private equity, we could waste every minute of 169 00:10:04,160 --> 00:10:06,319 Speaker 2: every day seeing a manager. And it's still the case. 170 00:10:07,000 --> 00:10:09,400 Speaker 2: And whilst the ducks are quacking, the fund managers are 171 00:10:09,400 --> 00:10:14,120 Speaker 2: coming out here and feeding them. But you need liquidity. 172 00:10:14,160 --> 00:10:17,600 Speaker 2: Management is very important and therefore it's not surprising these 173 00:10:17,640 --> 00:10:20,839 Speaker 2: so called evergreen structures which the clients etc. You're going 174 00:10:20,880 --> 00:10:23,960 Speaker 2: to continue to see KKR and lots of them are 175 00:10:24,000 --> 00:10:25,280 Speaker 2: going to come out here and you're going to see 176 00:10:25,320 --> 00:10:27,160 Speaker 2: a lot more of these where they're semi liquid or 177 00:10:27,760 --> 00:10:33,880 Speaker 2: they've got liquidity provisions. Bus everyone should remember that when 178 00:10:33,920 --> 00:10:37,680 Speaker 2: things go wrong, they all have the right to lock up. Now, 179 00:10:37,720 --> 00:10:39,920 Speaker 2: when it comes to private credit, it is the big 180 00:10:39,960 --> 00:10:42,200 Speaker 2: trend and there is a big disparate and quality between 181 00:10:42,200 --> 00:10:47,120 Speaker 2: private credit managers. Our banks being replaced by private credits? 182 00:10:47,920 --> 00:10:50,240 Speaker 1: Are they because this is their presentation, isn't it. They're 183 00:10:50,240 --> 00:10:52,600 Speaker 1: stand in front of every conference and they say, listen, folks, 184 00:10:52,640 --> 00:10:55,120 Speaker 1: you may not know what The banks aren't banks anymore. 185 00:10:55,120 --> 00:10:57,880 Speaker 1: They don't boop do banking. We are the banks. We 186 00:10:57,960 --> 00:11:00,160 Speaker 1: are the new banks. We're doing all the banking. Do 187 00:11:00,200 --> 00:11:01,280 Speaker 1: you think of that pitch? 188 00:11:01,920 --> 00:11:03,800 Speaker 2: There's no doubt that the banks are doing less and 189 00:11:03,840 --> 00:11:07,640 Speaker 2: therefore it has become open to private credits. And I said, 190 00:11:07,640 --> 00:11:11,800 Speaker 2: there's a big disparity in the quality between those that 191 00:11:11,840 --> 00:11:13,960 Speaker 2: I think are more established and the better managers than 192 00:11:13,960 --> 00:11:15,719 Speaker 2: those they've just come by. I think we haven't gone 193 00:11:15,720 --> 00:11:19,280 Speaker 2: through a default cycle, and people need to remember that. 194 00:11:19,320 --> 00:11:23,959 Speaker 2: First of all, I would I would caution any of 195 00:11:24,000 --> 00:11:27,000 Speaker 2: the listeners to look at single asset lines because they 196 00:11:27,000 --> 00:11:29,199 Speaker 2: have one hundred percent downside, So you need to look 197 00:11:29,240 --> 00:11:32,079 Speaker 2: at something that is pulled. But you've got to make 198 00:11:32,120 --> 00:11:35,480 Speaker 2: sure that you are confident that a manager can manage 199 00:11:35,520 --> 00:11:39,600 Speaker 2: a default cycle. And we haven't seen that. And yes, 200 00:11:39,640 --> 00:11:42,040 Speaker 2: there's been the odd default here or there in some 201 00:11:42,120 --> 00:11:44,199 Speaker 2: of the funds, and some of them have managed it 202 00:11:44,240 --> 00:11:47,160 Speaker 2: really well. But some of the new guys, and especially 203 00:11:47,200 --> 00:11:49,360 Speaker 2: the term I can't stand. We have never had had 204 00:11:49,360 --> 00:11:51,319 Speaker 2: a default that makes me run in the opposite direction 205 00:11:51,360 --> 00:11:53,760 Speaker 2: at a million miles an hour because that manager, what 206 00:11:53,800 --> 00:11:56,600 Speaker 2: expertise they brought to the table in managing that default? 207 00:11:57,480 --> 00:12:00,760 Speaker 1: Oh, very interesting. It's like the journalists to say, I've 208 00:12:00,800 --> 00:12:02,640 Speaker 1: never had a libel action. 209 00:12:04,360 --> 00:12:06,720 Speaker 3: I've never had a correction. I've never had a correction, 210 00:12:06,800 --> 00:12:08,600 Speaker 3: No one ever has. No one has ever said I 211 00:12:08,640 --> 00:12:11,800 Speaker 3: got anything wrong. Just one last thing on that. For 212 00:12:11,880 --> 00:12:18,080 Speaker 3: the retail investor, often the avenue because often these funds 213 00:12:18,080 --> 00:12:21,440 Speaker 3: are they've got pretty high entry points twenty grand, fifty grand, 214 00:12:21,480 --> 00:12:24,480 Speaker 3: one hundred grand just to go in. For most people 215 00:12:24,520 --> 00:12:28,040 Speaker 3: most of the time, the end the pathway to these 216 00:12:28,080 --> 00:12:34,160 Speaker 3: alternatives or alternative funds or whatever private credit, private equity is. Ironically, 217 00:12:34,200 --> 00:12:37,240 Speaker 3: I think through the stock market, do you think there's 218 00:12:37,240 --> 00:12:40,280 Speaker 3: any particular weakness or is it a plus or minus. 219 00:12:40,679 --> 00:12:42,960 Speaker 2: I don't want to mention names. I think that's unfair 220 00:12:43,040 --> 00:12:46,199 Speaker 2: that there is one that comes to mind, and I 221 00:12:46,280 --> 00:12:49,200 Speaker 2: think it still is trading at a discount to its NTA. 222 00:12:49,440 --> 00:12:52,400 Speaker 2: And that's the issue. These things are always easy to 223 00:12:52,400 --> 00:12:54,360 Speaker 2: get in, and when you want to get out, they 224 00:12:54,360 --> 00:12:59,120 Speaker 2: can be very difficult. So just beware, and like with leaks, 225 00:12:59,160 --> 00:13:01,400 Speaker 2: with the investment coming means they don't necessarily try it 226 00:13:01,440 --> 00:13:02,080 Speaker 2: where they should. 227 00:13:02,679 --> 00:13:05,160 Speaker 1: But you don't have a problem with the sort of 228 00:13:05,280 --> 00:13:08,760 Speaker 1: inherent contradiction of buying private assets on a public market. 229 00:13:09,280 --> 00:13:10,960 Speaker 2: For some people, I think that's the only way they're 230 00:13:10,960 --> 00:13:12,040 Speaker 2: going to be able to do it. If that's what 231 00:13:12,040 --> 00:13:14,160 Speaker 2: they want to do, make sure you do. Just make 232 00:13:14,200 --> 00:13:15,679 Speaker 2: sure you do your research in your homework. 233 00:13:16,440 --> 00:13:18,800 Speaker 1: Okay, Hey, we'll take a short break. A couple of 234 00:13:18,800 --> 00:13:21,440 Speaker 1: other big issues I want to talk to you about. 235 00:13:21,760 --> 00:13:28,840 Speaker 1: Will be back in a moment. Hello, Welcome back to 236 00:13:28,880 --> 00:13:32,439 Speaker 1: The Australian's Money Puzzle podcast. I'm James Kirby, wealth editor 237 00:13:32,520 --> 00:13:36,320 Speaker 1: at The Australian, talking to Will Hamilton, regular friend of 238 00:13:36,360 --> 00:13:40,679 Speaker 1: the show, and he is telling us about basically an 239 00:13:40,679 --> 00:13:44,400 Speaker 1: international trip piece just done and the views out there 240 00:13:44,440 --> 00:13:47,160 Speaker 1: in the wider world from wealth managers, fund managers, but 241 00:13:47,200 --> 00:13:50,600 Speaker 1: particularly advisors in the wealth space at the moment. One 242 00:13:50,600 --> 00:13:54,319 Speaker 1: of the other big themes will I come upon every 243 00:13:54,440 --> 00:13:56,719 Speaker 1: day at the moment from a global perspective, and it's 244 00:13:56,800 --> 00:14:02,439 Speaker 1: kicking in here locally too, is this ocean that having 245 00:14:02,480 --> 00:14:05,040 Speaker 1: had some very good years on the market driven by 246 00:14:05,120 --> 00:14:09,080 Speaker 1: large caps, that we're going to have a swing to 247 00:14:09,320 --> 00:14:12,000 Speaker 1: small caps and small caps are now going to have 248 00:14:12,080 --> 00:14:14,120 Speaker 1: a run and they're going to have their day. A 249 00:14:14,240 --> 00:14:16,839 Speaker 1: couple of things I want to say before I put 250 00:14:16,880 --> 00:14:18,840 Speaker 1: it to you. First thing is I looked at the 251 00:14:19,480 --> 00:14:22,360 Speaker 1: small cap indices and basically it's a flat line for 252 00:14:22,400 --> 00:14:25,560 Speaker 1: about five years and even the very good small cap 253 00:14:25,600 --> 00:14:28,240 Speaker 1: managers that I'm aware of, the numbers are okay. So 254 00:14:28,400 --> 00:14:30,640 Speaker 1: maybe they did two or three or four percent more 255 00:14:30,680 --> 00:14:33,200 Speaker 1: than the index, but g you wouldn't exactly be minting 256 00:14:33,240 --> 00:14:35,800 Speaker 1: it with them. What do you think of this notion 257 00:14:35,960 --> 00:14:37,680 Speaker 1: which is the flavor of the month. 258 00:14:37,840 --> 00:14:42,400 Speaker 2: Just now, look the disparity in valuation between small and 259 00:14:42,440 --> 00:14:46,600 Speaker 2: meds and the large caps is close to record highs. 260 00:14:46,640 --> 00:14:49,800 Speaker 2: And that's one of the one of the key reasons 261 00:14:49,880 --> 00:14:54,200 Speaker 2: is the small and meds tend to have higher gearing 262 00:14:54,480 --> 00:14:57,280 Speaker 2: than the large cap companies and so when you are 263 00:14:57,320 --> 00:15:01,320 Speaker 2: in an upward cycle on interest rates, they get punished 264 00:15:01,960 --> 00:15:06,520 Speaker 2: when you are looking at a downward cycle on interest right, 265 00:15:06,680 --> 00:15:10,080 Speaker 2: that is to their advantage. So I think it's been 266 00:15:10,120 --> 00:15:12,240 Speaker 2: a very crowded trade. Everyone's been talking about this for 267 00:15:12,240 --> 00:15:15,760 Speaker 2: a year and I will admit we've got we put 268 00:15:15,760 --> 00:15:20,280 Speaker 2: global mids in probably the winning of this year and 269 00:15:21,240 --> 00:15:21,480 Speaker 2: been a. 270 00:15:21,520 --> 00:15:23,880 Speaker 1: Drag because it hasn't started yet. 271 00:15:24,720 --> 00:15:28,720 Speaker 2: What did last month in July? But apart from that, 272 00:15:28,760 --> 00:15:33,480 Speaker 2: it's been six months a drag and interesting. We use 273 00:15:33,760 --> 00:15:36,880 Speaker 2: generally broad cap managers in domestically in Australia and the 274 00:15:36,880 --> 00:15:38,760 Speaker 2: manager we use again I think it's unfair to mention 275 00:15:38,840 --> 00:15:41,680 Speaker 2: unless you what I know is has outperformed the index 276 00:15:41,720 --> 00:15:44,280 Speaker 2: by about five six percent. But they've got that, they've 277 00:15:44,280 --> 00:15:47,440 Speaker 2: got that ability to play the whole market from right 278 00:15:47,480 --> 00:15:49,960 Speaker 2: down to tiny and they can put a couple of 279 00:15:49,960 --> 00:15:53,000 Speaker 2: the large caps in. That's the way we prefer to 280 00:15:53,040 --> 00:15:55,200 Speaker 2: play it in Australia because Australia is a small market. 281 00:15:55,240 --> 00:15:59,080 Speaker 2: It's only its capitalization as one point nine trillion US dollars. 282 00:15:59,160 --> 00:16:01,440 Speaker 2: It's two percent of the world. It's a tiny market, 283 00:16:01,440 --> 00:16:03,520 Speaker 2: and we think that's the best way to play it. 284 00:16:03,640 --> 00:16:06,480 Speaker 1: Okay. I noticed for the retail investor, even some of 285 00:16:06,520 --> 00:16:08,680 Speaker 1: the better known small cap funds and even the ones 286 00:16:08,720 --> 00:16:12,720 Speaker 1: that are listed as the best, they're tiny, like twenty 287 00:16:12,800 --> 00:16:15,280 Speaker 1: mil market cap, fifteen mil market cap. Is that a 288 00:16:15,440 --> 00:16:17,520 Speaker 1: problem in and of itself? 289 00:16:18,480 --> 00:16:21,720 Speaker 2: Yeah, it is because these things will outperform on the 290 00:16:21,800 --> 00:16:25,200 Speaker 2: upside and the downside is high. And that's because of 291 00:16:25,280 --> 00:16:28,440 Speaker 2: the way a business is run and the way we 292 00:16:28,480 --> 00:16:30,840 Speaker 2: look at think we look at volatility, and the volatility 293 00:16:30,880 --> 00:16:35,320 Speaker 2: and companies that are that small is just extreme and 294 00:16:35,360 --> 00:16:37,480 Speaker 2: so we would never touch that. There's a lot And 295 00:16:37,520 --> 00:16:40,560 Speaker 2: the other thing is there's a lot of companies that 296 00:16:40,800 --> 00:16:43,000 Speaker 2: are listed in the small cap space that should never 297 00:16:43,000 --> 00:16:45,760 Speaker 2: have been listed, and that's what managers will remind you, 298 00:16:46,560 --> 00:16:48,760 Speaker 2: and of course they're avoiding them, but they just should 299 00:16:48,800 --> 00:16:50,120 Speaker 2: never have been listed in the first place. 300 00:16:50,120 --> 00:16:52,640 Speaker 1: There's a lot of junk, a lot of junk, and that, 301 00:16:52,760 --> 00:16:56,880 Speaker 1: I suppose is the argument against buying an index fund 302 00:16:56,880 --> 00:17:01,440 Speaker 1: of small caps, because if there's one thousand stocks and 303 00:17:01,520 --> 00:17:05,320 Speaker 1: roughly even small caps in Australia, it's probably about fourteen 304 00:17:05,400 --> 00:17:08,199 Speaker 1: hundred small caps and I don't know how many of 305 00:17:08,240 --> 00:17:11,120 Speaker 1: them are junk. Hundreds and hundreds of them are jug 306 00:17:11,520 --> 00:17:13,920 Speaker 1: and you're buying them. You're buying them if you buy 307 00:17:13,920 --> 00:17:16,520 Speaker 1: the index file, if you buy a manager who specializes 308 00:17:16,560 --> 00:17:18,040 Speaker 1: in small caps, and you would hope that they're not 309 00:17:18,080 --> 00:17:20,720 Speaker 1: buying the junk, but of course they will always get 310 00:17:20,760 --> 00:17:25,119 Speaker 1: caught by somebody. Okay, totally different business, other end of 311 00:17:25,160 --> 00:17:28,560 Speaker 1: the spectrum. In our market, it's something I've asked lots 312 00:17:28,600 --> 00:17:30,399 Speaker 1: of people. I han't had a chance to ask you 313 00:17:30,440 --> 00:17:34,359 Speaker 1: on air. Our market was very much driven by the 314 00:17:34,400 --> 00:17:39,680 Speaker 1: bigger cap stocks. The banks are completely running the show 315 00:17:39,680 --> 00:17:43,880 Speaker 1: at the moment on the AX five banks, Big four, 316 00:17:43,960 --> 00:17:47,040 Speaker 1: an Macquarie in the top ten common Well Bank on 317 00:17:47,080 --> 00:17:49,439 Speaker 1: a league of its own. Common Well Bank at one 318 00:17:49,520 --> 00:17:52,040 Speaker 1: hundred and thirty dollars, the biggest stock of the market, biggest, 319 00:17:52,040 --> 00:17:57,200 Speaker 1: bigger than BHP, and everyone says all year long, all 320 00:17:57,320 --> 00:18:01,320 Speaker 1: the top brains, all that big house, all the brokers, 321 00:18:01,359 --> 00:18:05,000 Speaker 1: local and internationals say sell get away from that bank, 322 00:18:05,320 --> 00:18:08,320 Speaker 1: and they're all wrong so far. But when do you 323 00:18:08,320 --> 00:18:09,120 Speaker 1: come on that one. 324 00:18:09,000 --> 00:18:14,160 Speaker 2: Under owned institutionally and over owned in retail land. Self 325 00:18:14,200 --> 00:18:18,280 Speaker 2: directed investor that wanting his dividend goes and buys the banks, 326 00:18:18,480 --> 00:18:22,320 Speaker 2: but every institutional fund manager will be underweight, hence the 327 00:18:22,400 --> 00:18:25,240 Speaker 2: volatility in these things. I think that it's run too 328 00:18:25,280 --> 00:18:29,720 Speaker 2: hard and it was may I be taking some profits. 329 00:18:29,760 --> 00:18:32,280 Speaker 2: I think that the fact that the largest company at 330 00:18:32,320 --> 00:18:34,919 Speaker 2: its valuation is where it is. We've got to be 331 00:18:34,960 --> 00:18:38,680 Speaker 2: sensible about these things. And it's run incredibly well, and 332 00:18:38,720 --> 00:18:41,040 Speaker 2: good luck to those that have it or bought it. 333 00:18:41,320 --> 00:18:45,240 Speaker 2: But nothing ever continues going up in a straight line. 334 00:18:45,440 --> 00:18:49,280 Speaker 1: Yeah, okay. I saw someone say a gorgeous quote the 335 00:18:49,320 --> 00:18:51,840 Speaker 1: other day, and this old lined about something and being 336 00:18:52,000 --> 00:18:56,680 Speaker 1: priced for perfection. Then someone said CBA is priced beyond perfection, 337 00:18:56,880 --> 00:19:01,679 Speaker 1: which probably captures, probably does capture the issue of it Okay, 338 00:19:01,880 --> 00:19:04,160 Speaker 1: we'll be back in a moment with some great questions, 339 00:19:04,480 --> 00:19:07,520 Speaker 1: very good questions, I have to say, our particular selection 340 00:19:07,640 --> 00:19:09,119 Speaker 1: this week, and there's quite a few of them. So 341 00:19:09,160 --> 00:19:11,840 Speaker 1: stick around because we're going to go through quite a 342 00:19:11,960 --> 00:19:14,520 Speaker 1: range of issues which will be useful to everybody. I'm 343 00:19:14,520 --> 00:19:24,600 Speaker 1: sure back in a moment. Hello, and welcome back to 344 00:19:24,640 --> 00:19:27,960 Speaker 1: The Australian's Money Puzzle podcast. I'm James Kirby, the Wealth 345 00:19:28,080 --> 00:19:31,440 Speaker 1: editor at The Australian, talking to Will Hamilton of Hamilton 346 00:19:31,480 --> 00:19:34,680 Speaker 1: Wealth Management. Will, if you don't know, is a top 347 00:19:34,720 --> 00:19:37,919 Speaker 1: wealth manager. He is on our Top hundred, which is 348 00:19:37,920 --> 00:19:40,960 Speaker 1: about to become Top one hundred and fifty advisors list 349 00:19:41,320 --> 00:19:43,760 Speaker 1: of which we publish in The Australian every year, and 350 00:19:43,880 --> 00:19:47,680 Speaker 1: he's at Hamilton Wealth Partners. What about six questions here? 351 00:19:47,680 --> 00:19:51,040 Speaker 1: Why don't we read them alternately? And also why don't 352 00:19:51,080 --> 00:19:54,720 Speaker 1: we aim to try and get through them as well? 353 00:19:55,320 --> 00:19:58,120 Speaker 2: Okay, so Paide asks, what is the biggest bubble Navidia 354 00:19:58,200 --> 00:20:01,320 Speaker 2: with the market KAPE two two point eight trillion or 355 00:20:01,359 --> 00:20:05,439 Speaker 2: cryptocurrency market cap US two point five trillion. Look, I 356 00:20:05,440 --> 00:20:09,119 Speaker 2: think we've talked about in the video and why just 357 00:20:09,240 --> 00:20:13,159 Speaker 2: consolidating and is a positive thing, because that stops that 358 00:20:13,280 --> 00:20:17,000 Speaker 2: word bubble cryptocurrency. I don't follow I have no intention 359 00:20:17,119 --> 00:20:19,920 Speaker 2: to follow it, and we don't have investments. 360 00:20:20,119 --> 00:20:24,120 Speaker 1: So you're you're not even one of these people who say, 361 00:20:24,440 --> 00:20:27,160 Speaker 1: if my clients want to invest in it, then they can, 362 00:20:27,320 --> 00:20:28,439 Speaker 1: but I don't recommend it. 363 00:20:28,560 --> 00:20:30,879 Speaker 2: Yeah, we have done that, but that's their decision and 364 00:20:30,920 --> 00:20:32,560 Speaker 2: they signed forms. That's their decision. 365 00:20:32,640 --> 00:20:36,160 Speaker 1: Yeah. Okay, I hope you like that, answered Pete O. Kate. Kate, 366 00:20:36,800 --> 00:20:39,639 Speaker 1: he says, when you next have an advisor on the 367 00:20:39,680 --> 00:20:43,480 Speaker 1: show to discuss tax deductions, can you please ask the following. 368 00:20:43,960 --> 00:20:47,280 Speaker 1: I have a Spotify subscription which now includes audio books. 369 00:20:47,560 --> 00:20:50,440 Speaker 1: I'm regularly using it to listen to finance books to 370 00:20:50,480 --> 00:20:53,919 Speaker 1: help me understand and manage my personal portfolio. Do you 371 00:20:54,000 --> 00:20:56,880 Speaker 1: think I could claim a percentage of the subscription? I'll 372 00:20:56,880 --> 00:20:59,720 Speaker 1: tell you what, Kate, I think you should be able to. Okay, 373 00:21:00,080 --> 00:21:04,080 Speaker 1: but this is not advice and it's information only. However, 374 00:21:04,240 --> 00:21:08,240 Speaker 1: in the real world, where the ATO has thought of 375 00:21:08,560 --> 00:21:11,760 Speaker 1: everything you could possibly think of and are so tight 376 00:21:11,800 --> 00:21:14,560 Speaker 1: and mean on all these things, they would say to you, 377 00:21:14,720 --> 00:21:16,920 Speaker 1: if you could get them to agree, they would say 378 00:21:16,960 --> 00:21:20,400 Speaker 1: to you that you could claim the Spotify subscription if 379 00:21:20,440 --> 00:21:24,199 Speaker 1: you listened to absolutely nothing else but finance podcasts, and 380 00:21:24,240 --> 00:21:26,520 Speaker 1: you could prove to them that you did so, and 381 00:21:26,600 --> 00:21:28,840 Speaker 1: at that I would say they would try to kick back, 382 00:21:28,880 --> 00:21:31,480 Speaker 1: but I think they would have to take it on 383 00:21:31,560 --> 00:21:36,200 Speaker 1: that basis about acclaiming a percentage, you'd have to prove 384 00:21:36,240 --> 00:21:40,000 Speaker 1: what percentage it is. So if you really think it's 385 00:21:40,000 --> 00:21:43,480 Speaker 1: worth that much trouble, I wouldn't stop you having a try, 386 00:21:43,560 --> 00:21:46,760 Speaker 1: but I would refer to a conventional tax adviser on that. 387 00:21:46,880 --> 00:21:49,160 Speaker 1: But I know I'm doing this a long time. I've 388 00:21:49,200 --> 00:21:51,920 Speaker 1: tried to claim all sorts of things over the years, 389 00:21:52,760 --> 00:21:56,359 Speaker 1: from clothing to whatever, and every single time I got 390 00:21:56,480 --> 00:21:59,800 Speaker 1: knocked back I tried. That doesn't mean you won't be 391 00:21:59,840 --> 00:22:03,000 Speaker 1: so successful, but that would be I think what that 392 00:22:03,000 --> 00:22:05,320 Speaker 1: would be the conventional wisdom. Does that sound? How does 393 00:22:05,320 --> 00:22:06,160 Speaker 1: that sound to you? Will? 394 00:22:06,400 --> 00:22:11,359 Speaker 2: Yes? Absolutely, like you. I can't give I'm registered with 395 00:22:11,359 --> 00:22:14,480 Speaker 2: the TPP, but that's for financial advice tax only, so 396 00:22:14,640 --> 00:22:16,800 Speaker 2: this is a bit different. So yeah, I would talk 397 00:22:16,840 --> 00:22:18,320 Speaker 2: to your text advice. 398 00:22:18,240 --> 00:22:20,560 Speaker 1: Yes, and your tax advisors will say, oh god, that 399 00:22:20,680 --> 00:22:24,879 Speaker 1: sounds like a lot of trouble. Ironically, this principle probably 400 00:22:24,920 --> 00:22:28,480 Speaker 1: isn't tested because this is a new area, right, podcasts 401 00:22:28,520 --> 00:22:32,480 Speaker 1: are new. If you subscribe to a financial publication, then 402 00:22:32,520 --> 00:22:35,639 Speaker 1: you can, so why can't you if you subscribe to 403 00:22:35,680 --> 00:22:38,240 Speaker 1: a financial podcast. I'm with you, Kate, but I don't 404 00:22:38,240 --> 00:22:40,280 Speaker 1: know if you'll get over the line. Okay, do you 405 00:22:40,320 --> 00:22:42,200 Speaker 1: want to see the question from Adam? 406 00:22:42,680 --> 00:22:45,080 Speaker 2: I can? Adam asks is there a minimum amount for 407 00:22:45,119 --> 00:22:47,160 Speaker 2: it to be worth having a family trust like there 408 00:22:47,200 --> 00:22:50,520 Speaker 2: is with self managed super funds? And can assets be 409 00:22:50,560 --> 00:22:54,240 Speaker 2: gifted from an individual to a family trust without paying CGT? 410 00:22:54,520 --> 00:22:58,439 Speaker 2: So both a self managed super fund and a family 411 00:22:58,480 --> 00:23:02,960 Speaker 2: trust have compliance costs. Costs that hold to operate that 412 00:23:03,080 --> 00:23:07,040 Speaker 2: vehicle for the year and to report aren't assek or 413 00:23:07,040 --> 00:23:08,960 Speaker 2: in the case of the self managed super fund to 414 00:23:09,000 --> 00:23:12,720 Speaker 2: the Strand Taxation Office. So there's there are compliance costs, 415 00:23:13,000 --> 00:23:18,280 Speaker 2: and those compliance costs are about the same, and therefore 416 00:23:19,200 --> 00:23:21,480 Speaker 2: you need to have at least a million dollars at 417 00:23:21,560 --> 00:23:24,679 Speaker 2: least a million dollars to justify either vehicle. 418 00:23:24,760 --> 00:23:27,679 Speaker 1: I think, Okay, I don't like your answer, but I 419 00:23:27,720 --> 00:23:29,439 Speaker 1: like the clarity of it. Yeah, okay? 420 00:23:30,040 --> 00:23:32,520 Speaker 2: And can assets be gifted from an individual to a 421 00:23:32,520 --> 00:23:36,000 Speaker 2: family trust without paying CGT? If you not? The answer 422 00:23:36,040 --> 00:23:41,040 Speaker 2: is no. If you are transferring ownership from an individual 423 00:23:41,160 --> 00:23:44,600 Speaker 2: to the trust, you are realizing a capital and you 424 00:23:44,640 --> 00:23:47,320 Speaker 2: realize a capital gain, the strand Taxation Office is going 425 00:23:47,320 --> 00:23:48,160 Speaker 2: to want to share of that. 426 00:23:49,320 --> 00:23:52,800 Speaker 1: Yes, okay, very good, very clear answers. I hope that 427 00:23:52,880 --> 00:23:55,960 Speaker 1: was useful to you. I just want to also mention something. 428 00:23:56,000 --> 00:23:59,320 Speaker 1: But the point that Will is making how much should 429 00:23:59,359 --> 00:24:02,120 Speaker 1: you have in an SMSF. And Will I would say 430 00:24:02,160 --> 00:24:05,120 Speaker 1: that you're on the high side, okay, on a million dollars, 431 00:24:05,280 --> 00:24:07,720 Speaker 1: not on the family trust, but on the SMSF. You're 432 00:24:07,760 --> 00:24:10,159 Speaker 1: on the high side. But I think the answer probably 433 00:24:10,200 --> 00:24:12,919 Speaker 1: is somewhere between half a million and a million these days. 434 00:24:13,240 --> 00:24:15,280 Speaker 1: And I want to make a point here which is 435 00:24:15,359 --> 00:24:18,439 Speaker 1: worth bear with me. It's from I just did some 436 00:24:18,480 --> 00:24:22,320 Speaker 1: work during the week and it was about financial advisors 437 00:24:22,440 --> 00:24:26,720 Speaker 1: and their charges. And the point Will is making about compliances. 438 00:24:27,160 --> 00:24:32,120 Speaker 1: If it costs you so many thousand perannum to do 439 00:24:32,200 --> 00:24:36,560 Speaker 1: something right, let's say it's an SMSF. Then, and let's 440 00:24:36,560 --> 00:24:39,160 Speaker 1: say you think your SMSF makes a certain amount, put 441 00:24:39,160 --> 00:24:42,000 Speaker 1: a number on it, ten thousand, one hundred thousand. You've 442 00:24:42,040 --> 00:24:45,040 Speaker 1: got to subtract that five thousand, right, you have to 443 00:24:45,080 --> 00:24:47,960 Speaker 1: subtract the cost of the vehicle from what you made, 444 00:24:48,320 --> 00:24:51,040 Speaker 1: and so that in a way informs how much you 445 00:24:51,119 --> 00:24:53,480 Speaker 1: need to have in it. And I came across something 446 00:24:53,480 --> 00:24:56,520 Speaker 1: which I really couldn't. I missed this when it happened. 447 00:24:57,200 --> 00:25:01,840 Speaker 1: But it's about the costs of advice in the market. 448 00:25:02,119 --> 00:25:06,200 Speaker 1: So a financial advisors, by the way, okay, on average, 449 00:25:06,240 --> 00:25:09,320 Speaker 1: your average advisor rose their average fee to the average 450 00:25:09,320 --> 00:25:13,280 Speaker 1: person last year up to it's up over five thousand 451 00:25:13,320 --> 00:25:16,919 Speaker 1: dollars now, seventeen percent rise last year. And financial advice 452 00:25:16,960 --> 00:25:21,879 Speaker 1: fees okay, seventeen percent, four times the inflation rate. And 453 00:25:21,920 --> 00:25:24,520 Speaker 1: that's not even the one I'm looking for. That's not 454 00:25:24,600 --> 00:25:31,040 Speaker 1: the screamer in the issue of particular advice on self 455 00:25:31,200 --> 00:25:34,560 Speaker 1: managed super funds. But hear this. This is from investment Trends. 456 00:25:35,680 --> 00:25:39,200 Speaker 1: I'll just read the paragraph. In some cases, fee increases 457 00:25:39,240 --> 00:25:42,760 Speaker 1: have been astronomical. A year ago, the average up front 458 00:25:42,840 --> 00:25:46,560 Speaker 1: fees faced by self managed super funds dealing with specialist 459 00:25:46,640 --> 00:25:52,480 Speaker 1: advisors rose by forty percent from two thousand, six hundred 460 00:25:52,520 --> 00:25:55,960 Speaker 1: to three thousand, six hundred in one year, and last 461 00:25:56,000 --> 00:25:58,399 Speaker 1: year being the twelve months to June, they add added 462 00:25:58,440 --> 00:26:00,520 Speaker 1: a few more hundred just for good measure, and they're 463 00:26:00,560 --> 00:26:05,000 Speaker 1: now charging three seven five zero per annum, so the 464 00:26:05,080 --> 00:26:07,680 Speaker 1: fees really are rising. I don't want to get too 465 00:26:07,680 --> 00:26:09,560 Speaker 1: deeply into this, but I just want to go back 466 00:26:09,560 --> 00:26:12,080 Speaker 1: to the point that Will made that the way to 467 00:26:12,119 --> 00:26:14,880 Speaker 1: do it is reverse engineer how much is your fee? 468 00:26:15,400 --> 00:26:17,120 Speaker 1: And then when you know how much your fee is, 469 00:26:17,680 --> 00:26:20,760 Speaker 1: we could then make the point of whether it makes 470 00:26:20,800 --> 00:26:23,439 Speaker 1: sense for you to actually pay that fee. And that 471 00:26:23,560 --> 00:26:25,720 Speaker 1: really is how you make your how it makes sense. 472 00:26:26,040 --> 00:26:29,440 Speaker 1: That's on a strict technical basis. Obviously, you might have aspirations. Okay, 473 00:26:29,480 --> 00:26:31,080 Speaker 1: So you might have half a million and you say, 474 00:26:31,119 --> 00:26:32,399 Speaker 1: I'm not going to have half a million for long. 475 00:26:32,440 --> 00:26:34,879 Speaker 1: It's going to get bigger, and I've got plans and 476 00:26:34,920 --> 00:26:37,760 Speaker 1: maybe it's worth it for you, and I wouldn't stop you. Again, 477 00:26:37,800 --> 00:26:41,280 Speaker 1: this isn't advice, this is information, all right. I'm the 478 00:26:41,320 --> 00:26:46,120 Speaker 1: next one. Okay, Jen, Hi, Jen, could you please explain 479 00:26:46,200 --> 00:26:51,880 Speaker 1: what hedging means and how it relates to ETFs? And separately, 480 00:26:51,920 --> 00:26:54,440 Speaker 1: she asks, could you explain how shares such as RIO 481 00:26:54,560 --> 00:26:57,920 Speaker 1: and BHP are affected by changes in the dollar? Look, Jen, 482 00:26:57,960 --> 00:27:00,199 Speaker 1: the second question is too big, except to say that 483 00:27:00,320 --> 00:27:04,879 Speaker 1: scale real BHP, these are multinational companies and they literally 484 00:27:05,440 --> 00:27:08,760 Speaker 1: try to upset their assets and liabilities in the currency 485 00:27:08,800 --> 00:27:12,119 Speaker 1: where they are, so they're almost beyond hedging when you 486 00:27:12,119 --> 00:27:15,000 Speaker 1: get to that sort of global multinational stage. But on 487 00:27:15,080 --> 00:27:18,680 Speaker 1: the simpler question of could you clean explain what hedging 488 00:27:19,119 --> 00:27:23,560 Speaker 1: means and specifically how it relates to exchange traded funds 489 00:27:23,640 --> 00:27:27,200 Speaker 1: or index funds, would you like to have a go 490 00:27:27,320 --> 00:27:27,840 Speaker 1: with that? Will? 491 00:27:30,080 --> 00:27:34,719 Speaker 2: So what hedging means, and you can buy either listed 492 00:27:34,800 --> 00:27:39,320 Speaker 2: or unlisted funds that are hedged, so they protect you 493 00:27:39,720 --> 00:27:45,120 Speaker 2: in a rising Australian dollar, so they hedge out the risk. 494 00:27:46,160 --> 00:27:50,119 Speaker 2: So that's the key thing so to try and give you. 495 00:27:50,359 --> 00:27:53,639 Speaker 2: And it's interesting because you actually looked at the thirtieth 496 00:27:53,680 --> 00:27:56,960 Speaker 2: of June, the returns to the indexes hedged and unhedged 497 00:27:56,960 --> 00:27:59,520 Speaker 2: are pretty well identical for the year. But if you 498 00:27:59,520 --> 00:28:03,480 Speaker 2: look back six months ago, hedged dramatically and performed unhedged. 499 00:28:04,160 --> 00:28:07,920 Speaker 1: Okay, so jen nothing's free, right. So what they do 500 00:28:08,000 --> 00:28:11,760 Speaker 1: is they say you've got two choices with the ETF. 501 00:28:11,960 --> 00:28:14,600 Speaker 1: They've got the American stoff market ETF and the American 502 00:28:14,640 --> 00:28:19,840 Speaker 1: staff market ETF hedged, and the hedged one says makes 503 00:28:19,880 --> 00:28:22,679 Speaker 1: a promise to you that the machinations, if you like, 504 00:28:22,680 --> 00:28:25,840 Speaker 1: of the currency markets will not affect you. I won't 505 00:28:25,840 --> 00:28:27,360 Speaker 1: say it won't affect you at all, but they won't 506 00:28:27,359 --> 00:28:29,760 Speaker 1: to affect you as much as an unhedged one because 507 00:28:29,760 --> 00:28:32,760 Speaker 1: what they do is they spend a certain amount of 508 00:28:32,800 --> 00:28:38,240 Speaker 1: money forward buying currencies, and then if they get it right, 509 00:28:40,480 --> 00:28:43,480 Speaker 1: then the change in the currency doesn't affect you as much. 510 00:28:43,760 --> 00:28:46,960 Speaker 1: Now that's terribly simplistic explanation of it. Any part of 511 00:28:47,000 --> 00:28:48,680 Speaker 1: that wrong will no. 512 00:28:48,800 --> 00:28:51,840 Speaker 2: I think that you take an unhedged position if you 513 00:28:51,920 --> 00:28:58,200 Speaker 2: believe the strand dollarsment at fall, and because you're exposures 514 00:28:58,240 --> 00:29:01,840 Speaker 2: to foreign currencies. Likewise, if you feel the straining currency 515 00:29:01,880 --> 00:29:04,280 Speaker 2: is going to appreciate, then you do look at a 516 00:29:04,320 --> 00:29:05,040 Speaker 2: hedge position. 517 00:29:05,720 --> 00:29:08,440 Speaker 1: But that's yeah, but that's tactical, right, that's someone really 518 00:29:08,480 --> 00:29:10,040 Speaker 1: active like you, but correct. 519 00:29:10,640 --> 00:29:12,320 Speaker 2: But to do it you need to you're doing it 520 00:29:12,320 --> 00:29:13,880 Speaker 2: because of a view on the currencies. 521 00:29:14,240 --> 00:29:16,760 Speaker 1: So in a way, these products shouldn't I won't say 522 00:29:16,760 --> 00:29:19,000 Speaker 1: they shouldn't exist, but they are a bit they're a 523 00:29:19,000 --> 00:29:22,200 Speaker 1: bit hopeless really in some ways, because if there's an 524 00:29:22,200 --> 00:29:25,080 Speaker 1: ETF that's hedged, it's going to be permanently hedged. Right, 525 00:29:25,080 --> 00:29:26,480 Speaker 1: they're not going to turn it on and off. 526 00:29:27,880 --> 00:29:32,800 Speaker 2: Correct And likewise with open ended fund there's classes that 527 00:29:32,840 --> 00:29:35,960 Speaker 2: are unhedged and there's classes that are hedged. Probably harder 528 00:29:36,000 --> 00:29:40,920 Speaker 2: to get hedged exposure because not every fund has hedged exposure. 529 00:29:41,480 --> 00:29:47,520 Speaker 2: It's growing in demand as investors are wanting this. But yeah, correct, 530 00:29:47,560 --> 00:29:50,760 Speaker 2: it's the fund itself. But there are some that you 531 00:29:50,880 --> 00:29:52,400 Speaker 2: talk to the fund manager and they say, we'll look 532 00:29:52,400 --> 00:29:55,520 Speaker 2: at twenty five percent of it and we'll dynamically hedge. 533 00:29:55,600 --> 00:29:58,680 Speaker 2: So if they've got a particularly strong position, they have 534 00:29:58,760 --> 00:30:02,000 Speaker 2: the ability to do that. I'm a component at their portfolio. 535 00:30:02,320 --> 00:30:05,480 Speaker 1: Okay, very good, all right, So so Jen, that's what 536 00:30:05,560 --> 00:30:10,360 Speaker 1: it is, basically, very roughly, they spend some money trying 537 00:30:10,400 --> 00:30:15,920 Speaker 1: to protect you from currency changes, buy forward, buying currencies, 538 00:30:16,040 --> 00:30:18,680 Speaker 1: and trying to get it right. It's not an exact science, 539 00:30:19,640 --> 00:30:22,200 Speaker 1: and there are some studies that show over a very 540 00:30:22,200 --> 00:30:24,320 Speaker 1: long period of time there isn't an awful lot of 541 00:30:24,320 --> 00:30:27,200 Speaker 1: difference between the hedged and the on hedge. Again, I 542 00:30:27,240 --> 00:30:29,040 Speaker 1: want to check that with Will. But like say, I 543 00:30:29,120 --> 00:30:30,000 Speaker 1: bought an ETF and I. 544 00:30:30,400 --> 00:30:32,360 Speaker 2: Think it's on a ten year basis, it's pretty well idea. 545 00:30:32,440 --> 00:30:35,320 Speaker 1: Yeah, on a tenure basis, So why would you bother? 546 00:30:35,640 --> 00:30:38,160 Speaker 1: But that's so for you to make your own mind up. 547 00:30:38,160 --> 00:30:40,880 Speaker 1: But I never bothered buying head stuff because I try 548 00:30:40,920 --> 00:30:43,080 Speaker 1: to buy for the long term, and I don't really 549 00:30:43,120 --> 00:30:46,360 Speaker 1: sell unless I think I've got it wrong or in 550 00:30:46,400 --> 00:30:48,480 Speaker 1: the unlikely event, it's been so good, I better take 551 00:30:48,480 --> 00:30:51,800 Speaker 1: some off the table. Less of an issue, all right, 552 00:30:52,240 --> 00:30:54,640 Speaker 1: hold final question, and you can have one with this 553 00:30:54,720 --> 00:30:55,880 Speaker 1: will if you want. 554 00:30:56,000 --> 00:30:58,400 Speaker 2: Yeah, I love it. That's a great question from Paul. 555 00:30:58,800 --> 00:31:01,880 Speaker 2: He was watching the riots and born as areas and 556 00:31:02,000 --> 00:31:05,680 Speaker 2: research the reasons for Argentina's demise since the nineteen twenties. 557 00:31:06,120 --> 00:31:08,960 Speaker 2: Increasing physical deficits and borrowing in US dollars seems to 558 00:31:09,000 --> 00:31:12,640 Speaker 2: be the common result from many websites. He's also watched 559 00:31:12,640 --> 00:31:15,200 Speaker 2: our ossie deficits and overall debt climb over time, some 560 00:31:15,240 --> 00:31:19,640 Speaker 2: of it having been unproductive debt to fund our luxurious lifestyles, 561 00:31:19,640 --> 00:31:23,520 Speaker 2: ege politicians salary packages. So are we heading for an 562 00:31:23,640 --> 00:31:28,160 Speaker 2: Argentinian apocalypse? I think the first thing is actually Argentina 563 00:31:28,200 --> 00:31:30,280 Speaker 2: goes back to the nineteenth century, so the late eighteen 564 00:31:30,360 --> 00:31:34,840 Speaker 2: hundreds and the first debt crisis, So it's been a 565 00:31:34,880 --> 00:31:38,000 Speaker 2: long time. But Secondly, there's also been there is a 566 00:31:38,160 --> 00:31:41,760 Speaker 2: very high level of corruption. Now, whilst Paul is the 567 00:31:41,760 --> 00:31:46,400 Speaker 2: fields that our politicians have luxurious lifestyles and salary packages, 568 00:31:47,240 --> 00:31:50,360 Speaker 2: you'd have to say that, as they call it in Asia, 569 00:31:50,400 --> 00:31:54,080 Speaker 2: political patronage does not degree. It does not exist here 570 00:31:54,080 --> 00:31:55,720 Speaker 2: in Australia, which is outright corruption. 571 00:31:57,000 --> 00:32:01,000 Speaker 1: Yep, it's clean. We'd like to think it's relatively clean. 572 00:32:01,720 --> 00:32:05,320 Speaker 2: And these things exist also in some Latin American countries. 573 00:32:05,520 --> 00:32:08,840 Speaker 2: Whilst our deficit is high, it is not high on 574 00:32:08,920 --> 00:32:12,600 Speaker 2: global standards, and I think that's yeah, and I think 575 00:32:12,600 --> 00:32:18,240 Speaker 2: that's also got to be taken into account. Whilst we 576 00:32:18,280 --> 00:32:20,880 Speaker 2: can all sit here and spend hours debating whether the 577 00:32:20,920 --> 00:32:24,240 Speaker 2: government is running the country correctly or not, I think 578 00:32:24,280 --> 00:32:30,080 Speaker 2: it's very different from the semi dictatorships you have in 579 00:32:30,720 --> 00:32:35,280 Speaker 2: Latin America and degree of corruption that exists. 580 00:32:35,280 --> 00:32:38,720 Speaker 1: And for that matter, the US, not that it's a 581 00:32:38,720 --> 00:32:42,719 Speaker 1: dictatorship yet, but we run deficits anything like they do 582 00:32:42,760 --> 00:32:46,160 Speaker 1: as a percentage of our GDP remotely like them. No. 583 00:32:46,320 --> 00:32:49,920 Speaker 2: Look, I was looking at just that couple of weeks ago. 584 00:32:49,960 --> 00:32:52,840 Speaker 2: I just shocked at the degree their annual deficit is. 585 00:32:52,920 --> 00:32:55,640 Speaker 1: Yeah, I know, it's scary and they have no intention 586 00:32:55,720 --> 00:32:59,520 Speaker 1: of ruining it in because of exploit the situation continually. 587 00:32:59,600 --> 00:33:02,440 Speaker 1: I had a long conversation with someone yesterday about this, 588 00:33:02,560 --> 00:33:08,000 Speaker 1: how they continually exploit their historic dominance in eminence in 589 00:33:08,040 --> 00:33:10,400 Speaker 1: the market. So when there's a crisis, often triggered by 590 00:33:10,440 --> 00:33:13,440 Speaker 1: the US, everyone goes back into the US because of 591 00:33:13,480 --> 00:33:15,760 Speaker 1: the safety of their markets and their money markets seen 592 00:33:15,840 --> 00:33:19,160 Speaker 1: as the pre eminent sovereign markets. But gee, I don't know. 593 00:33:19,280 --> 00:33:21,840 Speaker 1: Nothing lasts forever, and you just wonder how long you 594 00:33:21,880 --> 00:33:25,440 Speaker 1: can abuse that question for another day. But thank you, Paul, 595 00:33:25,760 --> 00:33:30,040 Speaker 1: big picture thoughts there and very interesting, terrific Thank you 596 00:33:30,200 --> 00:33:30,600 Speaker 1: very much. 597 00:33:30,640 --> 00:33:33,560 Speaker 2: Will thank you, James folks. 598 00:33:33,760 --> 00:33:36,280 Speaker 1: I'd love to make a few points to you in 599 00:33:36,320 --> 00:33:38,960 Speaker 1: the coming weeks ahead. We will in the next month, 600 00:33:39,000 --> 00:33:43,400 Speaker 1: being September, we'll have some guest presenters when I am overseas. 601 00:33:43,440 --> 00:33:47,960 Speaker 1: I'll tell you about that shortly. And also I would 602 00:33:48,360 --> 00:33:51,840 Speaker 1: like and ask you again thanks for all the correspondents 603 00:33:52,000 --> 00:33:54,320 Speaker 1: and Google reviews and all that. But what I would 604 00:33:54,400 --> 00:33:56,160 Speaker 1: like you to do, if you would, is just tell 605 00:33:56,320 --> 00:33:59,600 Speaker 1: one other person about the money puzzle. That's what I 606 00:33:59,640 --> 00:34:03,280 Speaker 1: would read appreciate if you could, okay and keep those emails, 607 00:34:03,320 --> 00:34:07,400 Speaker 1: running the Money puzzle at the Australian dot com dot au. 608 00:34:07,960 --> 00:34:08,600 Speaker 1: Talk to you soon.