Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome Aboard Everybody.
Speaker 1: One of my favorite shows of the year. Regular guest
Speaker 1: Will Hamilton of Hamilton Wealth Partners goes off on a
Speaker 1: odyssey around the world every year and he goes to
Speaker 1: all these various investment conferences and wealth conferences extra and
Speaker 1: he comes back on the show around this time of
Speaker 1: the year every year and he tells us basically what
Speaker 1: the mood is out there and what people are saying
Speaker 1: and what really is on the table, if you like,
Speaker 1: with wealth advisors around the world. It's always interesting. He's here,
Speaker 1: he's back. He has no jet lag this time. For
Speaker 1: the last time. We caught it really tight and he
Speaker 1: did it virtually. It's the plane. We're going to talk
Speaker 1: about rates and where on Earth they may or may
Speaker 1: not be going. We're going to talk about the craze
Speaker 1: for private credit and to the extent that it's going
Speaker 1: to be any good for you should you ever deem
Speaker 1: to go near it. Backlash on AI. Interesting had to happen.
Speaker 1: Question is whether it's just a moment of whether it's
Speaker 1: going to stay with us, and lots of other issues
Speaker 1: that we've already talked about before the show. How are
Speaker 1: you will Hamilton, welcome home?
Speaker 2: Thank you very much, Sjames, thanks for having me. I'm
Speaker 2: very well. Thank you.
Speaker 1: Always good to have you. I imagine we have to
Speaker 1: talk about rates. First of all. I just walked into
Speaker 1: the building this morning. Two people came up to me
Speaker 1: and said, what's going on with rates? What's going on?
Speaker 1: Are they going down or are they going up? Off
Speaker 1: the CPI yesterday, I said, look, I don't know, if
Speaker 1: you want my opinion, I don't think I think's going
Speaker 1: to happen. I don't think they're going to go up
Speaker 1: or down in Australia this year. But informed by your
Speaker 1: global rolling around, what do you think.
Speaker 2: Look, let's deal with offshore and then domestically, and I
Speaker 2: think rates are going down. Offshore Powers last night held
Speaker 2: raids steady in the US, but has very much indicated
Speaker 2: that potentially next month we're going to see the first
Speaker 2: cut in the United States. We've already seen cuts in
Speaker 2: the UK and in Europe. Rates are going down. Inflation
Speaker 2: has appeared to be stickier. It's definitely stickier than what
Speaker 2: people thought but inflation is going down offshore, and that's
Speaker 2: why interest rates are going down. Not to the extent
Speaker 2: that people thought at the beginning of the year, but
Speaker 2: we are going to see rates trending offshore. We're trending
Speaker 2: down now. Australia is a different matter straight because we've
Speaker 2: got variable interest rates for mortgages. We saw interest rates
Speaker 2: go up less than offshore. So one hundred bass points
Speaker 2: are one full percent less in Australia than the US.
Speaker 2: We have not tackled wage price inflation in Australia as
Speaker 2: they have offshore, and therefore our inflation is stickier and
Speaker 2: therefore I cannot see interest rates falling. Probably the second
Speaker 2: quarter of next year would be the earliest you could consider,
Speaker 2: so that April to June period is when you potentially
Speaker 2: see rates come down, So you won't see it before
Speaker 2: that we haven't tackled inflation. But likewise they shouldn't come
Speaker 2: down as much because we didn't increase as much.
Speaker 1: But you still have the opinion that they will come
Speaker 1: down eventually. Eventually, yeah, but you still have the opinion
Speaker 1: the next move is that it drops.
Speaker 2: Yeah. I don't think we're going to see it. I
Speaker 2: don't think after yesterday's figure. I don't think we're going
Speaker 2: to see an increase, but.
Speaker 1: Okay, very interesting. Yeah, because basically the figures aren't great,
Speaker 1: they're really enough great for the domestic economy. That doesn't
Speaker 1: mean the markets aren't great. Of course, the markets have
Speaker 1: been very good so far. A little bit of a
Speaker 1: w in the last few days, a bit of extra
Speaker 1: volatility in the US, and of course we are in
Speaker 1: August and we are heading towards that time of the
Speaker 1: year where the US traders tend to lose their nerve
Speaker 1: and if we have corrections or crashes, they come famously
Speaker 1: come in the September October period. If there is one
Speaker 1: this year, And I don't know what's going to happen,
Speaker 1: but of course we should be on standby for a correction.
Speaker 1: That's for sure. It will be triggered for it would
Speaker 1: seem it would be triggered not by politics or by rates,
Speaker 1: but by perhaps a backlash against the initial excitement over AI.
Speaker 1: Excitement drove the big cap stocks. The big cap stocks
Speaker 1: drove all markets around the world. That's why your ASX
Speaker 1: index one did so well last year, and your US
Speaker 1: one did twice as well. But you detected at various
Speaker 1: meetings and conferences. What is it? Is it a skepticism,
Speaker 1: Is it a skepticism about AI? Or is it a
Speaker 1: skepticism about the perceived economic potential of AI that's already
Speaker 1: built into staff prices.
Speaker 2: So Goldman Sachs produce a report early June which everyone
Speaker 2: seems to be talking about, and if your listeners google
Speaker 2: this they'll be able to find it. But basically, a
Speaker 2: trillion dollars hasn't been invested in AI, and when somebody
Speaker 2: does something, others are playing catch up. They're doing the same,
Speaker 2: they're trying to keep up. So will there be So
Speaker 2: everyone's skeptical about the revenue enhancements or the productivity improvements
Speaker 2: that come through. Where are these going to come from?
Speaker 2: And with the extent of a trillion dollars being invested,
Speaker 2: the argument is, this is a hell of a lot
Speaker 2: of money, and it is it's an extraordinary amount of money,
Speaker 2: like it's half the market cap of the Australian equity market.
Speaker 2: This is US dollars and therefore the return required is substantial.
Speaker 2: The argument coming out that when everyone does the same thing,
Speaker 2: no one comes out with an advantage. And therefore, and
Speaker 2: where are we going to see this advantage. And one
Speaker 2: thing is it is disinflationary. That's one thing you can
Speaker 2: be sure. And the real way to play this is
Speaker 2: hence won of videos run is through the input players,
Speaker 2: so your consultants, because everyone needs to get advice on
Speaker 2: what everyone else is doing, as well as the chip manufactures, TSMC,
Speaker 2: et cetera. But the big where we've got into the
Speaker 2: doubt phase. So yes, there's all this investment. This is great,
Speaker 2: but what is the quantification of the productivity improvements? Where
Speaker 2: are they going to be or the revenue enhancements and
Speaker 2: everyone seems to be playing the same game.
Speaker 1: So where is the return on investment? Is that what
Speaker 1: we're talking about? Yeah? Okay, And so the question is
Speaker 1: do the big AI fuel stocks from the megacaps, the
Speaker 1: facebooks and Microsofts and in videos or for that matter
Speaker 1: and next d see Macquarie technology, do they come off
Speaker 1: the boil after.
Speaker 2: An incredible run for something like in the video. It's
Speaker 2: to keep going to the extent that they have is unhealthy.
Speaker 2: And that's when that B word bubble starts coming out.
Speaker 2: And it's normal that things consolidate, and consolidation often means
Speaker 2: retrace a little bit. But I do think, as everyone conceded,
Speaker 2: there is a difference. So for those that are trying
Speaker 2: to compare the tech cycle now with the tech cycle
Speaker 2: back in the beginning of the century, there were companies.
Speaker 2: Even Amazon back then wasn't making money. These companies are
Speaker 2: making some decent money, but it's just it's healthy. I
Speaker 2: always think that when things get on a rule like that,
Speaker 2: it's that's where you do get bubbles, and it's unhealthy,
Speaker 2: and it's great to see it things consolidate.
Speaker 1: Yes, because it stops it from going crazy. And I
Speaker 1: have seen some sort of leading figures make that point
Speaker 1: that for anyone who's old enough to remember, it is
Speaker 1: elevated pricing and particularly elevated pees on these companies AI
Speaker 1: driven or linked or manufacturing companies, but they do have
Speaker 1: revenues and some of them have profits, and that was
Speaker 1: not the case in the dot com era. And consequently,
Speaker 1: the theory is that then it is not a bubble.
Speaker 1: It certainly isn't a bubble. Yet I've seen some pretty
Speaker 1: powerful gurus, if you like, of the market making that
Speaker 1: point in recent times. Okay, another thing you were trying
Speaker 1: to explain to me was about the excitement and fashion
Speaker 1: for private credit and private equity generally are on listed
Speaker 1: investments where retail investors are late to the party has
Speaker 1: always been going into them now and the market is
Speaker 1: only waiting for them to come along and launching lots
Speaker 1: of offers and products. But you came upon in terms
Speaker 1: of a theme that you came across at different conferences,
Speaker 1: there was a sense that not that it wouldn't work,
Speaker 1: but there was a worry about liquidity and what that means, folks,
Speaker 1: to make it really simple, is if you put ten
Speaker 1: grand into an unlisted fund and a day comes for
Speaker 1: you say I want to get that ten ground out,
Speaker 1: they may say to you, sorry, you can't have that
Speaker 1: money today. We can't give it to you right now.
Speaker 1: And if you haven't had that experience, it's worth having
Speaker 1: because it's disturbing. So what they're saying will.
Speaker 2: Private credit seems to be the number one thing that
Speaker 2: people are concerned about, but overall when it comes to
Speaker 2: this alternative space. Last year the theme was the democratization
Speaker 2: of private assets, which I really don't like that term,
Speaker 2: but I think in full twelve months it's been a
Speaker 2: rush and now people have realized you need to manage
Speaker 2: liquidity and portfolios, and there's no doubt I know as
Speaker 2: a wealth manager, we could when it comes to private
Speaker 2: credit and private equity, we could waste every minute of
Speaker 2: every day seeing a manager. And it's still the case.
Speaker 2: And whilst the ducks are quacking, the fund managers are
Speaker 2: coming out here and feeding them. But you need liquidity.
Speaker 2: Management is very important and therefore it's not surprising these
Speaker 2: so called evergreen structures which the clients etc. You're going
Speaker 2: to continue to see KKR and lots of them are
Speaker 2: going to come out here and you're going to see
Speaker 2: a lot more of these where they're semi liquid or
Speaker 2: they've got liquidity provisions. Bus everyone should remember that when
Speaker 2: things go wrong, they all have the right to lock up. Now,
Speaker 2: when it comes to private credit, it is the big
Speaker 2: trend and there is a big disparate and quality between
Speaker 2: private credit managers. Our banks being replaced by private credits?
Speaker 1: Are they because this is their presentation, isn't it. They're
Speaker 1: stand in front of every conference and they say, listen, folks,
Speaker 1: you may not know what The banks aren't banks anymore.
Speaker 1: They don't boop do banking. We are the banks. We
Speaker 1: are the new banks. We're doing all the banking. Do
Speaker 1: you think of that pitch?
Speaker 2: There's no doubt that the banks are doing less and
Speaker 2: therefore it has become open to private credits. And I said,
Speaker 2: there's a big disparity in the quality between those that
Speaker 2: I think are more established and the better managers than
Speaker 2: those they've just come by. I think we haven't gone
Speaker 2: through a default cycle, and people need to remember that.
Speaker 2: First of all, I would I would caution any of
Speaker 2: the listeners to look at single asset lines because they
Speaker 2: have one hundred percent downside, So you need to look
Speaker 2: at something that is pulled. But you've got to make
Speaker 2: sure that you are confident that a manager can manage
Speaker 2: a default cycle. And we haven't seen that. And yes,
Speaker 2: there's been the odd default here or there in some
Speaker 2: of the funds, and some of them have managed it
Speaker 2: really well. But some of the new guys, and especially
Speaker 2: the term I can't stand. We have never had had
Speaker 2: a default that makes me run in the opposite direction
Speaker 2: at a million miles an hour because that manager, what
Speaker 2: expertise they brought to the table in managing that default?
Speaker 1: Oh, very interesting. It's like the journalists to say, I've
Speaker 1: never had a libel action.
Speaker 3: I've never had a correction. I've never had a correction,
Speaker 3: No one ever has. No one has ever said I
Speaker 3: got anything wrong. Just one last thing on that. For
Speaker 3: the retail investor, often the avenue because often these funds
Speaker 3: are they've got pretty high entry points twenty grand, fifty grand,
Speaker 3: one hundred grand just to go in. For most people
Speaker 3: most of the time, the end the pathway to these
Speaker 3: alternatives or alternative funds or whatever private credit, private equity is. Ironically,
Speaker 3: I think through the stock market, do you think there's
Speaker 3: any particular weakness or is it a plus or minus.
Speaker 2: I don't want to mention names. I think that's unfair
Speaker 2: that there is one that comes to mind, and I
Speaker 2: think it still is trading at a discount to its NTA.
Speaker 2: And that's the issue. These things are always easy to
Speaker 2: get in, and when you want to get out, they
Speaker 2: can be very difficult. So just beware, and like with leaks,
Speaker 2: with the investment coming means they don't necessarily try it
Speaker 2: where they should.
Speaker 1: But you don't have a problem with the sort of
Speaker 1: inherent contradiction of buying private assets on a public market.
Speaker 2: For some people, I think that's the only way they're
Speaker 2: going to be able to do it. If that's what
Speaker 2: they want to do, make sure you do. Just make
Speaker 2: sure you do your research in your homework.
Speaker 1: Okay, Hey, we'll take a short break. A couple of
Speaker 1: other big issues I want to talk to you about.
Speaker 1: Will be back in a moment. Hello, Welcome back to
Speaker 1: The Australian's Money Puzzle podcast. I'm James Kirby, wealth editor
Speaker 1: at The Australian, talking to Will Hamilton, regular friend of
Speaker 1: the show, and he is telling us about basically an
Speaker 1: international trip piece just done and the views out there
Speaker 1: in the wider world from wealth managers, fund managers, but
Speaker 1: particularly advisors in the wealth space at the moment. One
Speaker 1: of the other big themes will I come upon every
Speaker 1: day at the moment from a global perspective, and it's
Speaker 1: kicking in here locally too, is this ocean that having
Speaker 1: had some very good years on the market driven by
Speaker 1: large caps, that we're going to have a swing to
Speaker 1: small caps and small caps are now going to have
Speaker 1: a run and they're going to have their day. A
Speaker 1: couple of things I want to say before I put
Speaker 1: it to you. First thing is I looked at the
Speaker 1: small cap indices and basically it's a flat line for
Speaker 1: about five years and even the very good small cap
Speaker 1: managers that I'm aware of, the numbers are okay. So
Speaker 1: maybe they did two or three or four percent more
Speaker 1: than the index, but g you wouldn't exactly be minting
Speaker 1: it with them. What do you think of this notion
Speaker 1: which is the flavor of the month.
Speaker 2: Just now, look the disparity in valuation between small and
Speaker 2: meds and the large caps is close to record highs.
Speaker 2: And that's one of the one of the key reasons
Speaker 2: is the small and meds tend to have higher gearing
Speaker 2: than the large cap companies and so when you are
Speaker 2: in an upward cycle on interest rates, they get punished
Speaker 2: when you are looking at a downward cycle on interest right,
Speaker 2: that is to their advantage. So I think it's been
Speaker 2: a very crowded trade. Everyone's been talking about this for
Speaker 2: a year and I will admit we've got we put
Speaker 2: global mids in probably the winning of this year and
Speaker 2: been a.
Speaker 1: Drag because it hasn't started yet.
Speaker 2: What did last month in July? But apart from that,
Speaker 2: it's been six months a drag and interesting. We use
Speaker 2: generally broad cap managers in domestically in Australia and the
Speaker 2: manager we use again I think it's unfair to mention
Speaker 2: unless you what I know is has outperformed the index
Speaker 2: by about five six percent. But they've got that, they've
Speaker 2: got that ability to play the whole market from right
Speaker 2: down to tiny and they can put a couple of
Speaker 2: the large caps in. That's the way we prefer to
Speaker 2: play it in Australia because Australia is a small market.
Speaker 2: It's only its capitalization as one point nine trillion US dollars.
Speaker 2: It's two percent of the world. It's a tiny market,
Speaker 2: and we think that's the best way to play it.
Speaker 1: Okay. I noticed for the retail investor, even some of
Speaker 1: the better known small cap funds and even the ones
Speaker 1: that are listed as the best, they're tiny, like twenty
Speaker 1: mil market cap, fifteen mil market cap. Is that a
Speaker 1: problem in and of itself?
Speaker 2: Yeah, it is because these things will outperform on the
Speaker 2: upside and the downside is high. And that's because of
Speaker 2: the way a business is run and the way we
Speaker 2: look at think we look at volatility, and the volatility
Speaker 2: and companies that are that small is just extreme and
Speaker 2: so we would never touch that. There's a lot And
Speaker 2: the other thing is there's a lot of companies that
Speaker 2: are listed in the small cap space that should never
Speaker 2: have been listed, and that's what managers will remind you,
Speaker 2: and of course they're avoiding them, but they just should
Speaker 2: never have been listed in the first place.
Speaker 1: There's a lot of junk, a lot of junk, and that,
Speaker 1: I suppose is the argument against buying an index fund
Speaker 1: of small caps, because if there's one thousand stocks and
Speaker 1: roughly even small caps in Australia, it's probably about fourteen
Speaker 1: hundred small caps and I don't know how many of
Speaker 1: them are junk. Hundreds and hundreds of them are jug
Speaker 1: and you're buying them. You're buying them if you buy
Speaker 1: the index file, if you buy a manager who specializes
Speaker 1: in small caps, and you would hope that they're not
Speaker 1: buying the junk, but of course they will always get
Speaker 1: caught by somebody. Okay, totally different business, other end of
Speaker 1: the spectrum. In our market, it's something I've asked lots
Speaker 1: of people. I han't had a chance to ask you
Speaker 1: on air. Our market was very much driven by the
Speaker 1: bigger cap stocks. The banks are completely running the show
Speaker 1: at the moment on the AX five banks, Big four,
Speaker 1: an Macquarie in the top ten common Well Bank on
Speaker 1: a league of its own. Common Well Bank at one
Speaker 1: hundred and thirty dollars, the biggest stock of the market, biggest,
Speaker 1: bigger than BHP, and everyone says all year long, all
Speaker 1: the top brains, all that big house, all the brokers,
Speaker 1: local and internationals say sell get away from that bank,
Speaker 1: and they're all wrong so far. But when do you
Speaker 1: come on that one.
Speaker 2: Under owned institutionally and over owned in retail land. Self
Speaker 2: directed investor that wanting his dividend goes and buys the banks,
Speaker 2: but every institutional fund manager will be underweight, hence the
Speaker 2: volatility in these things. I think that it's run too
Speaker 2: hard and it was may I be taking some profits.
Speaker 2: I think that the fact that the largest company at
Speaker 2: its valuation is where it is. We've got to be
Speaker 2: sensible about these things. And it's run incredibly well, and
Speaker 2: good luck to those that have it or bought it.
Speaker 2: But nothing ever continues going up in a straight line.
Speaker 1: Yeah, okay. I saw someone say a gorgeous quote the
Speaker 1: other day, and this old lined about something and being
Speaker 1: priced for perfection. Then someone said CBA is priced beyond perfection,
Speaker 1: which probably captures, probably does capture the issue of it Okay,
Speaker 1: we'll be back in a moment with some great questions,
Speaker 1: very good questions, I have to say, our particular selection
Speaker 1: this week, and there's quite a few of them. So
Speaker 1: stick around because we're going to go through quite a
Speaker 1: range of issues which will be useful to everybody. I'm
Speaker 1: sure back in a moment. Hello, and welcome back to
Speaker 1: The Australian's Money Puzzle podcast. I'm James Kirby, the Wealth
Speaker 1: editor at The Australian, talking to Will Hamilton of Hamilton
Speaker 1: Wealth Management. Will, if you don't know, is a top
Speaker 1: wealth manager. He is on our Top hundred, which is
Speaker 1: about to become Top one hundred and fifty advisors list
Speaker 1: of which we publish in The Australian every year, and
Speaker 1: he's at Hamilton Wealth Partners. What about six questions here?
Speaker 1: Why don't we read them alternately? And also why don't
Speaker 1: we aim to try and get through them as well?
Speaker 2: Okay, so Paide asks, what is the biggest bubble Navidia
Speaker 2: with the market KAPE two two point eight trillion or
Speaker 2: cryptocurrency market cap US two point five trillion. Look, I
Speaker 2: think we've talked about in the video and why just
Speaker 2: consolidating and is a positive thing, because that stops that
Speaker 2: word bubble cryptocurrency. I don't follow I have no intention
Speaker 2: to follow it, and we don't have investments.
Speaker 1: So you're you're not even one of these people who say,
Speaker 1: if my clients want to invest in it, then they can,
Speaker 1: but I don't recommend it.
Speaker 2: Yeah, we have done that, but that's their decision and
Speaker 2: they signed forms. That's their decision.
Speaker 1: Yeah. Okay, I hope you like that, answered Pete O. Kate. Kate,
Speaker 1: he says, when you next have an advisor on the
Speaker 1: show to discuss tax deductions, can you please ask the following.
Speaker 1: I have a Spotify subscription which now includes audio books.
Speaker 1: I'm regularly using it to listen to finance books to
Speaker 1: help me understand and manage my personal portfolio. Do you
Speaker 1: think I could claim a percentage of the subscription? I'll
Speaker 1: tell you what, Kate, I think you should be able to. Okay,
Speaker 1: but this is not advice and it's information only. However,
Speaker 1: in the real world, where the ATO has thought of
Speaker 1: everything you could possibly think of and are so tight
Speaker 1: and mean on all these things, they would say to you,
Speaker 1: if you could get them to agree, they would say
Speaker 1: to you that you could claim the Spotify subscription if
Speaker 1: you listened to absolutely nothing else but finance podcasts, and
Speaker 1: you could prove to them that you did so, and
Speaker 1: at that I would say they would try to kick back,
Speaker 1: but I think they would have to take it on
Speaker 1: that basis about acclaiming a percentage, you'd have to prove
Speaker 1: what percentage it is. So if you really think it's
Speaker 1: worth that much trouble, I wouldn't stop you having a try,
Speaker 1: but I would refer to a conventional tax adviser on that.
Speaker 1: But I know I'm doing this a long time. I've
Speaker 1: tried to claim all sorts of things over the years,
Speaker 1: from clothing to whatever, and every single time I got
Speaker 1: knocked back I tried. That doesn't mean you won't be
Speaker 1: so successful, but that would be I think what that
Speaker 1: would be the conventional wisdom. Does that sound? How does
Speaker 1: that sound to you? Will?
Speaker 2: Yes? Absolutely, like you. I can't give I'm registered with
Speaker 2: the TPP, but that's for financial advice tax only, so
Speaker 2: this is a bit different. So yeah, I would talk
Speaker 2: to your text advice.
Speaker 1: Yes, and your tax advisors will say, oh god, that
Speaker 1: sounds like a lot of trouble. Ironically, this principle probably
Speaker 1: isn't tested because this is a new area, right, podcasts
Speaker 1: are new. If you subscribe to a financial publication, then
Speaker 1: you can, so why can't you if you subscribe to
Speaker 1: a financial podcast. I'm with you, Kate, but I don't
Speaker 1: know if you'll get over the line. Okay, do you
Speaker 1: want to see the question from Adam?
Speaker 2: I can? Adam asks is there a minimum amount for
Speaker 2: it to be worth having a family trust like there
Speaker 2: is with self managed super funds? And can assets be
Speaker 2: gifted from an individual to a family trust without paying CGT?
Speaker 2: So both a self managed super fund and a family
Speaker 2: trust have compliance costs. Costs that hold to operate that
Speaker 2: vehicle for the year and to report aren't assek or
Speaker 2: in the case of the self managed super fund to
Speaker 2: the Strand Taxation Office. So there's there are compliance costs,
Speaker 2: and those compliance costs are about the same, and therefore
Speaker 2: you need to have at least a million dollars at
Speaker 2: least a million dollars to justify either vehicle.
Speaker 1: I think, Okay, I don't like your answer, but I
Speaker 1: like the clarity of it. Yeah, okay?
Speaker 2: And can assets be gifted from an individual to a
Speaker 2: family trust without paying CGT? If you not? The answer
Speaker 2: is no. If you are transferring ownership from an individual
Speaker 2: to the trust, you are realizing a capital and you
Speaker 2: realize a capital gain, the strand Taxation Office is going
Speaker 2: to want to share of that.
Speaker 1: Yes, okay, very good, very clear answers. I hope that
Speaker 1: was useful to you. I just want to also mention something.
Speaker 1: But the point that Will is making how much should
Speaker 1: you have in an SMSF. And Will I would say
Speaker 1: that you're on the high side, okay, on a million dollars,
Speaker 1: not on the family trust, but on the SMSF. You're
Speaker 1: on the high side. But I think the answer probably
Speaker 1: is somewhere between half a million and a million these days.
Speaker 1: And I want to make a point here which is
Speaker 1: worth bear with me. It's from I just did some
Speaker 1: work during the week and it was about financial advisors
Speaker 1: and their charges. And the point Will is making about compliances.
Speaker 1: If it costs you so many thousand perannum to do
Speaker 1: something right, let's say it's an SMSF. Then, and let's
Speaker 1: say you think your SMSF makes a certain amount, put
Speaker 1: a number on it, ten thousand, one hundred thousand. You've
Speaker 1: got to subtract that five thousand, right, you have to
Speaker 1: subtract the cost of the vehicle from what you made,
Speaker 1: and so that in a way informs how much you
Speaker 1: need to have in it. And I came across something
Speaker 1: which I really couldn't. I missed this when it happened.
Speaker 1: But it's about the costs of advice in the market.
Speaker 1: So a financial advisors, by the way, okay, on average,
Speaker 1: your average advisor rose their average fee to the average
Speaker 1: person last year up to it's up over five thousand
Speaker 1: dollars now, seventeen percent rise last year. And financial advice
Speaker 1: fees okay, seventeen percent, four times the inflation rate. And
Speaker 1: that's not even the one I'm looking for. That's not
Speaker 1: the screamer in the issue of particular advice on self
Speaker 1: managed super funds. But hear this. This is from investment Trends.
Speaker 1: I'll just read the paragraph. In some cases, fee increases
Speaker 1: have been astronomical. A year ago, the average up front
Speaker 1: fees faced by self managed super funds dealing with specialist
Speaker 1: advisors rose by forty percent from two thousand, six hundred
Speaker 1: to three thousand, six hundred in one year, and last
Speaker 1: year being the twelve months to June, they add added
Speaker 1: a few more hundred just for good measure, and they're
Speaker 1: now charging three seven five zero per annum, so the
Speaker 1: fees really are rising. I don't want to get too
Speaker 1: deeply into this, but I just want to go back
Speaker 1: to the point that Will made that the way to
Speaker 1: do it is reverse engineer how much is your fee?
Speaker 1: And then when you know how much your fee is,
Speaker 1: we could then make the point of whether it makes
Speaker 1: sense for you to actually pay that fee. And that
Speaker 1: really is how you make your how it makes sense.
Speaker 1: That's on a strict technical basis. Obviously, you might have aspirations. Okay,
Speaker 1: So you might have half a million and you say,
Speaker 1: I'm not going to have half a million for long.
Speaker 1: It's going to get bigger, and I've got plans and
Speaker 1: maybe it's worth it for you, and I wouldn't stop you. Again,
Speaker 1: this isn't advice, this is information, all right. I'm the
Speaker 1: next one. Okay, Jen, Hi, Jen, could you please explain
Speaker 1: what hedging means and how it relates to ETFs? And separately,
Speaker 1: she asks, could you explain how shares such as RIO
Speaker 1: and BHP are affected by changes in the dollar? Look, Jen,
Speaker 1: the second question is too big, except to say that
Speaker 1: scale real BHP, these are multinational companies and they literally
Speaker 1: try to upset their assets and liabilities in the currency
Speaker 1: where they are, so they're almost beyond hedging when you
Speaker 1: get to that sort of global multinational stage. But on
Speaker 1: the simpler question of could you clean explain what hedging
Speaker 1: means and specifically how it relates to exchange traded funds
Speaker 1: or index funds, would you like to have a go
Speaker 1: with that? Will?
Speaker 2: So what hedging means, and you can buy either listed
Speaker 2: or unlisted funds that are hedged, so they protect you
Speaker 2: in a rising Australian dollar, so they hedge out the risk.
Speaker 2: So that's the key thing so to try and give you.
Speaker 2: And it's interesting because you actually looked at the thirtieth
Speaker 2: of June, the returns to the indexes hedged and unhedged
Speaker 2: are pretty well identical for the year. But if you
Speaker 2: look back six months ago, hedged dramatically and performed unhedged.
Speaker 1: Okay, so jen nothing's free, right. So what they do
Speaker 1: is they say you've got two choices with the ETF.
Speaker 1: They've got the American stoff market ETF and the American
Speaker 1: staff market ETF hedged, and the hedged one says makes
Speaker 1: a promise to you that the machinations, if you like,
Speaker 1: of the currency markets will not affect you. I won't
Speaker 1: say it won't affect you at all, but they won't
Speaker 1: to affect you as much as an unhedged one because
Speaker 1: what they do is they spend a certain amount of
Speaker 1: money forward buying currencies, and then if they get it right,
Speaker 1: then the change in the currency doesn't affect you as much.
Speaker 1: Now that's terribly simplistic explanation of it. Any part of
Speaker 1: that wrong will no.
Speaker 2: I think that you take an unhedged position if you
Speaker 2: believe the strand dollarsment at fall, and because you're exposures
Speaker 2: to foreign currencies. Likewise, if you feel the straining currency
Speaker 2: is going to appreciate, then you do look at a
Speaker 2: hedge position.
Speaker 1: But that's yeah, but that's tactical, right, that's someone really
Speaker 1: active like you, but correct.
Speaker 2: But to do it you need to you're doing it
Speaker 2: because of a view on the currencies.
Speaker 1: So in a way, these products shouldn't I won't say
Speaker 1: they shouldn't exist, but they are a bit they're a
Speaker 1: bit hopeless really in some ways, because if there's an
Speaker 1: ETF that's hedged, it's going to be permanently hedged. Right,
Speaker 1: they're not going to turn it on and off.
Speaker 2: Correct And likewise with open ended fund there's classes that
Speaker 2: are unhedged and there's classes that are hedged. Probably harder
Speaker 2: to get hedged exposure because not every fund has hedged exposure.
Speaker 2: It's growing in demand as investors are wanting this. But yeah, correct,
Speaker 2: it's the fund itself. But there are some that you
Speaker 2: talk to the fund manager and they say, we'll look
Speaker 2: at twenty five percent of it and we'll dynamically hedge.
Speaker 2: So if they've got a particularly strong position, they have
Speaker 2: the ability to do that. I'm a component at their portfolio.
Speaker 1: Okay, very good, all right, So so Jen, that's what
Speaker 1: it is, basically, very roughly, they spend some money trying
Speaker 1: to protect you from currency changes, buy forward, buying currencies,
Speaker 1: and trying to get it right. It's not an exact science,
Speaker 1: and there are some studies that show over a very
Speaker 1: long period of time there isn't an awful lot of
Speaker 1: difference between the hedged and the on hedge. Again, I
Speaker 1: want to check that with Will. But like say, I
Speaker 1: bought an ETF and I.
Speaker 2: Think it's on a ten year basis, it's pretty well idea.
Speaker 1: Yeah, on a tenure basis, So why would you bother?
Speaker 1: But that's so for you to make your own mind up.
Speaker 1: But I never bothered buying head stuff because I try
Speaker 1: to buy for the long term, and I don't really
Speaker 1: sell unless I think I've got it wrong or in
Speaker 1: the unlikely event, it's been so good, I better take
Speaker 1: some off the table. Less of an issue, all right,
Speaker 1: hold final question, and you can have one with this
Speaker 1: will if you want.
Speaker 2: Yeah, I love it. That's a great question from Paul.
Speaker 2: He was watching the riots and born as areas and
Speaker 2: research the reasons for Argentina's demise since the nineteen twenties.
Speaker 2: Increasing physical deficits and borrowing in US dollars seems to
Speaker 2: be the common result from many websites. He's also watched
Speaker 2: our ossie deficits and overall debt climb over time, some
Speaker 2: of it having been unproductive debt to fund our luxurious lifestyles,
Speaker 2: ege politicians salary packages. So are we heading for an
Speaker 2: Argentinian apocalypse? I think the first thing is actually Argentina
Speaker 2: goes back to the nineteenth century, so the late eighteen
Speaker 2: hundreds and the first debt crisis, So it's been a
Speaker 2: long time. But Secondly, there's also been there is a
Speaker 2: very high level of corruption. Now, whilst Paul is the
Speaker 2: fields that our politicians have luxurious lifestyles and salary packages,
Speaker 2: you'd have to say that, as they call it in Asia,
Speaker 2: political patronage does not degree. It does not exist here
Speaker 2: in Australia, which is outright corruption.
Speaker 1: Yep, it's clean. We'd like to think it's relatively clean.
Speaker 2: And these things exist also in some Latin American countries.
Speaker 2: Whilst our deficit is high, it is not high on
Speaker 2: global standards, and I think that's yeah, and I think
Speaker 2: that's also got to be taken into account. Whilst we
Speaker 2: can all sit here and spend hours debating whether the
Speaker 2: government is running the country correctly or not, I think
Speaker 2: it's very different from the semi dictatorships you have in
Speaker 2: Latin America and degree of corruption that exists.
Speaker 1: And for that matter, the US, not that it's a
Speaker 1: dictatorship yet, but we run deficits anything like they do
Speaker 1: as a percentage of our GDP remotely like them. No.
Speaker 2: Look, I was looking at just that couple of weeks ago.
Speaker 2: I just shocked at the degree their annual deficit is.
Speaker 1: Yeah, I know, it's scary and they have no intention
Speaker 1: of ruining it in because of exploit the situation continually.
Speaker 1: I had a long conversation with someone yesterday about this,
Speaker 1: how they continually exploit their historic dominance in eminence in
Speaker 1: the market. So when there's a crisis, often triggered by
Speaker 1: the US, everyone goes back into the US because of
Speaker 1: the safety of their markets and their money markets seen
Speaker 1: as the pre eminent sovereign markets. But gee, I don't know.
Speaker 1: Nothing lasts forever, and you just wonder how long you
Speaker 1: can abuse that question for another day. But thank you, Paul,
Speaker 1: big picture thoughts there and very interesting, terrific Thank you
Speaker 1: very much.
Speaker 2: Will thank you, James folks.
Speaker 1: I'd love to make a few points to you in
Speaker 1: the coming weeks ahead. We will in the next month,
Speaker 1: being September, we'll have some guest presenters when I am overseas.
Speaker 1: I'll tell you about that shortly. And also I would
Speaker 1: like and ask you again thanks for all the correspondents
Speaker 1: and Google reviews and all that. But what I would
Speaker 1: like you to do, if you would, is just tell
Speaker 1: one other person about the money puzzle. That's what I
Speaker 1: would read appreciate if you could, okay and keep those emails,
Speaker 1: running the Money puzzle at the Australian dot com dot au.
Speaker 1: Talk to you soon.