The MONEY WHAT'S HAPPENING Desk

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MONEY.com.au now has clients in many areas that include Finance, Investment, Financial Planning, Accounting, Insurance, Superannuation and Real Estate so we expect that there will be articles of interest to readers right across Australia.

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Finally, we would like to take this opportunity to wish you a safe, happy and prosperous 2008.

In this issue:

Equity Investing - Hubb Financial
2008 - Current Issues and Outlook - Investstone Wealth Management
Property Investing Tips - Australian Property Investor magazine
Self Managed Superannuation Funds - WLM Financial Services Pty Ltd

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For Equity investors an integrated approach is the Key

For equity investors, the last few years have been unrivaled in terms of growth. With the dark clouds of a credit crunch and associated consumer slowdown in the United States, the outlook for 2008 may not be so rosy.

Conjecture about the Labor election victory and the potential effect of wage push inflation within Australia is a secondary consideration if we do in fact see a US led global economic slowdown or contraction. Equity markets will in turn suffer and, as such, fund and superannuation performance will also suffer.

An equity market moving sideways or downwards has a surprising effect on the financial planning and fund management businesses. With negative returns, some investors regard the performance of their managed funds as inferior and decide that it would be just as easy to forego the fees (that were previously considered irrelevant in the bull years) and do it themselves.

Some interesting observations were made in a comprehensive report by Investment Trends, a research and consultancy group, who were commissioned to study the Self Managed Super Funds (SMSF) phenomena. One of the strongest periods of growth in the number of SMFS's (amongst investors who were wary of costs) occurred following the prolonged bear equities market between 2000 and 2002. The authors of the report noted that the spike had particularly significant implications as it occurred before the introduction of super choice legislation. In the current environment, where employees have far more choice with regards to super, there could be an even larger number of investors establishing SMSF's.

So, with this in mind, what should a self-directed investor look for when selecting securities for their SMSF or investment portfolio? Typically, the answer would be 'cash' and 'fixed income securities' or build a 'defensive' portfolio of equities. Although these are all valid, an alternative approach might be to look for good yielding shares and using leveraged products to benefit from them. In this instance, the best leverage would come from installment warrants, margin loans or Macquarie's Prime facility where imputation credits are also passed on to the holder. Leveraged positions in a share like Tabcorp (TAH), for example, which has around a 6.5% dividend yield could lead to 10%+ returns plus imputation credits for the investor, whilst interest payments on the debt may be tax deductible.

It still remains, then, how do you find a Tabcorp and how do you know if now is the right time to buy?

This is where fundamental and technical analysis becomes important. An integrated combination of the two can lead to some excellent share picks. In fact, the whole idea of integrated analysis can go as far as to use tools that range in diversity from macroeconomic indicators to option volatility, all being folded together to build a satisfactory argument when picking and timing an investment opportunity.

Fundamental ratios will reveal the dividend yield of a share, its relative value (P/E, ratio, price/sales ratio etc) and ability to pay the future dividend (cash flow and liquidity). Technical indicators (like the simple RSI) can show that share to be oversold or hitting previous levels of support and imply it is due for a technically based rally. All contenders can then be compared and assessed relative to the economic environment (such as commodity prices) along with whether a sector will perform or fail against that backdrop.

In 2008, investors will need to be more discerning and vigilant when choosing investments - an integrated approach to analysing the markets might just be the answer.

John Jeffery HUBB Financial

John Jeffery is a Market Analyst at Financial Services firm HUBB Financial. To download HUBB's free scanning & charting software visit www.hubbinvestor.com 

2008 - Current Issues and Outlook

The second half of 2007 was characterised by high volatility as the bull market in Australian equities and property securities reached stretched valuations and international events heavily influenced investor sentiment.

Commentators say we are much less susceptible to events in America as a result of the increased economic focus of Australia towards its Asian trading partners. Nevertheless, the US remains the largest global economic power and when it's economy falters, western economies continue to be caught in the contagion effect. US economic and credit issues are currently the dominant factors influencing the Australian market.

The current debate as to whether the US is now in recession or fast approaching recession and the subsequent implications are probably factored into our market already, given this year's +12% correction. The significant issue that will continue to effect our market's direction going forward remains the ongoing fallout from the sub prime led credit crisis and to what extent this issue will exacerbate a weakened US economy, due to the flow-on impact of higher unemployment and lower growth. The Federal Reserve has indicated it is prepared to continue cutting US interest rates to normalise the credit market. The effectiveness of Federal Reserve intervention will directly impact confidence in both the business and consumer sectors. Weaker consumer confidence and a trend to higher savings translate into a slowing economy and a consumer-led fall in GDP growth.

On balance, it would seem the outlook for the next six months will include continued volatility and potentially little by way of gains in share valuations. Investor sentiment is likely to remain negative whilst awaiting evidence of a stabilisation in the US credit markets. Having said this, the Australian share market measured by S&P/ASX200 at levels around 5200 looks reasonably valued at present, (if not good value taking a long term perspective) as it is trading on a price to earnings ratio of 13.5 times comparing to the longer term average which is in excess of 15 times earnings.

2008 Positives

The market has already fallen more than 12% this year - further downside may now be tempered by:

High levels of cash waiting to be invested together with ongoing flows into superannuation as a result of Superannuation Guarantee Levy.

Potential for company based M&A activity given the current softness in the market. Those blue chips with prudent corporate gearing levels should still be able to access funding for corporate activity. In general corporate balance sheets remain conservatively geared.

Potential for a soft landing in the US economy due to Federal Reserve intervention to cut rates.

Global earnings growth, whilst slowing from levels seen over the last four years, is still expected to remain relatively strong.

The market's relative attractive valuation based on a price earnings ratio of around 13.5x

The Australian economy remains strong.

2008 Negatives

Unknown duration of the credit crisis and its potential to create further corporate casualties.

Possibility of a US lead global recession.

Continued high Australian dollar and high oil prices. A widening interest rate differential will continue to support a high valuation for the Australian dollar.

Possibility of ongoing corporate earnings downgrades.

RBA's ongoing bias to interest rate tightening to contain the inflation risk and a reduction in personal spending and consumption.

Investstone Wealth Management - Financial and Investment Advisers - www.investstone.com.au
Publishers of "Investing Times" newsletter. Visit the Investing Times online - www.investingtimes.com.au 

Beat the competition in a hot property market

In a hot property market, the competition to secure a house or unit is often intense, involving heated bidding at an auction or numerous competing offers in the case of a private sale.

Australian Property Investor magazine editor Eynas Brodie says when the market's running hot, investors and homebuyers need to know, more than ever, exactly what they're doing. With the property markets in Brisbane, Melbourne, Canberra, Adelaide and even parts of Sydney gathering steam, buyers must understand the market and have their buying strategies down pat.

Overpricing gets worse in a boom and scams become more common so buyers need to make sure they're not paying too much for a property.

Here are some strategies for buying in a hot market. These tips come recommended from some of the country's top buyers agents and property experts. A selection of API's tips and tricks are:

Make decisions quickly - The old adage that 'he who hesitates is lost' is never more applicable than in a hot market. Homebuyers and investors need to have all the information and documentation to hand when they inspect a property and need to be able to make well-informed decisions quickly.

Act like a pro - Successful investors need to act professionally at all times in order to give agents and vendors the impression that they mean business. If an agent gets the impression you're a serious investor who knows what you're talking about, then you won't be viewed as a tyre-kicker who'll waste the vendor's time.

Make an offer before auction - Auctions tend to be a popular selling tool when the market is running strong, as agents believe the competitive bidding process results in a higher sale price. One way to try to circumvent this is to put in an offer before auction day - although you need to know when to use this strategy, as it can sometimes backfire on the buyer.

Attach a cheque to your offer - Nothing says you're a serious buyer like stapling a cheque for the full deposit amount to your contract, it screams that you're a genuine buyer and should give the vendor an added reason to choose your offer over any competing offers.

Be flexible on settlement - It can be a good idea to ask whether the vendor would prefer a long or short settlement, if there are competing offers on the table but you can offer flexibility to suit the vendor's needs in terms of the timing of the sale, that may help move your offer to the top of the pile.

Beware of scams and panic buying - Missing out on some properties is part and parcel of a hot market, it's important to do your research, know your market and stick to your budget. Don't fork out more than a property is worth just because you've missed out on a few properties in the preceding weeks.

Find all 21 expert tricks to beat the competition in the January 2008 edition of Australian Property Investor magazine. Further information available online at apimagazine.com.au.

Should you establish a Self Managed Superannuation Fund (SMSF)?

The use of a Self Managed Super Fund (SMSF) has become one of the most popular and fastest growing areas of the superannuation environment.

Is an SMSF right for you? We have listed some of the advantages and disadvantages of an SMSF for you to consider.

There are many benefits attached to the use of a SMSF, the most important of which are:

Control: You have complete control over the investments of the fund and are able to invest in a wide range of assets, including bank deposits, direct mortgages, direct property, shares, managed funds and pooled investment trusts.

Security: All the investments are held in your name as trustee or in the name of a trustee company that you control.

Permanency: The fund continues unless you wish to wind it up.

Costs: The cost of managing a SMSF may be less than the charge structure of comparable institutional funds if the fund balance is large enough.

Investment Opportunities: You are able to take positions in new floats and potentially enhance the fund's performance as a consequence.

Investment Continuity: You can change the characteristics of your fund from an accumulation to a pension fund without the need to sell investments and realise capital gains.

Contributions in specie: You are able to contribute listed shares, units held in managed funds, fixed term deposits and "business real property" directly to the fund, instead of cash if you wish.

Asset Protection: In most instances, fund assets are protected upon on bankruptcy or litigious attack.

As with any investment vehicle, there may also be disadvantages. In establishing a SMSF these may include:

Costs: There are establishment costs in setting up the structure. The cost of a trust deed, a Trustee Company (if required), professional advisory fees, etc.

Complexity: Putting in place additional structures will be more complex to administer and will involve additional ongoing costs, such as tax returns, audits, actuary reports, etc.

Responsibility: As trustee you are responsible for making sure the fund meets all requirements on time. You are able to mitigate this burden by using professional advisers to assist you in this process.

Penalties for Non-Compliance: There are serious taxation consequences for a complying superannuation fund, which is made non-complying in a particular year of income.

The above lists are by no means complete.

As with any area of your financial affairs, consider all aspects and seek advice from professional advisers.

Laura Menschik - CERTIFIED FINANCIAL PLANNER TM - SMSF SPECIALIST ADVISER TM
WLM Financial Services Pty Ltd.
Visit the WLM Financial Group online wlm.com.au

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