TRADE SECRETS

August 2019 Edition

Friday the 12th of July was an important day of celebration for our business. Our Managing Partner and Senior Financial Planner Paul Nicol notched up 20 years in the industry, all of which has been at GFM Wealth Advisory.

For those that know Paul well, they’d know he is extremely humble and modest, so we had to keep the celebration a surprise! It was nice for staff to commemorate the occasion over lunch with Paul’s family in attendance as well as a few good friends from the industry.

We may seem a little bit biased, but Paul is held in extremely high esteem within the industry. I am fortunate to get to see the level of respect that people in the industry afford Paul. His opinion is sought and valued by other advisers, often by peers much older than him. He is innovative but practical with a no-nonsense approach to issues at hand.

Paul has also taken an active role in mentoring many staff in his time with the firm, including all of our advisers and associate advisers. Many of us in the firm unashamedly see him as a role model, and it is an absolute pleasure to work with him on a day to day basis (most of the time)!

Given this, it is no surprise to us that Paul, again, made the list of Australia’s top 50 advisers, ranked 44th. It is the third year in a row that Paul has featured in the prestigious list, so he can now be described as a veteran!

“The Australian” newspaper, in conjunction with respected U.S. financial investment publication Barron’s, put together the listing.

Barron’s is a respected, 96-year old American financial newsweekly published by Dow Jones. It has been rating the top financial advisers in America since 2004. Its overall goal in publishing these rankings is to shine a spotlight on the best advisers, aiming to raise standards in the industry. The thinking is that the bottom one per cent of financial advisers garner an outsized amount of attention in the press. On the one hand, this is understandable; malfeasance and professional misbehaviour should be called out. On the other, this does little to get consumers the help they need most – in locating quality advisers who can help them with their long-term investing and financial goals. The rankings are part of an effort to remedy that.

Advisers fill out a survey about their practice. Barron’s then apply their formula to that data to generate a ranking. The formula features three major categories of data: Assets, Revenue and Quality of practice. The quality of practice component includes such things as the length of time an adviser has been in the industry; their regulatory record; the certifications and designations owned by an adviser and their team; charitable and philanthropic work; client retention and other factors.

Again, the goal is to shine a light on the best advisers, thereby raising standards in the industry.

Positioning in this year’s Top 50 list was again very competitive with the inclusion of larger firms, many of whom run multi-office practices. Many of these firms had multiple entries in the list, so it was particularly pleasing to see that GFM was one of only 24 firms with an adviser in the list.

GFM is proud of this industry endorsement of Paul, and this award is a clear acknowledgement of the transparent and professional approach that underpins the way we do business and the dedication of all members of staff.

It has also been a period of transition for our firm over the last two years. As many would be aware, Tony Gilham, the founder of our business, retired in August 2017. Since that time, Tony has moved from active involvement with GFM Wealth Advisory to now being an ambassador, with all of his equity in the firm transitioned to the existing partners of GFM Wealth.

As a privately owned firm with no institutional alignment, we remain free of many of the conflicts that remain embedded in the industry. Our advice always has and will continue to be a client-centric approach, putting the best interests of our clients first. We are incredibly proud of our business.

However, we don’t rest on our laurels. Our team, led by Paul, will continue to dig deep, innovate and work together. We are extremely motivated toward the common goal of helping our clients achieve their financial goals.

Gisela has kindly written the article below on her family, working life, retirement and Kenneth and her experiences as clients of GFM Wealth Advisory. We much appreciate Gisela’s contribution to Trade Secrets.

In early 2015, Kenneth and I became increasingly aware of the decline of Kenneth’s ageing parents and their health. An unexpected hospitalisation was the catalyst for a significant re-think on their care plan. In searching for the best options for Kenneth’s parents, we were confronted by the tsunami of new information to digest and overwhelmed by the choices and subsequent decisions to be made. Up until this point, we had not been deeply involved in the financial plans of my parents-in-law. It became apparent that an expert, with knowledge across many of the financial areas related to elderly care, was required. While lamenting about our dilemma with friends, the name GFM came into the conversation. A few phone calls later and Patrick Malcolm was indeed able to prepare a feasible, affordable financial strategy which enabled Kenneth’s parents to keep their home while being resettled in a quality care facility. This is the beginning of our relationship with the GFM team.

We are each a product of immigrant parents. Kenneth arrived from Scotland at the age of 8. My German parents met and married here in Melbourne, where I was born. I initially completed a B A and Dip Ed, which qualified me to teach German in secondary schools. To this, I later added a Bachelor of Education. Kenneth was the first in his family of lace- weavers to complete tertiary studies at university; a Dip App Sci with a major in Computer Science kicked off his career in the burgeoning IT industry.

From his post-war experiences, my father recognised the importance of being financially independent. He successfully managed to create a property portfolio that allowed him to retire early, comfortably. It was from him that my brother and I gained lifelong lessons on real estate investments. When Kenneth and I met and married in 1982, I already owned a half share in a small factory.

Kenneth and I managed to purchase and own our first home unencumbered within five years. After ten years, we were blessed with two wonderful boys. During their early years, I returned to studies and completed a Bachelor of Economics (Accountancy). While the intent to become a practising accountant didn’t eventuate, my newly acquired skills were not entirely wasted. In a team that involves my brother, my husband and myself, we owned and managed residential, commercial and holiday properties for several decades.

Kenneth has a passion for studying and has accumulated many certificates and tertiary qualifications, including two Masters. He enjoys reading and researching military history and making scale models but is equally fulfilled hiking in the wilderness. I similarly enjoy the outdoors but have a passion for cooking and baking and am also a regular subscriber to MTC and music concerts. In recent years I have taken the opportunity to go abroad with my brother, who would otherwise be travelling solo. This year the three of us have planned an extended trip to Europe, inspired by our sons. Alastair has lived and worked in Germany since Feb 2017 and Christopher and his partner recently moved to live and work in London. Since March this year, we are finally empty-nesters.

Although not yet 60 by the end of 2016, Kenneth decided to retire early. At this point, the decision to resume our discussions with Patrick was straight-forward. By March 2017, he, in collaboration with his colleague, Nicola Beswick, had us set up with a Self-Managed Super Fund and our retirement savings well planned.

I am a life-long member of a Lutheran German-speaking congregation and am actively involved, being on the Elders Board. When our Treasurer retired to Queensland in Dec 2017, I again approached GFM for assistance and advice. We are an independent church responsible for sustaining ourselves on our own funds and about to implement an ambitious Master Plan, including a Stage I building project. I was pleased when Nicola generously agreed to offer her guidance and expertise, giving special consideration to our not-for-profit status. We are excited to have recently lodged our building permit application.

With their candid and unpretentious approach, Patrick and Nicola have consistently addressed our concerns, queries and challenges with patient detail. Their attributes admirably reflect their firm’s values and set them apart from their competitors. We particularly appreciate that GFM’s principal advisors are all highly qualified, that senior staff are investors in the business, that advice is diligently researched and professionally analysed, that the staff actively support socially responsible community projects, and most importantly, that our financial affairs are managed by such a committed, cohesive team with a genuine, personal interest in our welfare. This has been our experience, and we’re happy to share it. We often invite friends along to the quarterly lunch seminars, that others may experience, without any pressure, the GFM reputation for themselves. Thanks, GFM!

A new financial year always brings change, and 2019/20 is one of the more dynamic in recent times.

Over the past few months, we have seen an early Federal Budget, a Federal election, and several critical Bills lapse before Parliament. As a result, quite a large number of rates and thresholds have changed effective from the 1st of July.

We have provided a summary of the key 2019 Federal Budget announcements below, which have now been legislated and are in effect.

Superannuation

Work test exemption

From 1 July 2019, certain individuals aged 65 to 74 can make additional contributions to super without having to meet the work test. The exemption is a one-off arrangement and is only available:

• In the financial year following the year the person last met the work test;
• To those with Total Super Balance (TSB) of less than $300,000 as at the prior 30 June; and
• To be applied once in an individual’s lifetime.

The benefit of this new exemption could give eligible individuals an additional opportunity to make both concessional and non-concessional contributions (up to $300,000 if the bring forward is utilised) and contributions using the small business CGT concessions of up to $1.515m.

Catch-up concessional contributions

The 2019/20 Financial Year is the first in which the unused portion of a previous year’s concessional contribution cap (i.e. that of 2018/19) can be carried forward.

For example, this means individuals who did not make any concessional contributions (CCs) in the 2018/19 Financial Year may be able to make CCs of up to $50,000 in 2019/20. Similarly, if the concessional cap is not utilised in the current Financial Year, the unused portion of the cap can be carried forward and potentially used in future years.

Amounts are carried forward on a five-year rolling basis. Unused amounts which have not been utilised within five years will expire.

To make use of carried forward CCs in the 2019/20 Financial Year, an individual’s total superannuation balance (TSB) must not have exceeded $500,000 as at 30 June 2019. This requirement will need to be met going forward on the 30 June before the year in which the person wishes to make the catch-up contribution.

The benefits of this new opportunity include the ability to manage capital gains tax better, high taxable incomes can be reduced, and bonuses can be added to super more tax- effectively.

Insurance in inactive, low-balance super accounts to be cancelled

From 1 July 2019, insurance held in a super account with a balance below $6,000, that has been inactive for 16 months, will be automatically cancelled. An account can be saved from being considered inactive if an employer informs the fund that they intend to pay SG contributions of greater than the insurance premium.

Insurance cancellation can also be avoided if:

• The member changes their investment options within the fund;
• The member makes changes to their insurance coverage within the fund;
• The member makes or amends a binding beneficiary nomination;
• The member, by written notice given to the ATO
• Commissioner, declares the account is not inactive; or
• The superannuation provider is owed an amount in respect of the member.

Also from 1 July 2019, the ATO has powers to automatically consolidate inactive accounts with balances below $6,000. The ATO aims to consolidate all inactive, low-balance accounts held by a member into the member’s super account that has the highest balance.The ATO’s powers do not extend to accounts that hold insurance, but should insurance lapse due to the account being inactive, super fund members could also find that, shortly thereafter the account no longer exists.

This provision does not apply to SMSFs, small APRA funds or defined benefits.

Taxation

Tax offsets

The announcement in the 2019/20 Federal Budget made changes to the:

• Low Income Tax Offset (LITO)
• Low and Middle-Income Tax Offset (LMITO)
• Income tax bands, and
• Income tax rates

The LMITO is a non-refundable tax offset available to eligible individuals, in addition to the Low-Income Tax Offset (LITO).

Although the legislation to increase the LMITO was passed after 1 July 2019, the changes below apply with effect from the 2018/19 Financial Year.

Low and Middle-Income Tax Offset (LMITO) – applies from 2018/19 to 2021/22
Taxable Income	Offset available
Up to $37,000	$255
$37,001 to $48,000	$255 plus 7.5c for every dollar above $37,000
$48,001 to $90,000	$1,080
$90,001 to $126,000	$1,080 minus 3c for every dollar above $90,000
Greater than $126,000	Nil

Note – from 1 July 2022, LMITO and current LITO ceases and will be replaced by a revised LITO

Personal income tax

The current tax income bands and tax rates continue to apply until 30 June 2022. These are:

Taxable Income	Tax Payable (excluding Medicare Levy of 2%)
$0 to $18,200	Nil
$18,201 to $37,000	19%
$37,001 to $90,000	$3,572 + 32.5%
$90,001 to $180,000	$20,797 + 37%
$180,001 +	$54,097 + 45%

Changes to the tax rates will then come into effect from 1 July 2022 (shown in bold):

Taxable Income	Tax Payable (excluding Medicare Levy of 2%)
$0 to $18,200	Nil
$18,201 to $45,000	19%
$45,001 to $120,000	$5,092 + 32.5%
$120,001 to $180,000	$29,467 + 37%
$180,001 +	$51,667 + 45%

The final tranche of changes to the tax rates will come into effect from 1 July 2024 (shown in bold):

Taxable Income	Tax Payable (excluding Medicare Levy of 2%)
$0 to $18,200	Nil
$18,201 to $45,000	19%
$45,001 to $200,000	$5,092 + 30%
Income band removed	N/A
$200,001 +	$51,592 + 45%

Social Security

Changes to the Work Bonus

The Work Bonus allows age pensioners to continue working into retirement, without severely impacting their age pension entitlement under the Income Test. The Work Bonus has now been extended and increased and moving forwards applies to self-employment income, as well as employment income, significantly broadening the potential recipients it can benefit.

The maximum fortnightly employment income that can be disregarded under the work bonus increases from $250 to $300 from 1 July 2019, while the maximum unused bonus able to be carried forward also increases from $6,500 to $7,800. This $50 increase in assessable income per fortnight can provide an Age Pension increase of up to $650 a year.

As a result of this change, a single person can earn income from employment of up to $60,486.40 and a couple $96,210.40 combined per annum (assuming the maximum bonus per fortnight is payable and no other income is earned), whilst still qualifying for a part Age Pension under the income test.

Reduction in Deeming Rates

On 14 July 2019, the Government announced changes to deeming rates, reducing from 1.75% to 1% for financial investments up to $51,800 (singles) and $86,200 (pensioner couples). The upper deeming rate will reduce from 3.25% to 3% for balances over these amounts.

Theses reduced rates will be effective from 1 July 2019. However, the payment rate will not change until the end of September 2019 and payments will be backdated.

The Government stated that under the new rates, Age Pensioners whose income is assessed using deeming will receive up to $31 per fortnightly extra for singles, and $40.50 a fortnight extra for couples.

Changes to deeming rates will benefit recipients of various income support payments, including the Age Pension, Disability Support Pension, Carer Payment, Newstart Allowance and Parenting Payment.

Also, these changes may allow certain individuals who did not previously qualify for government concession cards because of excessive income, to access the card. This may include the Low Income Health Care Card or the Commonwealth Seniors Health Card.

The changes will also provide some relief to aged care residents as the Means-Tested Fee will slightly reduce.

Age Pension age to increase to 66 and on the way to 67

The qualifying age for Age Pension, currently 65.5, will increase to age 66 in the 2019/20 Financial Year, effective from 1 January 2020. The increased pension age will apply to individuals born between 1 January 1954 and 30 June 1955.

The qualifying age will then increase to 66.5 for individuals born between 1 July 1955 and 31 December 1956 and then finally to 67 for those born from 1 January 1957 and later.

Anthony joined GFM in May 2018, having completed a Bachelor of Commerce (Accounting and Finance) Degree and Diploma of Financial Planning. He is an Associate Financial Planner working with financial planners Paul, Patrick, James and Nicola. Anthony has also completed a Masters of Applied Finance Degree. Anthony previously worked with National Australia Bank during his studies. He soon realised he would like to follow a career in Financial Planning working for a self- licensed firm.

Here’s a quick Q & A with Anthony:

Q. Favorite holiday destination?

A. Last year I went to Japan, and it was amazing! There are so many things to do there. One of the highlights was dressing up as Mario characters and zooming around the streets of Tokyo in go-karts.

There are still so many other places that I want to visit, like Europe and America. Next year I’m planning a holiday to Thailand and Singapore, which will hopefully be filled with water sports, cheap eats and relaxing massages. If you’ve been and have any tips and recommendations, please let me know!

Q. Hobbies?

A. I don’t know if you could call eating a hobby, but I like to do a lot of it! I enjoy eating out on the weekends, and at the moment am all about Asian foods.

I also enjoy fitness and try to go to the gym five times a week. It’s a slow and steady process, but it keeps me interested.

Q. Favorite food/drink?

A. Right now, my favourite is Japanese cuisine. For the cold icy days, nothing beats a bowl of Ramen, Hakata Gensuke is my favourite pick. I also love nigiri and sashimi. Minamishima and Shira Nui have some of my favourite omakase menus in Melbourne.

Even though I never used to like it at all, I’ve started loving Bubble Tea. Pearl Milk Tea is my favourite.

Q. Your proudest moment?

A. It’s hard to define my proudest moments, but one would have to be graduating from my Masters of Applied Finance degree. Without that degree, I wouldn’t be at GFM today, and I definitely love it here!

Q. What sports do you follow?

A. I enjoy following soccer. In the Premier League, I support Chelsea. I chose them when I was a child because their team wears my favourite colour, blue, and I’ve stuck with them ever since!

I also follow the tennis when it’s in Melbourne, Formula One and the NBA.

Q. Best part of working at GFM

A. Now, as an Associate Adviser, I have a lot more opportunities to meet clients. It’s been great getting to meet both new and existing clients and all the stories and experiences that they bring in. I look forward to building more relationships and working closely with clients of the firm in the future.

When we think about Aged Care, for either ourselves or (more likely) a loved one that can no longer adequately care for themselves, it can be a highly emotive period. However, there are many choices available, and understanding the implications both financially and on a care basis, may lead to a more desirable outcome for all involved.

The different living arrangements we have for retirement depend on several aspects, including one’s personal preferences, desired lifestyle, physical needs and overall financial situation.

Aged Care Steps, a leader in the provision of aged care support, have classified three distinct phases in retirement, which are defined by a person’s health and capacity:

• The care-free (active) years. The good health and high independence years that allow for preferred activities and independent living. This is estimated to represent, on average, 45-47% of retirement years.
• The quiet years. Estimated to represent on average 30-36% of retirement years, disability or levels of frailty may increase, but independence can still be maintained, but with some external support.
• The frailty years. These years are where a higher level of support is required on a day-to-day basis to maintain quality of life and is estimated to represent, on average, 17-25% of our retirement years.

The years of retirement and typical spending patterns detailed above can be summarised in the graph below:

© Aged Care Steps

We are focussing on phase three in this article.

Accessing Aged Care services

Once the ability to live independently starts to decline, and assistance with maintaining daily living activities such as cooking, cleaning and personal care is required Aged Care comes into play.

Aged Care is the term used when daily living and care services are provided to individuals who either need some help or can no longer live independently. Services are generally divided into two categories:

• At-home services (Home Care)
• Residential care services (Residential Aged Care)

Before obtaining any of these services, and receiving Government support, an Aged Care Assessment Team (ACAT) approval for the Government to pay a share of the costs needs to be obtained. In Victoria, this Team is called an Aged Care Assessment Service (ACAS) and can take some time to be completed.

At-Home Services (Home Care)

There are different levels of assistance that can be provided and subsidised by the Government, should an individual wish to remain in their own home.

With your provider, you can work out what services are required. While the Government does subsidise the cost of the service, dependant on the ACAT assessed level, individuals do contribute toward these services and can include:

• Basic daily fee (up to $10.54 per day from 1 July 2019, depending on the service level).
• Income-tested care fee (up to $30.25 per day from 20 March 2019). This is based on an individual’s level of income.
• Additional fees. For anything extra.

There are annual and lifetime caps on the amount that an individual has to pay.

Residential Care Services (Residential Aged Care)

There are many different costs associated with entering into an Aged Care facility. These are outlined in the diagram below:

© Aged Care Steps

The first is an accommodation payment, which is the contribution towards the cost of accommodation. The terms used for the accommodation payment is either a refundable accommodation deposit (RAD) or a daily accommodation payment (DAP). A RAD is a refundable payment, guaranteed by the Government, and is refunded to the Estate once any outstanding care costs are deducted. A DAP is is a daily payment contributing to the cost of accommodation and is paid periodically (i.e. fortnightly or monthly) and is not a refundable payment.

The more complex area is understanding the costs that go towards a resident’s ongoing living and care while remaining within the facility. These are broken into three different fees, being:

• A basic daily fee which is 85% of the single Age Pension.
• A means-tested care fee. This fee is based on an individual’s income and assets.
• Additional services fees for selected extra service packages.

How much a resident can afford to pay towards these costs is based on services they select as well as their financial situation.

Understanding the Resident Agreement, which outlines the fees, the facility’s obligations and a resident’s rights and responsibilities are, is also essential. Independent legal advice is required in this area.

Conclusion

At GFM Wealth, we can provide advice and assist individuals (or their parents) make more informed decisions when it comes to any Aged Care needs and help:

• Develop a plan well ahead of time
• Understand what decisions need to be made
• Navigate the process of moving into residential care or accessing home care
• Finding solutions that work for the whole family
• Understanding how to structure both finances and estate planning.

General information around Aged Care and information on facilities can be located on www.myagedcare.gov.au

On 14 February 2019, the Government passed legislation amending the means testing of lifetime income streams commenced on or after 1 July 2019.

According to a recent study by the Australian Bureau of Statistics, Australia’s average household saving ratio is currently at a record low of 4%.

A cup of coffee here, a dinner there, electricity bills to pay. Do you ever wonder where your money is going? Your smartphone could potentially assist you in taking control of your spending, as there are now many apps available, which can track your spending to provide an insight into where your dollars are being spent.

Below we provide details of some of the apps that are available to assist you with your budgeting.

TrackMySPEND

This easy to use app developed by ASIC (Australian Securities and Investment Commission) is a useful tool for people who wish to get their budget on track or even start their first budget. Users set up their spending cycle and spending limit, and then you can add new expenses as they arise by name, amount and category.

Pocketbook

Pocketbook tracks all the expenses to calculate just how much you spend each month. The app automatically syncs data from your bank accounts daily and categorises each spend, providing a useful insight into exactly where your money is going.

Once you have established the breakdown of where your cash is being spent, you can then set a monthly allowance for each type of spend, for example, food, travel or bills. You can also set up notifications from Pocketbook to alert you when you are getting close to your monthly limits.

Spendee

Similar to TrackMySpend and Pocketbook, Spendee tracks your expenses, however, has the added benefit of operating in multiple currencies for people who travel frequently and need to switch between different currencies, at a touch of a button.

MoneyBrilliant

MoneyBrilliant goes the extra mile compared to the previous apps, in that it connects to more banks than any other app of its kind. The app factors in all of your bank accounts, credit cards, loans, superannuation and more, covering all of your financial affairs.

MoneyBrilliant provides additional features such as Bill Watch, for things such as your utility bills, to ascertain if there is a better deal available to you, therefore saving you money. You can also set your occupation, answer a few questions about your work expenses and MoneyBrilliant will identify any transactions that may be allowable tax deductions.

Your own bank

Depending on which bank you are with, you may not need to consider purchasing any of these apps. The major banks are continuing to roll out helpful features in their mobile banking apps to help their customers save.

A new feature that some financial institutions are rolling out is the ‘roundup’ feature’, which can round up every debit card transaction to the nearest dollar and directs these ‘roundups’ to your savings account. As they say, every cent counts.

While these apps may not work for everyone, it may assist you in gaining a better understanding of your spending habits and making changes if required.

As consumers, we generally dislike toll roads, utility companies and airports. I’m sure you’ve been stuck on a toll roll with a promise to get somewhere faster only to go 5kms per hour or sat in an airport lounge for hours on end waiting for a delayed flight. As consumers, these services are not overly appreciated, but as investors, these assets can be a valuable part of a portfolio.

Infrastructure assets are the facilities, services and networks we all use, in some way or another, to allow us to get on with our lives. From an investor perspective, infrastructure assets have the potential to offer steady dividend growth, protection from inflation and long-term capital growth.

Infrastructure can be divided into the following sectors:

Social infrastructure

This include schools, hospitals and other educational infrastructure and tend to generate extremely stable long-term cash flows.

Regulated utilities

Regulated utilities provide essential services such as water supply, sewerage, or electricity. Due to the importance to daily life, these types of utilities tend to be regulated across most jurisdictions. As a regulatory body oversees these assets, they generally set the pricing these businesses can charge. However, regardless of the ups and downs of the economy, the performance of these utilities tends to be reasonably resilient due to the essential nature of the services they provide.

Transport

ransport infrastructure includes assets such as toll roads. The performance of these types of investments depends on how much the service is used. This can impact the return on these types of assets both positively and negatively, so the risk associated tends to be higher when compared to regulated utilities and social infrastructure.

Ports and airports

Ports and airports are also predominantly user pay assets but are linked to the strength of the economy. For ports, a strong economy and therefore, trade translates into more significant usage and higher revenue. The same applies to airports, as more people travel when the economy is strong. Thus, should the economy contract, these assets experience contraction in usage and ultimately, revenue. These assets generally produce a higher return because of this higher risk, and the greater volatility in earnings this implies.

Communications

Communications infrastructure, such as telecommunications and towers, combines both availability and users pay systems. Communications infrastructure is exposed to more competition than other infrastructure assets. Communications infrastructure does become outdated, compared to other infrastructure, due to the rate that technology develops. These additional risks require higher returns, compared to the other infrastructure assets.

Key features

There are a range of features that high-quality infrastructure assets offer. These include:

Monopolistic

The nature of infrastructure assets often makes it hard for other companies to compete with the existing operator. Examples include electricity and gas distribution networks, toll roads with non-compete clauses and city airports with restricted flight paths.

Pricing Power

Infrastructure assets are usually able to raise the price of their services steadily over time. This can be due to toll increases linked to inflation, regulated real returns, or high barriers to entry making competition difficult.

Predictable Cash Flows

Infrastructure assets have the potential to generate stable and highly predictable cash flows over extended time frames, regardless of the economic or business cycle, although there is no guarantee. This predictability is underpinned by infrastructure’s essential service nature, regulated returns, long-term contracts and limited economic sensitivity.

Inflation Hedge

The underlying revenue of some companies is linked to inflation, in some cases directly through the regulatory framework and in others through concession agreements tying price growth to inflation.

Sustainable Growth

Infrastructure assets generally have a growth profile supported by long-term economic and demographic trends. They tend to be relatively immune to economic cycles, exhibit defensive qualities, and have a long lifespan (over 30+ years).

Low Correlation

Infrastructure assets tend to have a low correlation to traditional asset classes and provide diversification in an investment portfolio.

Risks

As with every investment, there are risks to infrastructure assets. Many include:

• Given the longer duration of the assets, sensitivity of valuations to changes in long term bond yields
• Unfavourable regulatory rulings, including structural changes to pricing and removing barriers to entry
• One-off shocks impacting the use of infrastructure assets; (such as natural disasters)
• Exposure to price volatility; and
• Growth rates not meeting expectations.

In Summary:

Compared to other asset classes, infrastructure may deliver smoother returns during periods of higher market volatility. Many services within this asset class include those that consumers today can’t go without, no matter what the stock market is doing. As a result, company cash flows tend to be very stable and relatively immune to economic cycles. Because inflation protection is built into many infrastructure assets’ pricing models, infrastructure can also provide a robust defence against the adverse effects of inflation.

Over the long–term, earnings stability has enabled listed infrastructure to deliver most of the upside in rising global equity markets, while aiming to protect this growth when markets fall. This pattern of performance can accumulate into material outperformance, which is the aim of any investment within a portfolio.

We held a Quarterly Business lunch on Wednesday 7th August 2019 at Leonda By The Yarra on the Magellan Global Funds. This topic was extremely popular amongst our clients and their guests, with the session being fully booked.

Our special guest presenter was Stefan Marcionetti, who is the Portfolio Manager of the Magellan Global Trust (MGG).

In Stefan’s presentation, he analysed the current economic cycle, discussed some of the key thematics of Magellan’s Global portfolios including technology and the emerging markets, and also deep-dived into a couple of the companies Magellan owns and why.

Many of our clients are investors in the Magellan Global Fund and found this session of great interest and extremely worthwhile. We were very fortunate to have Stefan presenting on the day, looking “under the bonnet” of Magellan’s investment process and stock positions.

The feedback from the attendees was positive with 98.15% rating the relevance/usefulness of the topic as “Excellent”. They also enjoyed a lovely lunch and the opportunity to chat with members of our staff.

GFM IS NOW ON LINKEDIN

GFM have recently established a company LinkedIn page, and we are posting interesting and informative content regularly. Many of our team are also on LinkedIn, and we invite you to follow GFM and connect with the team. Below is the link to our company page below. Follow us for regular updates.

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution. The information here is of a generic nature, and does not take into account your investment objectives or financial needs. No person should act upon this information without firstly seeking competent professional advice specifically relating to their own particular situations.

Copyright: © This publication is copyright. Subject to the conditions prescribed under the Copyright Act, no part of it may, in any form, or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced or transmitted without permission. Enquiries should be addressed to GFM Wealth Advisory.