On Monday evening we held our latest Wealth and Beyond Seminar, featuring Hamish Douglass and Daniel Kerr at the Bluewater Grill in Applecross.

Hamish Douglass CEO and Portfolio Manager from Magellan Asset Management helped to put the US deficit into perspective, gave an insight into why the Australian market has outperformed and outlined some key macroeconomic challenges and next investment themes.

Some of Hamish’s key points were as follows:

US Deficit in Perspective

  • The US budget deficit as a percentage of GDP is -9.9% this is the same as Ireland and higher than Portugal (-9.1%), United Kingdom (-9.0%), Greece (-8.1%), Spain (-6.7%), Australia (-2.3%) and Germany (-0.5%)
  • The US net government debt as a percentage of GDP is 64.8% this is around the same levels of debt that countries in the Eurozone have experienced trouble over such as Ireland (69.4%),  Portugal (79.1%), Spain (48.8%), Greece (142.0%), Germany (53.8%).
  • Total US tax receipts as a percentage of GDP are just above 30%. The OECD countries average is 40%.
  • The US has the worlds least efficient healthcare system. Total expenditure on healthcare as a percentage of GDP is 16% the OCED average is 9%.
  • Hamish remains positive on the outlook of the US however and believes the US will address the budget deficit issues in coming years. He feels that taxation and healthcare reform would readily fix the deficit.  He also believes that the overwhelming negative sentiment in the US provides a unique investment opportunity.

Why has the Australian market outperformed?

  • Since June 2000 to December 2010 the ASX 200 (the top 200 Australian shares) has consistently outperformed the S&P Global 1200 (the top 1200 Global shares).
  • Hamish believes that the reason the Australian market has outperformed is because of a significant sector bias in materials, energy and finance when compared to global equities. As at 30 June 2010 Materials, Energy and Finance made up 70% of the ASX200 Compared to just 40% of the S&P Global 1200. Removing the historic sector bias of the Australian market against the S&P Global 1200 drops total return to 13.33% (or 1.26% per annum)
  • The Australian sector bias vs the S&P Global 1200 has accounted for 70-79% of total returns.
  • Therefore, it has not so much been the Australian Market that has outperformed but rather the Energy, Minerals and Finance Sector that has. Australia has benefited more from this outperformance due to the high sectoral weights placed on these three areas. Basically, if you invested with these same weightings Globally, the returns would have been very similar.

Key Macroeconomic challenges and the next investment themes

The key macroeconomic challenges Hamish identified were;

  • rising sovereign debt and the age of austerity
  • inflation and rising long term bond rates
  • geopolitical risk and the risk of an oil price shock
  • the impact of rising food and energy prices
  • the asset-intensive nature of china’s economic growth

Some of the next big Investment themes discussed included;

  • the rise of the Eastern Consumer
  • the age of the internet and the rise of e-commerce
  • the move to a cashless society
  • demographics and ageing societies and how to feed and power a more prosperous world.

Daniel Kerr, premiership midfielder from the West Coast Eagles, then conducted a Q&A session with the audience to round out the night. Key highlights from Daniel included (apart from Tracy’s photo):

  • Much like financial planning, goal setting, preparation and regular review is key to achieving goals
  • His prediction of a pending derby win was accurate – occurred that weekend (much to Brad’s delight)
  • Technology is key in the AFL today, with players closely monitoring everything from how many km’s they run, hydration levels, customised strength and conditioning programs and specialised technology to help combat effects of heavy travel schedules
  • John Worsfold once received 10 stitches above his eye with no anaesthetic!
  • Ice baths are not pleasant!

Thanks to everyone who made it on the night and for such great participation levels.

We hope you all had a wonderful evening and were able to take away some valuable information.