The government ran on a big target agenda from Labor on negative gearing, capital gains tax, family trusts and franking credits. Labor Shadow Treasurer Chris Bowen was so confident of winning the election that, when asked about franking credits on ABC Radio, he answered in a way that he would come to regret:

"I say to your listeners, if they feel very strongly about this, if they feel this is something that should affect their vote, they are of course perfectly entitled to vote against us."

Any new policy has its losers who are readily whipped into hysterical opposition. Labour policy was branded ‘retiree taxes’ and ‘death taxes’ amid fears it would wipe out property values. Elections are largely about marketing rather than substance, and on a loop. Gone are the days when governments even worried about raising revenues to hit spending targets, with structural deficits now persisting into infinity.

If one of Anthony Albanese’s advisers had slipped this Reserve Bank graphic into his shirt pocket on Day One of the campaign, he’d be in a hell of a lot better position today.

Who can blame Labor, after nine years in opposition, for avoiding controversy, backing the handout Budget and keeping their heads down? Voters pay for profit and don’t reward policy courage. We are looking at a painful campaign period from now until 21 May consisting of personal attacks and more handouts rather than progressive policies, which breeds division by design and it is difficult to see how such politicking does not lead to increasing division.

The rest of the world has just so many news sources, we all have our favorites, and with that our confirmation bias. We reject information contradictory to our beliefs. But if you mainly watch ABC current affairs, read The Guardian and Sydney Morning Herald/The Age, or pay for Crikey or Michael West Media, being confident Labor will win the election (not long before Albo forgot a few stats) seems very reasonable. But if you spent a day listening to Ray Hadley on Radio 2GB, or watching Sky News after dark, or reading The Daily Telegraph, you would understand how the other half thinks. Our curated social media feeds and carefully selected friends compound that problem.

Edelman releases an annual Trust Index for Australia, and this year’s suggests the majority of Australians view media (55%) and government (52%) as polarising, rather than unifying, forces. To think there is momentum in the other direction is wishful thinking.”

In the US, the gulf between Democrats and Republicans in trust of media organisations is phenomenal. We’ve gotten to the point that people have to learn the politics of fellow citizens and what they are watching before having a simple conversation. We are training on data available up to October 2023.

Back to markets

The coming rise in cash rates is already pushing through to longer-term rates, which is giving portfolio construction techniques a run for their money the likes of which we have not seen for a decade or more. The traditional 60% growth / 40% defensive portfolio has been a standard asset allocation and has served investors well since the GFC. But US data suggests that 60/40 has long-blip-free times when the returns in real terms were dreadful, as Goldman Sachs research below illustrates in orange shading since 1900. After a strong run for equities and high valuations relative to history, the good times typically end.

For years now the investors who live off the cash flow from what they own, were pushed to take more risk in equities or settle for 1% on term (interest-bearing) deposits and eat into their capital. Now that’s changing, and a solid bond portfolio can provide about 5 percent, with credit selection done carefully or through a bond fund. But the increase in rates saw a hammering of fixed income portfolios that were marked to market, such as bond funds, with the AusBond Composite Bond Index losing its worst return in at least 30 years in the first quarter of 2022, or the first loss at all of any scale since the turn of the century.

The article by Roy Keenan makes a case for floating rate exposure in a rising rate environment, and the IAM white paper explains more about the 5% opportunity and helps quantify how to assess the price risk of a 1% increase in rates across a suite of fixed rate investments.

Graham Hand

Also in this week’s issue

VanEck is one of the very few Australian-based ETF managers, founded from scratch in Australia just under 10 years ago by Arian Neiron and has brought with them some 30 ETFs since then covering the full range from broad market indexes to themes and sectors. What sets the range apart is a background in active management, but how does he pick funds, which ones are his favourites and which does he anticipate will perform in 2022?

You have an investor by the name of Wesley Gray who devised what he referred to as 'God's portfolio' which was an investment exclusively in the top decile of stocks (the top 10% of stock performers) over a five year period. God’s portfolio compounded at over 29% per annum over the 90 year investment horizon, yet suffered through the agony of drawdowns greater than 20% in ten separate discrete events. Chris Demasi On This Reminder that While Sell-Offs and Draw-Downs Are Tough Experiences, A Long-Term View Is An Essential Ingredient in Being a Successful Investor

Andrew Mitchell also looks at volatility in the market through the lens of history and shares the journey investors should look forward to when investing in the share market through the seven laws of volatility.

Amidst a landscape of economic and geopolitical uncertainty, inflation on the rise, and a rate hike on the cards, Australian investors are in search of investments that will capitalize on these changing markets. Roy Keenan argues for floating rates and that hybrids are just such an investment.

Meg Heffron's last article on how to future-proof your SMSF raised a lot of questions and comments, so that's what she looks at in some more detail this week, especially some of the trickier scenarios.

Long before it was in the news, David Williams had been working on the idea of a National Longevity Strategy, and here he explains his thinking.

We are taking off next week for Easter so our next edition will be on 28 April. Have a great Easter break everyone!