Provision Newsletter

At AMP’s recent Amplify event, Mark Moore, Uber’s engineering director of aviation and Nick Earle from Hyperloop One, spoke about how innovation is likely to change the face of public transport. Emerging public transport systems are poised to free up road and rail systems, leading to less congestion and better use of infrastructure.

As an example, Uber’s vision for the future of commuting involves a self-driving electric car picking up a passenger and taking them to a nearby teleport, from which an unmanned air taxi would take them to their destination teleport, where another Uber car would pick them up and take them to their final destination.

Hyperloop One’s vision is different but likely to be complementary. They envisage ‘packetised transportation’ that can carry both passengers and cargo in a pod which travels at high speed through a tube using magnetic levitation. It’s energy agnostic and has the ability to draw power from various sources including renewable sources such as solar. The target speed is just below the speed of sound, so a Sydney to Melbourne trip could take just 60 minutes.

Both visions will slash trip times and take cars off the road, and also provide new infrastructure investment opportunities.

The future of infrastructure

Any reduction in the number of vehicles on roads will have further flow on effects to related infrastructure and this is a major trend of which infrastructure investors need to be aware. For instance, there will be less need for big CBD parking stations, which may be able to be repurposed, for example as logistics hubs or as electric vehicle charging stations.

These changes may also impact the nature of our cities. They may allow for even larger cities, possibly incorporating several centralised hubs, and larger population densities.

Given competition will be fierce among technology providers, one strategy for infrastructure investors may be to back the facilities and systems needed to support new transport modes.

For example, an electric-vehicle future may require an amplification of renewable generation and distribution capacity. This will require construction of many battery charging or swap stations in major built up areas. This is an opportunity for investors.

Ultimately, it will take time, new regulations and substantial public education to switch to a new model for public transport. While it’s impossible to predict the future, given how gridlocked Australia’s road and rail networks are, it’s only a matter of time before new approaches make practical and economic sense.

Source: AMP Capital 16 August 2018

Author: John Julian has over 22 years financial sector and investment experience in both legal and commercial roles. John joined AMP Capital Infrastructure as an Investment Specialist in 2008, and since then has worked closely with the Global Infrastructure Team across all aspects of AMP

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Earlier this year the big fear was that inflation was going to surge led by the US and that this was going to drive aggressive interest rate hikes by the US Federal Reserve and much higher bond yields, which in turn would pressure other asset classes. Such fears saw a significant correction in global share markets with US shares falling 10%, global shares falling 9% and Australian shares falling 6%. Since then, inflation fears seem to have taken a back seat. While in most major countries 10-year bond yields are well up from their 2016 multi decade lows, US bond yields have struggled to stay above 3%, German bond yields are around 0.3%, Japanese bond yields are around 0.09% and Australian bond yields are around 2.58%, with most well below their highs seen earlier this year. So, what happened? Should we still worry about inflation?

What happened? 

A whole bunch of things have helped bond yields remain low and kept investors focused elsewhere:

• First, although US inflation has moved up it remains relatively benign with the core private final consumption deflator around 2% year on year which is the Fed’s inflation target. It seems every US jobs report has seen the same “Goldilocks” (not too hot/not too cold) combination of strong jobs growth and falling (now sub-4%) unemployment but low wages growth of around 2.7-2.8% year on year implying low inflation pressures. See the next chart.

Source: Bloomberg, AMP Capital

• While the Fed has continued its drip feed of rate hikes consistent with strong economic conditions, the lack of any inflation break-out has meant that they have been able to remain gradual, with one hike every three months and monetary policy remains very easy.

• Strong US earnings growth has helped distract share market investors. June quarter earnings results have seen 84% of companies surprise on the upside regarding earnings and 71% beat revenue expectations, both of which are above normal levels. Reflecting this, June quarter earnings growth has come in around 27% on a year ago, up from expectations for 20% earnings growth in early July.

Source: Bloomberg, AMP Capital

• The trade war threat has tended to dominate, leading to fears of a hit to global (and US) growth and safe haven demand for assets like bonds (which has helped keep their yields down).

• Worries about Italy’s new populist government blowing out its budget deficit and already high level of public debt, or worse still threatening to leave the Euro resulting in bond holders taking a hit on their investment in Italian bonds, have boosted demand for German bonds depressing their yields and helped extend expectations of easier for longer European Central Bank monetary policy.

• Other geopolitical events like the crisis in Turkey have kept investors on edge for deflationary shocks. The latest worries about contagion from Turkey as its currency plunged anew are likely overdone. Yes, there will be some impact on Eurozone banks that are exposed to Turkish debt (which will keep the ECB cautious), but it’s unlikely to be economically significant. More fundamentally, Turkey is not indicative of the bulk of emerging countries. Its currency has crashed 40% or so this year because of current account and budget deficit blowouts, surging inflation, political interference in its central bank and populist economic mismanagement generally. In addition, political tensions with the US following the imprisonment of an American pastor resulting in US sanctions on Turkey including tariff hikes on steel and aluminium have made things even worse. The crisis is now being intensified by Turkish PM Erdogan’s rejection of higher interest rates and an international bailout. While Brazil, Argentina and South Africa also have particular problems, most of the rest of the emerging world is in far better shape. That said, emerging markets will remain vulnerable until the US dollar stops rising (as a rising $US boosts US dollar denominated debt servicing costs for emerging countries that have high foreign debt), the global trade threat ends and uncertainty regarding Chinese growth fades. And upwards pressure on the US dollar is likely to continue as the Fed is unlikely to stop its process of gradual rate hikes anytime soon.

Source: IMF, AMP Capital

• Finally, while growth in the US has accelerated this year, in other major countries it looks to have slowed. So, while there was talk of the Bank of Japan, the European Central Bank and even the Reserve Bank of Australia following the US into tightening this has been pushed out further. Similarly, some signs of a softening in growth in China and the tariff threat have seen the PBOC (China’s central bank) move towards monetary easing.

Implications – another extension to the cycle?

These considerations have combined to help fade the inflation/Fed tightening fears of earlier this year with the result that bond yields have been contained and most share markets have been able to recover from their February inflation-scare lows. In some ways it’s more of the same because the whole post global financial crisis (GFC) experience has been one of two or three steps forward towards stronger global growth followed by one or two steps back (with eg the Eurozone debt crisis, the 2015 growth scare and various deflation fears along the way). What we have seen this year is effectively a continuation of that.

By delaying or slowing monetary tightening this has all helped extend the economic and investment cycle. The implications have been:

• A continuation of low returns from cash and low bank deposit rates.

• Yield-sensitive share market listed investments like real estate investment trusts have been able to rebound.

• Unlisted assets like infrastructure and commercial property have continued to benefit from a search for yield by investors.

With global monetary conditions remaining easy and US recession warning indicators still not flashing red (although the yield curve is worth keeping an eye on) our assessment remains that the investment cycle has more upside and that a US recession remains a way off yet. However, the main risks around this relate to the threat of a global trade war should the tariff threat from the US continue to escalate.

But should we still worry about inflation?

However, while the investment cycle has been extended it would be wrong for investors to dismiss the inflation threat – particularly in relation to the US:

• First, while it has taken a long time to get there resulting in numerous deflation scares along the way, spare capacity in the US economy has been mostly used up.

• Second, numerous indicators point to a very tight labour market in the US – with more vacancies than there are unemployed, very high hiring and quits rates, companies nominating finding suitable labour as a bigger problem than weak demand – suggesting that sooner or later wages growth will start to pick up more significantly.

• Third, inflation is well known to be a lagging indicator and it often appears as a problem after the pace of economic growth has peaked.

• Finally, from a longer-term perspective there is a risk that the lessons of the break out in inflation from the late 1960s into the 1970s are being forgotten and that populist politicians will seek to weaken the institution of an independent central bank targeting low inflation. President Trump’s tweets critical of the Fed raising interest rates are concerning in this regard. 

As a result, we remain of the view that (absent a full-blown global trade war) the drip feed of Fed rates hikes will continue well into next year, that the 35 year bull market in bonds that began in the early 1980s is over and that the risks to US and by implication global bond yields into next year are still on the upside. This suggests investors need to be a little more wary of yield-sensitive globally-exposed investments that don’t offer inflation protection (like inflation-linked bonds do and the potential for rising rents do in the case of commercial property and infrastructure) than was the case a few years ago when there was still plenty of spare capacity in the US. Ongoing Fed rate hikes also point to ongoing upwards pressure on the US dollar which in turn suggests that investors should remain cautious in relation to emerging market shares.

The upside risks for bond yields is less in Australia given much higher unemployment and underemployment and that the RBA is likely to remain well behind the US in raising interest rates. With the Fed hiking and the RBA holding, this is all consistent with ongoing downwards pressure on the Australian dollar which we still see falling to around $US0.70, having recently broken below $US0.73.

Source: AMP Capital 14 August 2018

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

By Laurentine Ten Bosch, Food Matters

We live in a world of plastic. Plastic cups, bottles, plates, packaging – our plastic society is putting the world’s ecosystem at risk, but there are some simple steps we can take to change our wasteful habits. 

We wrote an article late last year “Are you still using plastic bags?”, and thankfully, many supermarket chains across the world have banned single use plastic bags.  Even just recently in Queensland, Australia.  This change is a massive step in the right direction for the health of our environment.

Although the popularity of single-use plastic bags is slowly declining, plastic bags and plastic packaging are still being used to package fresh, frozen, and dry foods. One problem has been solved but there’s more to go. Unnecessary plastic is making its way into our homes, and often through the kitchen. So, we’ve looked at a number of ways to reduce, reuse, and recycle in the kitchen.

What does our waste look like? 

Australia alone produces almost 3 million tons of plastic per year and of that, up to130,000 tons will end up in the ocean. That’s an incredible amount for a population that is just short of 25 million. 

The Clean Water Action organisation explains that food containers and packaging are the largest component of the municipal solid waste stream at 80 million tons or 31.7%, and together with plastic bags, represent the largest component of marine debris.

But why should we care?

There are many detrimental effects caused by plastic in our environment:

• Marine plastic pollution has impacted at least 267 species worldwide, including 86% of all sea turtle species, 44% of all seabird species, and 43% of all marine mammal species through ingestion, starvation, suffocation, infection, drowning, and entanglement.  As our sea creatures consume this plastic waste, this means, with people consuming an average seafood diet, they are likely to ingest an approximate 11,000 pieces of plastic per year.

• On land, plastic littler can block drains, trap birds, and kill livestock. It can cause blockages in the stormwater system, leading to flooding, costing councils thousands to repair.It has been estimated that it costs governments, businesses, and community groups over $4 million a year to clean up littered plastic.

• Even the process of creating plastic causes problems – crude materials such as gas, oil, and coal are used to produce plastic, emitting dangerous greenhouse gases that can have numerous adverse reactions.   

What can we do to help?

Start with the kitchen, as this is the biggest source of plastic in most homes. Look at ways you can reduce the amount of plastic that comes into your kitchen and swap current plastic-based habits with more sustainable options. You may also find during this process that you reduce your food wastage as well!  

Changing our wasteful habits can be as easy as these 9 steps:

1. Beeswax wraps

2. Glass and metal storage containers

Forget the plastic tupperware, get yourself some reusable jars and containers. You can even save your jars from other foods to reuse. Many natural food stores will allow you to bring your own jars to refill on the staples like coconut oil, peanut butter, and your dry goods. You can also use them when you get a take-away meal, avoiding the wasteful packaging that is typically provided. These containers are fine for the pantry, fridge, and freezer – just check your liquid quantities when freezing and allow for expansion…  you don’t want bone broth exploding throughout your freezer!

3. Keep Cups!

Grabbing a bottle of water from your local convenience store or a take-away coffee from your favorite barista may seem harmless, however, these single use products are key ingredients in the pollution problem. An alternative way to combat this, without forgoing your caffeine fix, is by using a keep cup or reusable water bottle! And to keep your juices fresh, try our Food Matter Juice Jar – the perfect way to enjoy your Superfoods, smoothie, or fresh green juice on the go!

4. Compost

Take note green thumbs! A great way to avoid food waste and plastic bin bag waste is to build an at-home compost bin. Food scraps and yard waste currently make up 30% of what we throw away and can be used to create nutrient-rich fertiliser instead. The best part is, building your own compost is easy and great for your garden! 

5.  Reusable bags

With the recent ban on single use plastic bags in many locations, you’re going to need to make an investment in some reusable bags. TIP: keep them in your car so you’re never without! The NEW Food Matters big brown jute is the perfect plastic bag alternative for the farmers’ markets, beach, or day-to-day bag. Made with 100% natural jute materials, we have crafted our bags to be both beautiful and made with as minimal toxic load as possible.

6. Buying in bulk

Buying in bulk can help reduce your plastic consumption whilst helping out your wallet as well. Think about buying long-life items in bulk (brown rice and quinoa we’re looking at you!) and cut out the amount of times you go to the grocery store – the rest is history.  Check out our favorite online whole food suppliers, here.

7. Shop at farmers markets

Generally, when you shop at a farmers market, you avoid all the unnecessary plastic packaging that you see in chain supermarkets, plus, the quality and freshness of the produce is incomparable. You can simply use your reusable bags or cardboard boxes to carry your haul of fresh produce and other goodies.

8. Make more meals from scratch

You can dramatically reduce the amount of plastic entering your home by meal prepping at the start of the week and making meals from scratch. Use individual ingredients from markets and health food stores, collected in your reusable storage items (jars, cloth bags etc). Think about how much packaging goes into a store-bought salad with dressing, compared to a home-made version with fresh ingredients from the market! Yes, this takes planning, but make it a fun weekend outing to the market and then throw on your favorite tunes as you spend a Sunday afternoon preparing your meals for the week. It makes your week easier too!

9. Mindful party planning

Avoid a plastic overload at your next event by excluding plastic plates, cups, and cutlery. Try serving finger food so you don’t need these plastic accessories, or if utensils are a must, look out for bamboo alternatives.  

Following these tips, you will be amazed at just how little you need to take out to the curb come next ‘trash day’

Author  LAURENTINE TEN BOSCH 

Source : Foodmatters July 2018 

By Laurentine Ten Bosch, Food Matters

Aging is an inevitable process that happens gradually over time. Though this often begins as an external process, as we mature we begin to notice internal changes as well. How fast we age, however, is a variable that is strongly influenced by belief, lifestyle, diet and nutritional supplements.

Accelerated aging is often the result of nutritional deficiencies, excessive stress and poor lifestyle choices. We’re exposed to free radicals (or oxidative stress) from both internal and external toxins on a daily basis, and this takes a toll on the body over the years, eventually beginning to wear away at external and internal cellular processes. Lack of circulation is also a contributing factor to premature aging, as movement has a rejuvenating effect on the entire body. Daily exercise is imperative for clearing stagnation from the body and for moving qi.

Our concept of aging and beliefs about the process also affect whether we age prematurely or not. Women who believe they are forever young tend to always look vibrant and radiant. Attitude is incredibly important, and being young at heart often translates into youthfulness in all areas of our lives, from the amount of joy and fun we experience daily, to how fulfilling our sex lives are, to the number of wrinkles on our faces. Instead of stressing about the inevitable process of getting older, focus on the benefits of age, such as increased resilience, security, good relationships and a strong sense of self. 

The Anti-Aging Lifestyle – 9 Tips To Live By! 

The endocrine system regulates all body systems and helps to balance hormones. Our organs and cells use hormones as messengers to communicate with the rest of the body. A balanced endocrine system supports synergy and internal harmony.

The following glands produce hormones, which work to regulate everything from our metabolism to our digestion. These systems are directed by our circadian rhythm, which is maintained by the nightly production of melatonin, making sleep an essential element for anti-aging.

• The pineal gland (supports circadian rhythm)

• The thyroid (regulates metabolism)

• The pancreas (aids in digestion and blood sugar regulation)

• The ovaries and testes (produce sex hormones: estrogen, progesterone and testosterone)

• The adrenal glands (produce cortisol to maintain homeostasis through emotional and physiological stress)

The following lifestyle recommendations support endocrine balance and restoration and serve as preventative measures for maintaining that youthful glow.

1. SLEEP

Sleep is vital for recuperating and rebuilding and repairing the body. Every bit of our being benefits from regular, restorative sleep. Setting a routine that includes seven to nine hours of sleep nightly and getting to bed before midnight are critical steps for restoring harmony.

2. DOWNTIME/MEDITATION 

Downtime and meditation is incredibly revitalizing and restorative. Be still or take a walk in nature, listen to soft music and unplug for at least a short time every day. Disconnecting is absolutely essential for our happiness and well-being. Take time away from technology as often as possible. Capture every moment with your heart and mind and allow yourself to sink into the moments. This unplugged time may be one of the best ways to reset our nervous systems and to support endocrine harmony.

3. DRINK WATER! 

Every cell, tissue, and organ in the body needs water to work efficiently. Without enough water, poor health is quickly on the horizon. There are a number of functions that water performs for the body: regulating body temperature, transporting nutrients and electrical signals to cells, lubricating the joints and flushing out toxins and waste. A mere five percent drop in the body’s water levels can cause a 30% loss of energy. Aim for half your body weight in ounces of water daily (so a 140-pound woman should consume 70 ounces of water every day), and drink filtered or spring water that is free of chlorine, fluoride and aluminum, as these are neurotoxins that have detrimental effects on the brain and overall health.

4. REGULAR EXERCISE 

Exercise is an integral part of preventing premature aging, as it stimulates lymphatic drainage, tones the muscles, eases stress, stimulates internal organs, relieves depression, promotes sleep, reduces cholesterol and facilitates clear thinking. It also releases endorphins, which will naturally lift your mood. Moderate exercise three to four times a week, to start, is ideal. Regular movement is the single most important thing you can do to support your longevity.

5. LYMPHATIC DRAINAGE MASSAGE 

Massage is a great way to support the lymphatic system, on top of regular exercise. The lymphatic system is spread throughout the whole body and is responsible for filtering and removing toxins using a network of fluid-filled nodes, glands and organs. When this system is not functioning at its optimal potential, toxins can get trapped and deposited throughout the body. Lymphatic drainage massage is a gentle massage along the lymphatic system pathways that helps to release any blockages and get the system flowing. Because of the sensitivity of this system, it’s recommended to go to a professional for this sort of treatment.

6. EXERCISE THE BRAIN 

Exercise the brain to keep the neurons firing and to strengthen brain function. Do activities that are mentally challenging, such as puzzles, crosswords and learning new things. You can also keep your mind active through reading, writing and engaging in interesting discussions and debates. Other ways to support brain health and to strengthen neural pathways are to adopt brain plasticity exercises, such as switching from the dominant hand you use for everyday activities (so for example, using your non-dominant hand to brush your teeth, dial the phone or write a grocery list), performing multiple sensory activities (essentially doing two things at once that engage the senses, such as watching a sunset while doing a craft with your hands, or listening to music and smelling flowers simultaneously) and changing up regular routines (for example, taking a new route on a daily commute or jog, or using new machines at the gym). New experiences and difficult mental activities challenge your brain to adapt, which keeps it strong – it essentially exercises your brain!

7. MANAGING STRESS LEVELS 

Managing stress is crucial for slowing the aging process. Stress causes a consistent rise in cortisol from the adrenals, and when cortisol levels are chronically high, they can rob the body of nutrients that are essential for healthy glowing skin. Chronic stress alters neurotransmitter production (affecting your emotions) and depletes the nutrients needed to balance hormones. Stress also increases silent inflammation and can contribute to intestinal permeability – enhancing the aging affect. To keep stress levels low, allow yourself to have alone time every day to meditate, exercise or relax doing something you enjoy.

8. REDUCE BLUE LIGHT EXPOSURE

High-energy visible (HEG) light, also known as blue light, is emitted by our computers, cell phones and other technological devices. This type of light generates free radicals, causing collagen and elastin in our bodies to weaken and die, which increases the signs of aging. Using screens at night before bed also disrupts our circadian rhythms, which has a negative impact on sleep. Cellular repair is most significant at night, and we need quality sleep to support the skin’s regeneration processes. Avoid excessive screen time and make sure to switch off all screens at least an hour before going to bed.

9. SOCIAL CONNECTION 

Social connection is key to healthy aging. Strong relationships offer the experience of feeling supported, which assists in an overall sense of being loved, esteemed and cared for. Plan daily and weekly activities with friends and family members, take classes and make efforts to talk to new people.

Source : Foodmatters July 2018

Author: Laurentine Ten Bosch, Food Matters

Reproduced with the permission of the Food Matters team. This article by The chalkboard mag was originally published at www.foodmatters.com/article/9-anti-aging-tips-to-start-living-by

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How do you go about choosing a restaurant, a new car or, or a dishwasher? Chances are you begin by looking online at consumer ratings and asking friends for their opinions.

Understandably, we look for shortcuts when making decisions and a common shortcut is to assume that past performance will continue in the future.

Certainly, it makes sense when buying a new vacuum cleaner to place weight on rankings for past reliability and the past experiences of other consumers.

Because the decision-making shortcut of relying heavily on past performance works well in most areas of our everyday lives, it is understandable that many investors would apply the same shortcut to buying and selling investments.

A Vanguard research paper, Reframing investor choices: Right mindset, wrong market, emphasises that the decision-making shortcut of relying too much on past performance “often falls short when it comes to making investment decisions”.

While past performance can have some predictive value with non-financial decisions, the link between past and future investment performance is “tenuous at best”, the paper emphasises.

To highlight the trap of relying on past performance when making investment decisions, other updated Vanguard research looks at performance of actively-managed Australian share funds over two consecutive five-year periods.

The majority of once top-performing funds for the first five years (ending December 2012) did not remain in the first quintile for the second five years (ending December 2017). However, if past performance was a reliable guide to future performance, most of the once first quintile funds could be expected to remain top performers.

Flows of capital in and out of investments suggest that a high proportion of investment cash flow is driven by past performance. “Momentum investors”, as they have been called, buy investments when prices are rising and sell when prices are falling. In other words, they are driven by past performance.

Further, the top-performing asset classes often do not remain the top performers in the next year.

How can you try to avoid basing your investment decisions on past performance?

“First and foremost, one must recognise and understand that the decision process that serves well in most areas of decision-making does not work in investing,” Vanguard’s paper on reframing investment decisions comments.

It suggests that investors shift their focus from past performance by relying on a straightforward, four-part decision-making process.

These steps are: develop a long-term financial plan to reach clear and appropriate goals, create a broadly-diversified portfolio across asset classes, minimise investment costs and periodically rebalance your portfolio.

Rebalancing a portfolio keeps it in line with its strategic asset allocation and is a disciplined way to respond to changing market prices.

Investors often assume that an investment that has outperformed in the recent past will continue to do well. And they often assume that an investment that has underperformed in the recent past will continue to underperform. Both assumptions are unreliable.

Please contact us on |PHONE| for further assistance .

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.

Source : Vanguard August 2018  

How do you go about choosing a restaurant, a new car or, or a dishwasher? Chances are you begin by looking online at consumer ratings and asking friends for their opinions.

Understandably, we look for shortcuts when making decisions and a common shortcut is to assume that past performance will continue in the future.

Certainly, it makes sense when buying a new vacuum cleaner to place weight on rankings for past reliability and the past experiences of other consumers.

Because the decision-making shortcut of relying heavily on past performance works well in most areas of our everyday lives, it is understandable that many investors would apply the same shortcut to buying and selling investments.

A Vanguard research paper, Reframing investor choices: Right mindset, wrong market, emphasises that the decision-making shortcut of relying too much on past performance “often falls short when it comes to making investment decisions”.

While past performance can have some predictive value with non-financial decisions, the link between past and future investment performance is “tenuous at best”, the paper emphasises.

To highlight the trap of relying on past performance when making investment decisions, other updated Vanguard research looks at performance of actively-managed Australian share funds over two consecutive five-year periods.

The majority of once top-performing funds for the first five years (ending December 2012) did not remain in the first quintile for the second five years (ending December 2017). However, if past performance was a reliable guide to future performance, most of the once first quintile funds could be expected to remain top performers.

Flows of capital in and out of investments suggest that a high proportion of investment cash flow is driven by past performance. “Momentum investors”, as they have been called, buy investments when prices are rising and sell when prices are falling. In other words, they are driven by past performance.

Further, the top-performing asset classes often do not remain the top performers in the next year.

How can you try to avoid basing your investment decisions on past performance?

“First and foremost, one must recognise and understand that the decision process that serves well in most areas of decision-making does not work in investing,” Vanguard’s paper on reframing investment decisions comments.

It suggests that investors shift their focus from past performance by relying on a straightforward, four-part decision-making process.

These steps are: develop a long-term financial plan to reach clear and appropriate goals, create a broadly-diversified portfolio across asset classes, minimise investment costs and periodically rebalance your portfolio.

Rebalancing a portfolio keeps it in line with its strategic asset allocation and is a disciplined way to respond to changing market prices.

Investors often assume that an investment that has outperformed in the recent past will continue to do well. And they often assume that an investment that has underperformed in the recent past will continue to underperform. Both assumptions are unreliable.

Please contact us on |PHONE| for further assistance .

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.

Source : Vanguard August 2018