The trend is not your friend

Stick with Aussie equities if you want to pay for more than funeral expenses

BlueChip Communication recently held its inaugural ‘Asset Wars’ event, at which a panel of five financial services clients put the case for ‘their’ asset class before a group of media and industry peers, who voted for the ‘winner’ via the audience-fired ‘clapometer’. Here we give you a summary of the case for Aussie equities.

Tim Samway, Managing Director of Hyperion Asset Management, launched the first salvo without hesitation.

Ignoring prior warnings not to fire indiscriminately on the other asset classes, he declared the US and Europe basket cases, foresaw future capital losses from fixed interest and predicted starvation for those who choose to invest in cash.

Announcing that returns from cash wouldn’t even put food on the table, he said that without Aussie equities the chance of a comfortable retirement was ‘Buckley’s and none’.

Sweeping statements out of the way, Mr Samway was able to immediately re-focus on the task at hand and provide more than just rhetoric to back up his claims.

He moved quickly to give three coherent reasons to invest in Australian equities.

1. Growth in dividends. Dividends have grown 2% in real terms, after inflation. No other asset class has come close.
2. Dividend imputation and tax effective income. The current yield on Australian equities is 6%, before taking capital growth into account. The tax system in Australia is heavily slanted in favour of equities.
3. Quality equities outperform the rest of the market. Hyperion chooses only quality equities and these give a 5% earnings per share growth margin over the rest of the market.

Mr Samway said that many of the equities in the benchmark were ‘rubbish’ and undeserving of investment, but quality equities such as those chosen by Hyperion have produced around 10% per annum earnings growth with the expectation of the same or better in the future.

He then gave a quick maths lesson, driving his point home by explaining that 10% earnings growth for just over 7 years will double an investor’s asset base.

In conclusion, Mr Samway was unable to resist a finishing flourish, embroidering his culinary theme by asking investors whether they wanted to spend their golden years having dinner at Rockpool or fishing for their dinner in a rock pool.

“I don’t like fishing,” he said “so I allocate 100% of my investment portfolio to Aussie equities,” he said.

“But I do understand that some investors may be uncomfortable with 100%, in which case I recommend a conservative allocation of 90%.”

Tim Samway is Managing Director of Hyperion Asset Management. Hyperion is an Aussie equities specialist that aims to deliver long term outperformance through application of its bottom-up, fundamentals-focused investment philosophy.