PORTFOLIO POINT: A remarkably well-timed coming together of top-speakers at Eureka Congress pointed many investors towards a new attitude in portfolio construction.
It’s not often that former Prime Minister Paul Keating addresses an investment conference aimed at private investors, but that’s exactly the role he played at last week’s Eureka Congress – the first time we have ever ventured into the conference arena '¦ but not the last.
If you missed the conferences in Melbourne (Thursday June 21) and in Sydney (Saturday June 23) we thought we’d offer you a report on some of the highlights.
Paul Keating led the day with a keynote address, which warned that Greece is most likely to leave the EU. Remarkably, Keating made his comments before the news broke on Monday that the two top politicians in the new Greek parliament have fallen ill and, moreover, that the new PM Antonis Samaris appears to be backtracking on recent commitments.
Samaris wants “substantial changes” on the reform program the country has just agreed to in exchange for its $US163 billion bailout. No wonder the markets are nervous. But Eureka investors and attendees were not so much nervous as cautious as they continue the search for solid income and convincing growth prospects in a market where returns across the board are expected to be lower, and inflation constantly looms as the problem which could be the next big hurdle.
In a wide ranging address, Paul Keating told Eureka subscribers:
- Spain, Portugal and Greece have a currency that is too valuable '¦ it’s called the euro. The way forward is for Europe to now 'communitise the debt’, with Germany and France leading the way in bringing down bond yields from the dangerously high levels of up to 7% we have seen of late.
- As for the US, if bond yields in the US recover – and lift off their record low levels – then the US itself faces trouble.
- In Australia, Keating believes the lifting of the Superannuation Guarantee from 9% to 12% is imperative and we should ultimately go to 15% to achieve the best system in the world.
- In a fundamentally encouraging assessment for long-term stockmarket investors, Keating said all the people who made great wealth in the past made it in the stockmarket and the equity markets will eventually recover, but there are enormous problems in Europe to fix first.
- Crucially, Keating also said that the only way out of the levels of debt in global markets is inflation. “Inflation is coming”, he suggested, adding that US Federal Reserve Ben Bernanke should actually be targeting a higher rate of inflation this year.
Later in the morning, TV journalist George Negus chaired an investment outlook session with Eureka Report publisher Alan Kohler and former fund managers Peter Morgan (ex Perpetual) and Laurence Freedman (ex Equitilink).
Alan Kohler expressed fears for commodity prices and a knock-on effect on Australian mining stock prices. Alan was also sceptical the government could achieve a federal budget surplus.
Peter Morgan told the audience not to underestimate their own ability to beat professional fund managers. He also said that when equity markets eventually “bounce” they will bounce hard with a lift of more than 10%.
Laurence Freedman suggested two significant changes were under way in the US markets, with 50% of US homes now cheaper to buy than rent, pointing to a housing recover. He also believed the cashed-up US corporates could be ready to go on a “merger and acquisition” spree.
The afternoon session of the Congress was devoted to 'masterclass sessions’, where well-known Eureka Report contributors offered smaller sessions on selected investment topics: our speakers included value investor John Abernethy, HSBC economist Paul Bloxham, superannuation expert Bruce Brammall, small cap investor Robert Frost, chartist Regina Meani, fixed income specialist Elizabeth Moran, tax specialist Max Newnham, portfolio construction expert Doug Turek, and property expert Monique Sasson Wakelin.
Among the most popular sessions were Doug Turek’s portfolio construction and John Abernethy’s guide to finding value investments in the market.
John Abernethy – Told investors it was the most difficult time for finding value in the market he has witnessed in thirty years: He warned it is erroneous to compare PEs of apparently similar companies such as Wesfarmers and Woolworths, while he remains a fervent support of companies that pay franked dividends.
Doug Turek – Offered investors an insight into the excess concentration in the ASX towards banks and miners with a presentation of 'heat mapping’ on the local market. He also encouraged investors to take the tough decisions to sell high and buy low by regularly rebalancing their portfolios.
- James Kirby is managing editor of Eureka Report.