Many retirees with investments in the sharemarket will have seen the recent momentum-driven obsession and hysteria with companies like Afterpay, whose share price has gone from $20 to $100 in the space of six months, despite the fact that the company has yet to make a profit. Afterpay’s market-cap has now surpassed some of Australia’s most successful global companies, such as Amcor, Brambles, and Orica. So what’s going on, and what are the implications for retirees?

Sharemarkets around the world, including Australia’s, have experienced very strong rallies since their March lows thanks in the main to interest rates being cut to record lows and large quantitative easing from central banks. It can be argued that this flood of cheap money has led many speculative-type growth stocks to trade well above their fundamental value, led by the NASDAQ in the US.

Consumer patterns changed markedly through the COVID-19 virus lockdowns, as consumers stayed at home and as volumes in many areas facilitated by the internet have all boomed such as online shopping, social media, online conferencing, online gambling, and streaming services such as Netflix and Stan here in Australia. This has led to a significant rise in almost any stock that is technology-related.

This phenomenon has driven the divergence between value and growth stocks to expand to levels which have now surpassed the ‘tech boom’ of 1999-2000, as Chart 1 below shows. With this momentum currently in full swing, many investors appear less concerned about the underlying fundamentals or valuations of many companies, and are instead focusing on anything with blue sky potential, particularly in the technology sector.

Chart 1: Average Price/Earnings of ASX200 Firms by Forward P/E Quintile

Source: Goldman Sachs Report 11 August 2020; chart range 30 June 1997 – 30 June 2020

‘Buy now pay later’ (BNPL) service provider Afterpay’s focus on reinvestment means that it is not yet profitable. Despite Afterpay’s first mover advantage and early success, competition in the sector is picking up quickly, which suggests that margins will come under pressure. As Table 1 shows, the sharemarket is assigning Afterpay an extraordinary valuation compared to well-established, profitable companies like Amcor, Brambles, or Orica. Given the global scale and profitability of these businesses, Afterpay’s valuation indicates that investors are taking an enormous leap of faith in Afterpay’s ability to reach sufficient scale and profitability to justify its nearly $30 billion market valuation.

Amcor is a global leader in consumer packaging products with US$12.5 billion in sales and US$1.03 billion underlying profit after tax in FY 2020, trading on around 16.3 times 2021 earnings, which looks reasonable for a global packaging leader which generates strong cashflows by servicing defensive end markets. Brambles is a global leader in pallet pooling solutions which earnt global revenues of US$4.7 billion and made an underlying profit after tax of US$504 million from continuing operations in FY 2020, and is trading on a P/E of around 21.6 times 2021 earnings and 19.4 times FY 2022 earnings.

Orica is the global leader in explosives and innovative blasting systems to the mining, quarrying and construction industries around the world. Orica is expected to earn global revenues of $5.6 billion in FY 2020 and make an underlying profit after tax of $320 million, and is trading on attractive multiples of around 18.2 times 2021 and 14.5 times 2022 earnings.

Table 1: Afterpay, Amcor, Brambles, Orica – Key Financial Metrics

Company ASX


FY21F Revenue


FY21 F Earnings




Afterpay APT 0.9 25.0 $29.7 billion
Amcor AMC 17.3 1,540 $25.9 billion
Brambles BXB 6.8 720 $15.9 billion
Orica ORI 6.0 370 $6.7 billion

Sources: Investors Mutual, Iress, FactSet. Data as at 10 November 2020

No matter how good Afterpay’s prospects are, to have it valued at more than one of the largest packaging companies in the world as well as higher than the largest pallet and explosive companies in the world combined seems to be an optimistic way of valuing the company. We prefer to back the proven fundamentals, management track records and steadily growing profitability of companies like Amcor, Brambles and Orica than to use what looks like excessively optimistic forecasts to try and justify Afterpay’s valuation and share price.

When markets are in an exuberant phase, it requires discipline and patience to avoid what look like excessively priced stocks and sectors. Our discipline back in 1999/2000 rewarded our investors with substantial subsequent outperformance. The conditions we see in sharemarkets today seem to echo the hype of that period. Our focus remains on companies that have recurring and predictable earnings, a strong competitive advantage, that are run by experienced and capable management teams, and that are trading at a reasonable valuation. We continue to believe that retirees will gain most benefit from owning a carefully selected collection of companies with these characteristics. This has proven over multiple market cycles to be more effective in delivery of tax-effective income and capital growth than chasing the latest exciting-sounding sector or fad.


While the information contained in this article has been prepared with all reasonable care, Investors Mutual Limited (AFSL 229988) accepts no responsibility or liability for any errors, omissions or misstatements however caused. This information is not personal advice. This advice is general in nature and has been prepared without taking account of your objectives, financial situation or needs. The fact that shares in a particular company may have been mentioned should not be interpreted as a recommendation to buy, sell or hold that stock. Past performance is not a reliable indicator of future performance.

Examining some underappreciated benefits

Key Takeaways

• In order to fund liabilities, achieve retirement goals, or meet other investment objectives, many investors need the capital appreciation that equities can provide, but are concerned about downside risk.
• Despite the empirical history of low-volatility equity investing, many investors mistakenly equate low downside risk with low returns.
• By providing exposure to the potentially higher returns of the equity market, and at the same time mitigating downside risk, low-volatility investing addresses a significant obstacle to equity allocations.
• Low-volatility equity portfolios are typically constructed using historical data and can lack forward-looking estimates of risk and return, which fundamental research can provide.

Investors obligated to meet certain liabilities and investment objectives face a conundrum. While equities can provide the potential for capital appreciation that these investors need to help them meet their obligations, equities can also introduce volatility and downside risks. This combination is prompting investors to consider adding equities through an allocation to low-volatility (low-vol) equity investing— a strategy whose benefits some investors may not fully appreciate.

For many decades, investor unease with equity risk has not been addressed by investing strategies that have been more focused on following market benchmarks than managing return volatility. More recently, heightened global economic uncertainty—along with very low yields in the fixed income markets—has increased investor attention to capital preservation.

This, in turn, has highlighted the need for equity strategies that offer capital appreciation but also downside protection, to help manage equity risk via portfolio construction versus allocating to asset classes such as low-yielding bonds and/or cash equivalents.

In this paper, we demonstrate how managing portfolios that have lower volatility may enhance investment return potential, not diminish it. Moreover, its emphasis on capital preservation sets low-vol investing apart from other “smart beta” or “strategic beta” strategies that do not target downside protection.



COVID-19 has created one of the biggest drawdowns in Australian Equity earnings in history, even bigger than during the Global Great Financial Crisis. Income investors are thus understandably concerned about the impact the shutdowns and ongoing social distancing will have on the ability of Australian equities to pay dividends.

In this article we discuss our forecast of the near-term dividend outlook and examine how active managers can help investors navigate this unique moment with the objective of creating a sustainable income stream.

Throughout history, financial crises have been caused by an economic shock or a fundamental demand/supply imbalance. This crisis is different. When the pandemic hit, the global economy was in a growth cycle and share markets were performing reasonably well. Lockdowns put economies effectively into hibernation and triggered an immediate and profound market response. Although the limits on movement and restrictions on discretionary spending such as travel and entertainment are universal, the greatest financial jolt has been felt mostly by individuals who are at the beginning and at the end of their working lives. It is the young, due to the cascading impact on savings and jobs, and the elderly, due to falling investment yields that are most impacted.

With central bankers around the world committing to keep interest rates low for many years to come, this creates an issue for retirees looking for income. Traditional defensive assets such as cash and fixed income which typically form a large percentage of retiree portfolios are producing levels of income significantly below historical averages.

In Australia, the RBA is keeping the 3-year yield for government bonds at 0.25%, in what is known as yield curve control. Interest rates have been suppressed for the last decade, however what is unique about the current economic climate, is that with inflation yet to emerge and central bankers focused on generating growth and employment, their signalling to the market has moved further out. Lower for much longer!


SuperRatings Executive Director Kirby Rappell shares the latest performance results for superannuation funds and the future outlook for the industry.

Members should be prepared for more ups and downs. However, a patient approach has paid off for members over the long term with the median balanced style fund returning 7.0% per annum since the introduction of superannuation in 1992.




Any advice that SuperRatings provides is of a general nature and does not take into account an individual’s financial situation, objectives or needs. Because the information that SuperRatings receives about superannuation and pension financial products is from a number of sources, it is not guaranteed to be completely accurate. Because of this, individuals should, before acting on the information, consider its appropriateness having regard to their own financial objectives, situation and needs and if appropriate, obtain personal financial advice on the matter from a financial adviser. Before making a decision regarding any financial product, individuals should obtain and consider a copy of the relevant Product Disclosure Statement from the financial product issue.

Although the secrets of a long life remain a mystery, there are now over 300,000 centenarians across the globe and the numbers are rising. Most of us will not survive to 100 no matter how many green vegetables we eat, but there is no doubt life expectancy is increasing. In Japan, 2.5 times more adult than baby diapers are sold. Australian life expectancy from birth is among the highest in the world with the average man living to 80.7 and 84.9 for a woman. It assumes no improvement in healthcare which can increase life expectancy further.

The following lesson is one of IML’s ‘20 lessons for 20 years of quality and value investing’, which were recently published by Anton Tagliaferro and the IML investment team to mark 20 years since IML was founded.

We chose this lesson for Lonsec Retire, as it highlights the need for growth assets in retirement, particularly for early retirees who typically have investment timeframes of 20+ years.

The lesson illustrates the benefits of compounding by showing how companies that reinvest back into their businesses can reward investors with increasing dividends and appreciating share prices over the long-term. Increasing dividends is vital for retirees facing significantly lower returns from popular retirement income streams such as term deposits and traditional fixed income funds.

#6 The Power and Benefits of Compounding Over Time in Equity Portfolios

Most people are familiar with the concept of compound interest when it comes to term deposits, where one can earn interest on interest by continuing to roll over a term deposit. However, many investors do not relate the concept of compounding to their investments in the sharemarket.
Compounding occurs in the sharemarket when income from an investment is reinvested back into the business, and investors are rewarded with the benefits of increasing profits and appreciating share price growth over the long-term.
For investors in the sharemarket, there are two ways compounding can work in their favour to enhance their long-term returns.

These lessons are available both in hard copy and e-book format. For a copy of the book please register your interest here or email

**IML and Lonsec  Investment Consulting will be holding a webinar as part of Lonsec Retire Program on Wednesday, February 12th, find out more.

Real estate offers potential diversification away from traditional stocks and bonds, stable income, the possibility of capital appreciation and has historically offered inflation protection. The average Australian retiree is likely to have exposure to domestic residential real estate – through the family home, an investment property or holiday home – but these assets are likely concentrated in geography and in the residential sector. Commercial real estate can present geographic diversification to the US, Asia and Europe, and sector diversification into offices, shopping centres and industrial parks. The following article explores the investment choices for the commercial real estate asset class across the risk/return spectrum.

  • Real estate may provide investors with the potential to generate attractive long-term returns through possible asset appreciation and current income
  • Real estate also may serve as a hedge against inflation and offer diversification versus traditional stocks and bonds

Anyone who has purchased a home is a real estate investor — but there’s a big difference between taking on a mortgage and investing in office buildings, malls or industrial parks. In this blog, we explain the basics of real estate investing, the potential benefits, and the ways that individuals can add real estate exposure to their portfolio.

To find out more about this article, please contact:

Sam Sorace

Director, Wholesale Sales

Invesco Australia

Direct   +61 3 9611 3744

Mobile  +61 413 050 909

In our first paper: “Balancing the Needs, Challenges and Dilemmas of Retirement Investing”, we noted that Income generation isn’t as easy as it once was. The fact retirees require income needs no explanation.

How should we think about generating income in retirement? In August 1991 the Budget address, by then Treasurer John Kerin, proposed the introduction of compulsory superannuation in
1992. At the time a 90 Day Bank Term Deposit was paying 9.75% p.a.

Bank Term Deposits are one of the reasons Australia is the ‘lucky country’ as today these are guaranteed, or true ‘risk free’ investments. Unfortunately, while the ‘risk free’ aspect
remains attractive, the investment returns compared to 30 years ago are not.

While cash remains ‘risk free’ relying on it as your only source of income risks quality of life in retirement. Therefore, to generate sufficient income to sustain a comfortable retirement, we are forced to accept some level of investment risk. In simple terms, the more risk we accept, the higher income we should expect to generate. While acknowledging this,
acceptance of risk increases the probability that the asset base we’ve spent 40+ years working to build is at some risk of diminishing.

How Much is Enough?
The Australian Financial Security Authority “AFSA” advises that a comfortable retirement for a retiree with the ATO Median superannuation balance 5 eligible for the Government Pension needs to generate 7.6% per annum. Once upon a time, generating this level of income was achievable using “risk free” approaches. This is an exceedingly lofty ambition today with cash rates closer to 1%. As we’ve noted investing for the specific needs of retirement is incredibly complex, while much of the commentary proposes solutions that only work for those with adequate assets to be self-sufficient in retirement.

There are various proposals surrounding the use of draw-downs to supplement income generation, such as the concept of a constant draw-down policy in retirement, which we’re supportive of. However, we are concerned that their applicability is limited to only those with Asset Bases sufficiently adequate to provide for a self-funded retirement, therefore risking overlooking the
issues facing a majority of retirees.

The following commentary attempts to investigate the issues facing those with Asset Bases around the level of the ATO Median 2016-17, where the issue is more stark. For these retirees drawing down their asset base guarantees a retirement well below comfortable.

For Retirees with asset bases at or below the level of the ATO Median their Asset Base is sacrosanct.


Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.