Given the RBA has initiated the follwing measures:
1) Reduction of cash rate to 0.25%. This rate in not expected to move for an extended period of time, given unemployment is likely take years to recover.
2) RBA purchases of Govt. backed securities to acjieve a medium term bond yield of 0.25%
3) RBA provided funding to banks at 0.25% to support credit to small / medium sized businesses to a value of up to $90 Billion.
So, given there are virtually no returns to be had in govt back bonds, what will this do to stock asset valuations? Will money be chasing 4-5% returns in the sharemarket in the medium term? Should DCF's be discounted to 4-5% rather than 10%? Interested to hear opinions on asset valuations going forward,
I thought it would be timely to re-visit this discussion, also in conjunction with the forum post "what are your favourite ETFs", recently posted by @Hackofalltrades
There was a great article in Firstlinks by James Gruber this week:
https://www.firstlinks.com.au/asset-classes-bargain-now
I particularly likes this graph here:
A word of caution, read the fine print underneath the graph as not all yields are created equal
And this one here:
The returns on US ETFs that track the Nasdaq and the index more broadly have delivered fantastic returns over the last 10-15 years, but are now looking very pricey.
I have started shifting funds to a more ex-USA basis on the assumption that returns are unlikely to be as good over the next 10 years.
That is obviously, not without risk given the dynamic nature of the US tech scene and the historical outperformance of the S&P500 and NDQ over their global peers. This assumption also runs the risk of wrong by virtue of the forum post by @Solvetheriddle regarding a structural shift to higher growth equity prices, though I think value investors are about to have their day in the sun.
As previously posted, I have held IJP (Japan) and currently hold F100 (FTSE) as it is looking pretty cheap, but both at relatively small %ages of portfolio.
I have 30% of my super in a World MSCI tracker, but will look to shift some to VGE (Emerging markets) and VEU (world ex-USA) given 70% of the World MSCI is made up by the US.
I hold two other thematics. One of which is HACK (cybersecurity). (4% of portfolio)
The other is ASIA (asian technology stocks) which is a lazy way to get semiconductor exposure and also I don't mind having a contrarian exposure on the Chinese tech companies. They are insanely cheap, but obviously come with Geopolitical and country specific political risk. (2% of portfolio, probably going to be doubled in the near future)
I would love to buy individual companies along these themes but its just too complicated and had work, and as much as I enjoy researching investments and companies, there is only so much one can keep current and informed on. So I am paying a MER of 0.67% for the privilege.