Financial Planning Update - October 2019
11 November 2019
Markets
A relatively subdued October saw ‘the most unloved bull market ever’ grind higher, volatility continue to fall, and investors bring a little more risk back to the table. Australian inflation data came in broadly in-line with expectations (+0.5% for the September quarter), easing pressure on the RBA for another rate cut by year end. The federal reserve closed out the month with what’s now be coined a ‘hawkish cut’ and at the time of writing the market broadly expects rates to stay on hold for a while now. A ‘hawkish cut’ is a new one in market vernacular meaning a rate cut, which is supposed to be ‘dovish’ and supportive of markets, accompanied by ‘hawkish’ commentary. The commentary is designed to stop markets assuming more cuts are on the way and discounting them straight away. This speaks volumes about the degree of uncertainty in the market and the Fed’s increasingly uneasy relationship with financial markets and the cause and effect of monetary policy.
Australian equities slipped -0.4% for the month, international equities rose by +0.8%, while emerging markets climbed +2.2%. A-REITs rebounded from last month’s drop returning +1.4%, while in local currency terms G-REITs and infrastructure posted +2.0% and -0.2%, respectively. The resurgent risk appetite of investors was partly to blame for the lacklustre month of fixed interest assets, returning -0.5% domestically and -0.7% internationally. Cash returned +0.1% for the month, and gold appeared seemingly resilient given investors risk appetite for the month.
Australian 10-year yields rose from 1.0% to 1.1% during the month while their US counterparts traded in the ranges of 1.5%-1.8%. Domestically, the Morrison government remained resistant to the idea of any fiscal stimulus suggesting the RBA’s monetary intervention will need to do the heavy lifting in terms of economic growth. Conversation of our home-grown quantitative easing policies continued in the wake of this dynamic, with many speculating on the scale in which buying government bonds with newly created money can truly impact the economy.
Earnings season kicked off in the US showing the widely anticipated signs of softer consumer data, although seemingly not as bad as investors expected. At the time of writing over 85% of earnings had beaten estimates, propelling the S&P 500 above 3000 and subsequently the gauges record high.
Sentiment continued to improve after the US China trade war edged towards a ‘Phase 1’ agreement in which resolution was sought over intellectual property, agriculture and currency. Although clearly a long way from that, and nothing we haven’t heard before, this alleviated tensions and equity markets responded well; the MSCI All Country World index lifting +2.7% for the month on a total return basis.
Brexit continued to be at the forefront of the UK and EU’s agendas, but was yet again delayed from its original October 31 deadline. The UK is set for a December 12 general election in which the stakes are high for Prime Minister Boris Johnson. For markets this means a whole lot more uncertainty.
The pound rose +4.1% (against a basket of leading global currencies), UK equities fell -1.9% (FTSE 100) and UK 10-year government bond yields finished the month at 0.6%.
Portfolios
The Mulcahy Portfolios posted mixed results for the month with returns ranging from -0.3% to +0.3% across the nine active risk profiles. For the direct share models, those with a higher allocation to growth assets fared a little better, whereas for the no direct share models, the results were somewhat mixed.
Asset allocation did little to impact performance for the month. The portfolios’ overweight to Australian equities detracted slightly given the poor domestic performance we touched on above. The portfolios’ underweight to international equities was also a slight drag on performance, as did having no exposure to property & infrastructure assets. These negatives were offset by the portfolios’ slight overweight to cash and underweight to fixed interest, as cash proved defensive against falling fixed interest markets, driven by investors preference
for risk-assets for the month.
The more meaningful implications on the performance of the portfolios came from manager selection during the month. VanEck Vectors Austrian Floating Rate ETF (FLOT) outperformed its fixed interest composite benchmark, returning +0.2% for the month. The ActiveX Ardea Real Outcome Bond Fund performed similarly, returning -0.2% for the month. This slightly negative return compares well to the more extensive negative returns of the asset class, both domestically and internationally. The portfolios’ exposure to the Vanguard FTSE All World Ex-US ETF
(VEU) added value, and remains a high conviction investment thesis of an underweight to US equity markets. The Fund returned +0.6% for the month.
The Mulcahy Direct Australian Equity component returned -0.2% for the month which was a pleasing result given the -0.4% performance of the S&P/ASX 300 Index. Compared to the index the portfolios slight overweight to consumer discretionary and materials and underweight to real estate each added value. From an absolute return perspective, the highest performers were Bluescope Steel (BSL, +11.0%), Challenger (CGF, +8.0%) and Star Entertainment Group (SGR, +7.8%). At the other end of the spectrum was Newcrest (NCM, -9.9%), ANZ (ANZ, -6.2%) and Treasury Wine (TWE, -5.4%).
While negative returns are never welcome, it’s worth keeping a longer-term perspective in mind when it comes to investing. Since inception, the Mulcahy Portfolios have continued to outperform their respective objectives. While lower yield and higher volatility environments may increase difficulty in achieving these objectives, we remain confident in the fact the portfolios are positioned to perform in line - subject to the usual ups and downs of equity markets.
Latest News
Starting From Scratch - Week 3: Behavioural Finance Watch the video on this page or listen to the podcast on our website, on Spotify or on Apple Podcasts. Listen to the full episode on the FS360 podcast . In the first two weeks of this series we covered the technical side of investing: the different ways to invest (direct shares, ETFs and managed funds), then risk versus return and the main asset classes. This week is about the human side. Even with the right knowledge and a well-built portfolio, the thing that most often derails investors isn't a lack of information. It's emotion. That's what behavioural finance is about: understanding the psychological influences behind our decisions to buy, sell or sit still. And one of the biggest things a financial planner can do for a client is simply keep them in check when emotions start to drive their money decisions. So, what is a bias? A bias is a mental shortcut. It feels logical in the moment, but over time it can lead to poor decisions. Traditional investment theory assumes we're all perfectly rational. We're not. Even the share market itself can be an irrational place. Take a large company that reports earnings slightly below expectations. The share price can fall several percent on the day, even though the underlying value of the business hasn't really changed. Plenty of investors sell on emotion rather than on the numbers. Here are the biases that matter most for people just starting out. Loss aversion: why a 10% fall hurts more than a 10% gain feels good Most of us feel losses more strongly than gains of the same size. It traces back to our fight-or-flight wiring: our first instinct is to avoid danger, and only then to chase reward. In investing, that often shows up as selling during a downturn just to stop the discomfort. We've seen it through the dot-com crash, the GFC, COVID and more recent geopolitical shocks. The trouble is that selling can lock in the loss, and it often leads to risk aversion as well. Having been burnt once, people become reluctant to go near growth assets again. Over 30 years, the gap between someone who stays invested and someone who keeps stepping out of the market is stark. Every time you sell and re-enter, you interrupt the compounding that does the heavy lifting. Recency bias: assuming the recent past will continue This one comes up all the time, and it can apply to nearly anything. Over the past 20 years, the top-performing asset class has very rarely been the same two years running. Last year's winner is not a forecast. The fix is simple, if not always easy: zoom out. You're probably investing for decades, so look at a longer sample than the last year or two. Confirmation bias: finding the evidence we like Almost everyone is guilty of this one if they're honest. Once we've decided something is a good idea, we go looking for reasons to back ourselves up and quietly ignore anything that suggests otherwise. A good antidote is to throw rocks at your idea. Write a list of reasons why you shouldn't do it. If the idea still stands up, that's a good sign. If it crumbles, you've just avoided an expensive mistake. Overconfidence: when an easy win goes to our head Recency bias, confirmation bias and overconfidence are really two pages of the same book. An easy win (a property that rose in value, a share that took off) makes us feel skilled when the market may have done most of the work. We then repeat the approach, seek out information that supports it, and take on more risk than we should. The flip side matters too. Someone who's been burnt before can lose all confidence, and doing nothing can be just as risky as doing too much. Herd mentality and FOMO "Everyone's doing it. Everyone seems to be making money. I'd better jump in before I miss out." That's herd mentality feeding fear of missing out, and social media has turned the volume up. Afterpay and Bitcoin are good examples. Both delivered extraordinary growth for a time, and plenty of people jumped in simply because they were so popular. But the herd doesn't know your goals or your timeframe, and by the time something is everywhere in the news, the best of the growth may already be behind it. Blindly trusting what others are doing, without doing your own research, is arguably one of the riskiest things you can do. Biases aren't always the enemy One of the most useful things to understand is that these biases aren't always bad. Take someone with $80,000 sitting in the bank for a house deposit. Their loss aversion is working in their favour, because a 10% fall in a growth asset could leave them short at settlement. For money you'll need in a year or two, the bank account may be exactly the right place for it. This ties back to Week 2. The same person might hold a superannuation balance invested for growth over decades, while their house deposit sits in cash. Different timeframes call for different strategies. Which is why the most important question isn't what to invest in. It's what you're investing for. How to keep your biases in check There's no way to switch your biases off. We're all human. But you can limit the damage. Build awareness. If you don't know these biases exist, it's hard to do anything about them. Learning to recognise them is step one, ideally before you start investing. Understand the why. Knowing which bias is at play helps you pause before acting. Challenge your own idea. Write the "why shouldn't I?" list. Throw the rocks. Match the money to the goal. Be clear on your timeframe before you invest a dollar. Put some systems in place. Research, automate your investing and diversify so no single call can do too much damage. Get an independent sounding board. Someone with no emotional skin in the game will naturally play devil's advocate better than you can. The last piece of advice: get a second opinion. Even a third or a fourth. Why this matters when you're starting out When your balance is $30,000 or $40,000, a few poor decisions might not feel like a big deal. But over 30 years, the difference between a good call and a bad one is huge. One way to make it tangible: the right decisions at 30 could be the difference between flying business class and flying economy in retirement. Jargon buster Behavioural finance: the study of how psychology and emotions influence financial decisions. Bias: a mental shortcut that feels logical but can lead to poor decisions. Loss aversion: feeling losses more strongly than equivalent gains. Risk aversion: avoiding risk, even when some risk is needed to meet your goals. Recency bias: giving too much weight to recent events. Confirmation bias: seeking information that supports what you already believe. Overconfidence bias: believing your knowledge or ability is greater than it really is. Herd mentality: following the crowd rather than making an independent decision. FOMO: fear of missing out. Homework for the week Write down one or two biases you think you show. They don't have to be about money. Next week What does it actually cost to invest? Brokerage, platform administration fees, investment costs and super fees, and how to compare a platform with a broker account. ------- Mentioned in the episode is Danny Archer's previous episodes on Behavioural Finance - these can be listened to on Apple, Spotify or here on our website - they are Episodes 58 and 61 of the FS360 Podcast by M Group. This article contains general information only and does not take into account your personal objectives, financial situation or needs. Speak to a licensed financial adviser before making any investment decisions.
Investing Starting From Scratch: Our Financial Planners talk about investing in an informative Podcast format. Watch on video on our website and YouTube channel.
Investing Starting From Scratch: Our Financial Planners talk about investing in an informative Podcast format. Watch on video on our website and YouTube channel.
This seminar was held in the M Group Sunshine Coast office on October 1st 2026. We welcomed clients into the room and now here on YouTube to listen to Financial Planners Kym Vivien and Jack Toohey speak, along with Accounting Director Jodie Thompson and our special guest Jonathon Tolub from our Share Market research partner Investsense. ----------------- Trends Shaping Your Wealth + Federal Budget Key Insights. We will be joined by InvestSense, M Group’s dedicated investment research partner, who provide independent research and insights into investment markets and assist with the construction and management of client portfolios. Our seminars aim to be informative and insightful for our valued clients. You can watch the entire seminar here:
