Above: Economist 27th October 2018

In the well written lead article in this edition it explains why the editors of this prestigious magazine think Australia has been (and in our view will continue to be) the best place to live work and invest.

Helm, as you know, has chosen to invest most of your money here in Australia. Markets move up and down. Because they are down at the moment, it’s the time to buy or hold, not to sell!

Silver Lining for Centrelink Pensioners: If you are ‘part’ age pensioner (not getting the maximum pension) now is a good time to update Centrelink on the value of your share/pension accounts!  Temporary lower asset values will result in higher fortnightly pension payments which you keep even if values go back up again!   An update can be done quite efficiently via your “MyGov” portal or by calling them on the phone. Please talk to us if you need a hand with this.

Residential Property More Affordable: Property prices across the country have been in the news a lot lately. The positive side of falling prices is that housing becomes more affordable.  According to the latest Adelaide Bank/REIA Housing Affordability Report, the proportion of family income needed to meet average home loan repayments in the ACT in the September 2018 was 20%.

WA’s number in the same survey was ~23%, Queensland came in at ~28%, Victoria ~34%, and Sydney was the worst place to buy in Australia with nearly 37% of family income needed to cover the average home loan’s repayments!

ACT was the winner because on average wages are higher there and property prices are not outrageously high.

The Australian Dollar is low relative to its long-term average (currently buying ~ USD$0.72 cents) see Chart below. This is helping our exporters get more Aussie dollars for their goods that are priced in US$.

Above: AU$ vs US$ 20 year Chart

A rising AU$ (which in our view we may see in the future) is bad news Australians who have overseas investments but good news for overseas investors who buy Australian investments (Positive for the ASX). Conversely, A falling AU$ (that we have seen plenty of since 2012 and many think will continue) has been good news Australians who have overseas investments but bad news for overseas investors who buy Australian investments.  (Negative for the ASX).

Trends We’re Focusing on for 2019:

Emerging Markets: We’ve talked many times about how expensive US equities are in comparison with Australia and the rest of the world. This view has been supported by the big falls in the FAANG stocks in the last few months. Apple, Netflix and Amazon all seeing massive impairments to their stock prices in recent times. The Chinese/Korean equivalent stocks (Alibaba, Tencent & Samsung) are much cheaper on a P/E basis and in fact have outperformed the US versions, despite the ongoing trade tensions between USA and China. We have varied our exposure slightly in the last 12 months to take advantage of some trading opportunities but are happy with both the past performance and the future prospects for this asset class in our portfolios.

Healthcare: Helm is positive on the long term trends for Healthcare industry in this country with an aging population acting as a major driver of growth in this sector. Compounded by a likely arrival of labour government who likely to spend more in this area. Our healthcare pick Paragon Care [PGC] has been struggling with the rest of the sector in recent times but we expect their business model will quickly grow their earnings leading to significant growth in their share price.

Mining: is set to recover strongly in 2019 with commodity prices strengthening as offshore iron ore stockpiles are depleted. Longer term we think Australia is well positioned to take advantage of the global trend toward infrastructure construction and renewal and China’s ‘One Belt, One Road’ (OBOR) initiative. We are very happy that this objective has been achieved by our mining related assets [OZR] this year. We expect more to come from this area in this coming year.  One area where we have got quite a large mining exposure is SVW.  This stock came from the devolution SVWPA and has been hit very hard by the recent downturn.  We are confident this stock will turn around soon and we will be able to exit this position at a good profit.

Asset Class Commentary & Recent Performance:

Stable Interest Paying Listed Securities: MXT and NBI, two recent additions to portfolios give us a quality, easily traded, listed fixed income opportunities that pay monthly interest at the rate of 4-5% p.a. We bought these at the float at $2.00 and they have been trading at par or at a small premium since listing. These assets give much needed exposure to very reliable low risk credit securities that will diversify our portfolios and provide a liquid asset paying regular monthly income with a superior return profile to cash. May trade at a premium to NTA due to the shortage of similar securities in the listed market.

Listed Property Securities: ABP, CMA and VVR are three assets in current Helm portfolios in this category.  These provide quarterly or half yearly income of about 6 to 8 % p.a. depending on the fund and their price on the day.  Capital values have been a little volatile recently but mostly on the upside over the last few years. This allocation is designed to provide solid regular income from highly liquid securities which provide exposure to quality Australian commercial property. We are happy that this objective has been achieved by these assets over all time frames.

Small/Micro Cap Growth Stocks: Helm has always allocated a very small percentage of our portfolios to small growth stocks.  This strategy relies on getting very big gains on some stocks in order to offset the losses on the ones that do not make the grade. Stocks in this category include HYD (PSY), KKT, SIX, GCS (sold at a profit this year) and GSM.

As you might expect this strategy requires patience, discipline and persistence. It relies on buying quality assets at an early stage and selling them when they mature at a substantial profit and then looking for another opportunity to reinvest this capital.  Most of these assets are sitting on their recent lows as I write this but we are confident that most of them will perform well in the future.

In Short

2018 has been a very challenging year to be a share-market investor. Portfolios have been filled with opportunities and challenges at every turn. The year started the way that 2017 ended, with record growth and rampant positivity. However exuberance has rapidly turned to despair with the ASX on course to deliver the worst 3 months in recent history.

This has all happened against a background of solid growth in the Australian and the US economy with falling unemployment, record profits and very low inflation. We are quite positive about Australia.


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