Hello and welcome to the Australians Money Puzzled podcast. I'm James Kirby. Welcome aboard everybody. I hope you're holding up well in these last working days of the year, and I hope you had a very good year so far as an investor. I expect you would actually be unlucky not to have had a good year as an investor. We've had some really good returns again and one of the big questions is can it all keep going at
this pace. My guest today is a regular guest, one of our favorite guests on the show, Jemma Dale, head of Investor behavior at nab Nap Trade. How are you, Gemma?
I'm well, Thanks, How are you?
I'm good? Thank you. There's so much to talk about, and don't let me end the show without mentioning gold could be the fascinating talk about gold. The last time it turned out to be I say precient. Okay, now, first things first. In a way, yes, it's another good year and I think people will be should be happy with the returns they are getting. I suppose in a way some of the attention is all about super these days,
and if you look at super returns, super ratings. For instance, they've just come up with what looks like the year to November. That's this morning, I might add, And we're looking at for the average balance fund eight percent for the year. That's if we closed off the books, you know, a few days ago, which is of course much better than usual, and that's driven yet again by shares. I know,
it's a really big question. Can it keep going? But in that trade, is there a sense that this market is in some way justifiable on earnings and fundamentals or is there a sense that this is this market is about to boil over?
Yeah, such a good question. I think it's quite clear.
From so, we have a cash book, which is very interesting and tends to be the best illustration. So there's kind of a couple of things you can watch to see what people are really thinking and feeling. One is how much cash are people holding? And is it growing over time? Our cash book has just been growing and growing, and that at an increasing rate, far more so. And look, it does get run down at times when people feel the market has been oversold, and that is so it's
a reasonable reflection of how people are feeling. So we had huge buying during liber liberation day, and the big one was COVID right when the buying was you know, four out of every five trades was a buy, and that fifth one was usually people selling something to buy something else, and the cash book was running down, but more cash was coming in. It's getting piled in to keep buying during that period. So people will absolutely put that cash to work. It's not just it is a
high interest account. It pays you the RBA cash, but it is absolutely used if investors feel there's an opportunity to chase.
So that is very high growing all year.
Explain to listeners what that means that the cash is growing. Does it mean they are wary of buying at these levels?
What it tells us.
So the other things that we're seeing are there's less buying and a bit more selling.
Right, it's not a huge split.
It's not like it's twenty percent buying at eighty percent selling or anything like that.
You would never see that because a lot of people.
Are accumulating over time and that's never going to be their strategy. But we've seen a slight uptick in selling and a slight down tick in buying through this year, dependent on different times of the year. Obviously, and what's going on in the market. Liberation Day it was all buying, so let's put that to one side. So cash book is rising, That tends to tell you people would rather have some cash on the sidelines and wait for a pullback.
There's an uptick in selling and people are taking their dividends and holding them in cash rather than deploying them straight back into the market. So they're the major themes that we see. It's not huge, it's not like people are selling wholesale, but they're trimming things that they feel have run really hard. They've been trimming the banks for a year and a half now, and particularly early this year.
Anything else they feel has done very well, they're just starting to take a bit off the table.
Okay, trimming the banks wasn't a bad call at all, but we did make that point regularly on the show that they were at elevated levels. Can we put numbers around that in any way? I know fund managers is a similar thing. When you see the big fund managers lifting their cash levels, that suggest they're getting warier of the market they're in. Are you able to give us anything at all? The way of the level is it? Is? It more from five percent to ten percenter or whatever.
We don't know what people's whole portfolio looks like, you know, we only know what we see in the platform. So you might have all your Australian equities with NAB Trade, but you might have some managed fund somewhere else, and you're super fund with a professional managed fund, and you might have some term deposits as well as that cash.
So I can't really.
Sort of go this is exactly people's finite universe of wealth. We just know in terms of the behavior we see within that platform. This is very typical of when investors feel the market has run a bit too hard. And we saw the same thing in twenty nineteen when you remember the market put on nineteen percent. It was completely
unexpected because there were two unexpected rate cards. We just saw this cash book just fumped straight up, and then as soon as COVID happened, they threw the money straight back in the market.
It's interesting, Yeah, I mean that would all make sense. I mean, am I hon SMSF. I don't actively mean for the cash amount to lift, but it's been lifting due to activity as such, but not buying.
Yeah, that's absolutely you know, I can't see anything I really like because I'm just gonna wait a minute, and then suddenly I've got ten percent.
Okay, very interesting. Now, the thing is, folks, I was mentioning that it's a good year, okay, and it is a good year. I'm talking about calendar year in the Australian market. However, I think we better be careful here the when we say it's a really good market, what we really mean is that the market, anchored and holy and utterly underpinned by Wall Street, being about sixty six percent of the whole world market is so good, is
so strong. As we speak, it's about seventeen percent of the S and P five hundred is of seventeen percent in twelve months. That is a knockout number. Our number is barely six percent. It's a little. It's about five and a half as I speak today, being the eleventh of December. Okay, so it's five percent, and hooray, okay, we have good yields. So let's add the yields in. Let's say the dividends are four we're going to get
nine percent. Nine percent is good. It's not shooting the lights out, though, which begs the question Gemma, have we all been in the wrong market? Oh, let's hear your answer, because I mean it isn't it. We've raised this before. Are we all in the wrong market?
Yeah, it's such a tough one.
We So Australia has a shocking home bias. From an investment perspective, we know that our investors are hugely exposed to the ASEX relative to other global markets, and the ASEX is a very tiny proportion of the global market. You just talked about how big the US market, though, is in the global in the World index. If we look at MISKY World, for example, the US is probably
overrepresented and everything else is underrepresented. But we go the other way when we look at people's portfolios, Australia is massively overrepresented and everything else is underrepresented. Has been changing over time, right, so there's always a bit of a legacy effect where so many of our investors bought CVA and the float and have held it ever since, and so they've just got these huge allocations to things they
bought a long time ago. And we know older Australians are wealthier on average by and by quite substantial margin. Even if you strip out property, they have much larger shareholdings, they had opportunities to get into those big IPAs, so they tend to have these portfolios that skew the data quite a lot. When we look at our younger and newer investors, they are much more diversified both with their domestic and their international holdings, and they got on top
of international quite early. It made sense for them. You know, you hold Apple in your pocket and you watch Netflix, and you have exposure to the big the megacaps in the US all day, every day in your life, and so our younger investors got on that quite early.
That made perfect sense for them.
I'm like, I use this thing all the time, got reasonable understanding what the company is and what it does. Do I think it's good value? I don't know, but I definitely think it's going to grow. So we do see our younger investors with a fair bit of UIXIT exposure.
You really do, and.
What it be? I'm just looking back, folks, this is really worth hearing. Okay, so this is one year. But the thing is, if you look historically over the last fifteen years, are you ready for this? The last fifteen years, this is the ASX has done seven point six percent perannum, and the S and P five hundred has done fourteen point three. Paradum Us stocks have done twice as well as Australian stocks, not this year, not last year, four fifteen years in a row, literally half the lifetime of
a generation. So every year people say, oh, well, Australia is bound to catch up now, because you know it's the return to the mean, return to normal. We're all clearly undervalued, they're clearly overvalued. Is that a sensible strategy? Knowing what we.
Know past before, This is not a guide to future performance.
Let's just say this fifteen years. Well, so here's the thing.
I started in market in like two thousand and that was an incredible time because you didn't have great daily done like it wasn't fantastic. You weren't necessarily following the market daily the way you can now Internet existed. You definitely did not have a phone in your pocket where
you could check real time pricing. Right, so we would all have a look at the Vanguard chart showing international shares doing this and Aussie shares doing this, And the argument was always Australia is an old world economy and has limited value in a new world. It's all about the New World's Internet stocks, all this kind of stuff, and then that was a complete disaster for the next seven or eight years.
Two is one of you little.
Bit careful going look at the last decade, wasn't this thing amazing? And then yeah, you could do the same thing with Japan in the early nineties. Right, So there will be anomalist periods where one thing just outperforms for quite a long time, way longer than you expect to if it is anomalous, and then you know there is a reversion to the mean, and you get really disappointed with yourself.
Because you put it right at the top.
But it is worth noting we have hugely different economies, certainly the Australia in the US, and everyone compares to the US.
It is the behemoth it is.
But crucially also are people missing. They're just literally missing. There is no AI stocks here. Really, Next you sees a data center, Goodman is a property just there is no AI monsters here. There is no pharmaceutical phizorus etc. That're just not here.
So we have a different economy and we don't have those. The other thing is these are global companies, so we talk about them as being US.
They are US listed, but every.
Single one of us is using Apple somewhere, every single one of us is using Microsoft somewhere in our lives.
So this idea that they.
Are US companies is no longer strictly true. They are a global company and they have global exposure. Can they continue to grow at the rates that are priced in currently?
Though?
That's really the big question, Like as overshot, even if they're still extraordinary companies doing extraordinary things, have they overshot? And we have plenty of investors who think they've overshot, and plenty who think they're going to keep running, And it's really difficult to know.
You know, they're very expensive by historical stands.
They're very expensive via historical standards, but then they have tremendous earnings. Tell me structurally though, let's just step aside from the anomalies and everything else. The point you made is that younger investors, and it's interesting how you would define that, but younger investors have a much higher proportion to the global and Wall Street listed companies than older Australians.
Who should make a move? Who should in terms of strategy allocation, long term portfolio allocation, I'm not talking about today or tomorrow. Who should make a move. Should the younger investors shift more towards THEX, so, should the order ASX invest just chasing the franctividends shift more towards global companies?
Good question, So I think what we see so younger investors usually do tend to start with the AX and they will start buying ETFs, and the proportion of young investors and I'm talking sub forty years of age, right, not super young. I'm not talking so that you can't get an account till you're eighteen, but we have anywhere between eighteen and forty year olds, something like forty percent
of them only own ETFs, which is astonishing. Right, four years ago, we would not have been having this conversation, but the growth has been incredible and they love that strategy and it makes perfect sense and it takes a lot of the stress out of investing. They start with the ASX two hundred, but they very quickly add the S and P five hundred, and it's like it's ASEX daylight, S and P five hundred daylight and then everything else.
So they're very clearly just those two markets for older investors, particularly retires, and have these big, chunky portfolios that have evolved over time.
They're managing them for income.
They tend not to want to run down their capital and retirement, which is a different topic entirely.
They want to live off the yield.
If you're trying to live off the yield, it does make sense to have less exposure to a market like the US which has a very low yield, even though there's a lot of attraction in that growth opportunity there if you're trying to grow some of your capital base. So the behavior is actually reasonably rational based on what
people are trying to achieve, but also where they've come from. Right, Young people have come from an app in your pocket, buy an ETF it's super cheap, don't have to think about it, just do it consistently.
You're good to go.
And older people came from the way to make money is to buy the big floats in the nineties or to buy BHP and the big Australian and those.
Sorts of things. So their portfolios have evolved based on when they started.
Okay, and folks, it's worth knowing that we have regular guests on the show who have said, if you do want to increase your exposure beyond the ESX ETFs are a very good way to start. I mean they are a very good way to start. That's indisputable. Exchange treated funds.
Sorry, I will say our older investors do that, right. So if they have no international experience, they may have had some of the listed international LICs and sort of actively managed funds. And to be honest, the big ones that they bought are very out of fashion now. So they had Platinum back in the day, and then they have Magellan and those brands are no longer sort of where we would ever see anyone putting their money, but they may have that exposure now. It's like I'm just
going to get the S and P five hundred. I'm just going to do that easy.
Unfinitely older investors have bought that too.
Okay, very a good point. And we're not pushing one or the other. Folks. They are all more or less the same. They'll all call me now and say that's not true. But talk about how many engines on the head of a pin? All right, I want to talk. I want to come back to you on a couple of points, but take short break back in a moment. Hello, welcome back, to the Australian's Money Puzzle podcast, James Kirby talking to jem at Dale, regular on the show, head
of Investor Behavior at NAP Trade. It's funny, you know. Often I go on things and people joke, Oh well, that sounds like a great job, you know, Associate editor Wealth on The Australian, you must be very wealthy and blah blah blah. And I love your job. You're head of Investor Behavior. I just think I just love that job title. As you do.
I don't tell people what to do. I just watch what they do. It's fast.
Yeah, yeah, I could say that too. Actually, all right, okay, now a couple of things I want to put to you about the market and the nature of it. Just now we are looking at well, it's passable market. It's good. Look, it's fine. You know at the moment to be ruled off the books on the asx's, I say, it's maybe a little bit better than average, and if we rule
off on the US, it's way better than average. Yet again, but overall, your share portfolio should be strong and perhaps if you are fortunate enough and you have had that strategy that Jemma has talked about, that you have both directly into the US, certainly in the way of ETFs, then they should actually gun your portfolio, your shares portfolio well beyond nine percent for the calendar year. All good. Now, a couple of things I think that are sort of emerging.
It's a very lively market. There's also some things starting to happen, Like we were just talking before the show about this amazing deal of Netflix buying Warner Brothers Discovery, and there's a joke in markets about Warner Brothers that every time they're in the news, it's the top of the market if you remember, and you will remember because you mentioned dot com that was the famous merger with
Aol America Online and that, folks, was the bell. We didn't know it, of course, that was the bell that said it's over the dot com boom. There's something really toppy things starting to happen. And look, another thing in this market which I really don't like, which I think stinks,
is about IPO's new share market floats. There was a time where you would participate in a share market float, and the whole thing was obviously that you would it would rise on the day it floated, especially in a strong market which we have at the moment, and we're having these outrageous affairs at the moment where there are new share market floats and they are instantly falling. This is a This is in a strong market. So I wonder, Jema, are these signs really of are there signs that we
were talking about whether the market's too high? Is it too hot? But let's put it another way, are there signs that the market is seeing a top? I mean we talked about you know, we've just seen the Netflix deal which was which is kind of a joke really, but maybe it's not a joke that when Hollywood do these maga, these things go very wrong. We have a lot of floats and people are are perhaps there are
cases where people are exploiting these faces. These floats are certainly not in christ properly, that's for sure, and other sort of signs. Do you think that's a sign of a toppy market?
It's such a good question, this one. I think.
I actually had a look back through the float to the last six to twelve months, both in Australia and in the US, and some of them have been extremely successful. So it's not universal that they're all collapsing. It's just pockets. We did see at the peak of the Nasdaq three years ago, the SPACs coming through, like there's a very typical behavior as the market starts to peat. These backs and the special purpose acquisition vehicles, cash box companies, and
you would get cash box, I'm an amazing investor. Give me your money, and I shall do something with it, and you're not allowed to know what it is until.
Yeah, just give it to me. I don't know what I'm going to do with it, but hand it over. Yeah.
Yeah, I don't know what I'm gonna do yet, but I'm great at this.
And they almost categorically a disaster one after the and everyone said at the time when they came about, oh, these things are always a disaster, And then they were a disaster.
What a surprise.
I So a couple of things I would not One is if you are a founder or a business owner or a shonky individual on the make who thinks that they can get away with raising as much capital as humanly possible when the market is high and rising is a really good time to do it. So you want to if you are listing your company, extract as much value as possible from.
That, and there will be.
Well intended business owners doing that, there will be private equity firms doing that, and there will be others who are less.
Reputable doing that.
And the days of being sure you're going to make a ton of money out of an IPO well and truly in the past, like you have to do your due diligence and all throughout history you've had to do your due diligence at these times with these sorts of things, there's there are no guarantees said. Some of them actually been pretty good, some of them been very good, some are up sick three months and this sort of business. So in Australia it tends to be the mining companies,
like the smaller end. You need to know your stuff if you're going to play in that kit.
You really do hyperspeculative, Yeah, okay, hyperspective. All right, Okay, No, there's a very good answer and a fair answer too actually. All right. So then inside the market we're also saying in terms of your clients are hoping to buy individual stocks. There's a stock at the moment which is all the news called Corporate Travel and it was a Brisbane based a corporate travel company that had great success for a while.
It then came under what they call a short attack by hedge funds and shorts and survived that came out the other side, and many people actually thought, well, okay, you know, these guys are actually must be quite good because they've survived a short attack. Not every stock does.
They then did an extraordinary sort of diversion into the fairly grizzly business of managing refuge hotels and barges for want this is what they call them in the UK, which was a strange diversion for a company that's called corporate travel, used by many companies Disclosure The News Corporation uses them. But anyway, the point I'm bleeding to is that they were suspended some time ago, a long time ago, weeks and weeks ago, and it since transpired that the
British government has accused them of overcharging. They've accused them of overcharging using very strong documentation produced by one of the six accountancy companies. This is a disaster in the making. The stock is currently trading at I wish, sorry I could remember the numbers, maybe fourteen fifteen dollars and we now know that when it comes back it's probably going to trade for who knows, it may not trade at all.
I mean it may literally go and fund managers are writing down the value of this to ten dollars five dollars less than that dev What I want to ask you is that you don't have to get into the tangle about corporate travel. But what I want to ask you is it seems to be a really bad management here on the share market by the ASX that this was allowed to happen, that these guys were allowed to
stay in suspension for weeks and weeks. This is a huge billion dollar company, and I can prove that this was bad management by the fact that we mentioned MSCI earlier, MISKI, the Morgan Standy Capital International Index, they don't allow companies if they've been suspended for a long time, They just they're out. Do you think this could be an important story and how it pans out?
That's a really tricky one, isn't it. I think there's multiple factors. The fact that they're being accused of overcharging let's say, not fraud, but.
The British government. By the British government, which is no small player.
They were It's not a small player.
There were credible.
Questions about governance, let's say some years ago, as you said, and this is not reason. There's been going on for a long time, credible questions about governance. You know, the press was after them for various things that there were short sellers also, you know, and the difficulty with short sellers.
People like, justifiably the difficulty with short sellers. Everyone's like, oh, you're just trying to make money out of it, and you're like sure, but there are credible questions being asked for multiple sources, and now you have probably the.
Most credible source.
Your UK Government's not one you're going to take on for fun. So it's a really tricky scenario. I know, I can't think of a lot of precedence in my experience, so I can see why the market operator doesn't have necessarily a great set of rules for a scenario like
this where there'd be multiple credible questions. They've survived all of them, and then now we've got a very serious question, and then what do you do do you just so then you go, well, we're just going to force you to dlist or are we going to do something else?
And so on?
You know, whereas ask in this scenario, all those sorts of questions, so I can see why it's in this situation.
But it's not ideal for investors, that's for sure.
No, it's not. And I think it's a lot to play out there. Okay, we're gon, we're running out of time, which often happens with Gemma because she's so good. And no it's two folks. I mean, she is a great communicator on the market, she really is. That's why she's on the show so often. I'm going to take a short break and I'm going to come back and I've got to pin her with a couple of other difficult questions that most people would run from. Back in a moment. Hello,
Welcome back to the Australians Money Puzzle Podcast. James Kirby with Jemma Dale. Out of investor behavior at NAP Trade. Okay, a couple of other random questions for you, Jemma. There are listener questions. I don't know if we'd have time to get through. I'll definitely deal with the one from Tom. But also just a question without notice because it only happened yesterday. But part of your also is SMSFS. I think that's an important part of your role, isn't it?
And we all know that there's been all sorts of scandals this year, the first Guardian scandal. This is the biggest scandal in the local financial products for many years. Who's going to pay for it? Big question? The minister, Daniel Belino, Finances Finance Minister, this week has announced that it's going to be a levee and the levee is going to be imposed on all sorts of players in the market, big super funds, financial advisors are going to
have to chip into this levee. He's also put forward the notion that smsfs are going to have to pay this levee. I think that's ridiculous because smsfs are not involved in selling dodgy products and smsfs the whole trade off. But having one and taking the risk of one is that you sidestep if you like some of those consumer protections, you're not allowed to access them. So whether you pay for them, have you formed if you want it yet?
Look, I won't pretend I've done enough work. Also, as you point out, it's been changing a lot, this one, and it's been fairly contentious.
It's been going on for a long time.
Trying to find a solution that satisfies all parties and doesn't create moral hazard, because that's the big issue, right Like you're going to provide a backstop that then encourages more risk taking behavior and so on, and you just don't need that in your life right now. So I can see it's a real challenge for self managed super funds.
But there has been this question, as you know, like E four, but really at least since the GFC, having seen some of the smsfs that got caught up in fairly difficult situations, what protections are in place in a scenario where they will sold something that you may not have been advice per se, and what do we do
in that scenario. So it's a really tricky one, and it's a particularly tricky one, I think the question where the wholesale investor test sits as well, whether that threshold is too low and whether you need to really ramp it up because we don't, you know, it's not really.
Do you think smfs should have to pay the levey?
Interesting question?
If they get no protection from it, then no, it seems laughable, right, you know, for you to be And the question I've got about it actually, which is a bit of a different one is the owner and I'm not mentioning any names of a major platform implied that there should be a compensation scheme like it is your job to provide due diligence on this stuff. That is literally part of your process as a trustee. You should not be getting backstopped by those who do not have
that obligation like you do have that obligation. If you provide a trustee service, you absolutely obligation. I'm more concerned about those comments.
Okay, I completely agree with that. And folks, just to cut to the chase on this one, tho's three big players. One was Macquarie. They have actually volunteer year to pay out three hundred million already to the victims of this first Guardian and Shield debacle. Another key player was Equity Trustees. They have actually been hauled before the courts to deal with this. Alan Kirklands, the asset Commissioner, was on the show a few weeks ago. Have a listen to that
one if you want to know all about this. And the third major player was net Wealthy investment platform, who have got a lawyer who was smart enough to find an obscure clothes in superannuation law, which says that they should be helped compensate if they had to compensate. So we'll see how that plays out. Last final quick question, Tom says, I've never heard a word about European stocks on your show. It's like the only offshore market the
world is Wall Street. European stocks have been terrific this year. When now are you going to do something? Tell me this gemma, those offshore active investors of which you have many the eurostocks, the European stocks feature at all.
So this year they have started to and this is what happened. So ninety plus percent you via a NAB trade you can buy US, UK, Germany and Hong Kong. Ninety plus percent is the US, Yeah, right, so far out in front. And there's also and what's really fascinating is there's a fair amount of appetite and you just need to look at how the Australian demographic is changing. There's a fair amount of appetite for Ali, Barba and
Tencent and so on. But they will buy the ADR, the US listed version, which is super interesting in itself.
Right, you can buy the Hong Kong version if you prefer.
There has been some European stuff popping up this year, and the one that is most obvious is defense. So it's kind of all been about European defense of run. Mattal, which I'm probably pronouncing incorrectly, has been big in our numbers, certainly through the early part of this year. When I speak to analysts in the space, they're pretty concerned that those European defense stocks have run too hard. Right, Rolls Royce would care out as a European defense stock. Funnily enough,
you're on a few others. The other one that I hear from fun manager is Ferrari.
Okay, okay, but you know a few of.
These sort of interesting ultra premium kind of direct to consumer brands and so on.
It's interesting, it's interesting.
But we don't get a huge amount of appetite for it because you have to be fairly selective. And the general consensus on the Eurozone economy is not positive, right, it's pretty lackluster. So there have been some really strong performers, but they are largely in the defense space from what we see.
Okay, that's it for you, Tom. Never advice, of course, always information. It's been asleep for a long time. European market, there has been a lift. As Emma says, the lift is substantially underpinned by defense companies, which again was substantially underpinned by the fact that Trump basically pulled the rug from under them and said you got to start paying for your rollin NATO. But that's not really a reflection of a big broad upswell in the European stocks, I
would argue, but you might tell me something different. Tom Okay, Thank you very much everyone for the questions. Keep them rolling the money puzzle at the Australian dot com dot au. Jemma Dale, thank you very much. We will probably not talk to you again this year, but we sure as hell talk to you next year. Thanks a lot. Great to have you on the show as always.
Thank you so much for having me.
Thanks Jemma, Talk to you soon, folks.