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Financial Happenings Blog
Saturday, December 15 2007

Every fortnight Scott Francis joins Warren Boland during his Saturday morning program on ABC local radio - Brisbane.  During his last visit Scott discussed with Warren the issue of borrowing to invest.  Scott also provided the ABC with a supporting article that they have placed on their website.  A copy of this material is also available on our website.  Please click the following link to be taken to this material - Borrowing to Invest - ABC article

Posted by: Scott Keefer AT 05:00 pm   |  Permalink   |  Email
Saturday, December 15 2007

At A Clear Direction Financial Planning we recognise the importance of 'word of mouth' referrals of our services to other interested investors and wish to acknowledge these referrals because they are a key part of our business. We value the fact that clients and friends of the business take the time to speak positively about our service to others.  To acknowledge our gratitude for this referral we have instituted our 'Friendly Directions' referral program.


We are passionate about the independence of our business, and have chosen not to pay money for referrals, as some firms do.  Instead we have set up a program whereby any time a person who is referred to us becomes a client, we will pay $50 to a charitable organisation.



We have chosen to direct our future donations to Kiva.  Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on, we can "sponsor a business" and help the world's working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), we will receive email journal updates from the business we've sponsored. As loans are repaid, we get our loan money back and are then able to re-direct these funds to other small businesses.  To get more information about Kiva please take a look at their website - .  A write up of KIVA can also be found on the Stanford Magazine website - Small change, big payoff.

Our first loan of US$300 has been made to Mrs Tik Yun.  Mrs. Tik Yun, age 60, works with her husband growing rice crops and raising domestic animals. They live in Kampong Chnang province, Cambodia.  They have seven children; two who are employed at a medical company, one who is employed by a micro finance organization, one who is a teacher, one who is employed by a local organization, and two who are students. She requests a loan of $1000 to purchase more land to expand her farm and after our loan has raised $875. This will increase the amount of rice she can grow and sell, thereby increasing the family's income.


We look forward in providing further updates on the progress of Tik Yun and her farming enterprises in future blogs.

Posted by: Scott Keefer AT 01:06 am   |  Permalink   |  Email
Friday, December 14 2007

The first forecast for the coming year has been bandied about in the press.  The source of the figures is AMP's ecomonist Dr Shane Oliver.

The key forecast returns for 2008 are:

  • 9% for international shares (both hedged and unhedged)
  • 12% for Australian shares
  • 8% for global listed property
  • 8% for Australian listed property
  • 7% for cash

We don't believe in trying to forecast returns - there is little evidence that this can be done successfully over the short term.

An interesting aspect of the article was the existence of data for the 2006 and 2007 years (to the end of November.)  I have put the data in the table below, sorting the data in order of return.  The interesting point to note is how random performance is.  Global listed property was the best asset class in 2006 and the worse in 2007.  Australina shares went from third to 1st and Australian Listed Property went from second to third.  This randomness is a strong argument for diversification - just exposure yourself to a multi asset class portfolio and you will reduce the volatility of your portfolio, and benefit from each year's winners.

2006 Returns (% return including dividends)   2007 to end Nov. Returns (% return including dividends)
Global Listed Property 39.3   Australian Shares 19.3
Australian Listed Property 34   International Shares - Hedged 5.2
Australian Shares 24.2   Australian Listed Property -1.8
International Shares - Hedged 15.4   International Shares - Unhedged -2.1
International Shares - Unhedged 11.5   Global Listed Property -11.9


Scott Francis



Posted by: Scott Francis AT 05:22 pm   |  Permalink   |  Email
Thursday, December 13 2007

Those of you who watch the financial markets closely will have noticed the recent listing of Westpac's Investment Management arm - BT Investment Management.  One of the benefits given for listing highlights a problem in the "Active" funds management industry - manager turnover.


Michael Pascoe, in an article published in Alan Kohler's Eureka Report, reports that the CEO of BT Investment Management, Dick Morris, believes that the listing of BTIM will help avoid the loss of good investment teams by providing them with some of the profits of the business. Hopefully this will entice these managers to stick with the business.


This is indeed a problem for "Active Style" managers.  If indeed the success or otherwise of actively managed funds is based on the investment managers, and not dumb luck, then these people are crucial to these funds.  They are the people who are picking the winners.  Unfortunately, there is quite constant press about investment manager movement.  A recent example has been the mass defection of the entire Suncorp team to form their own boutique fund.  If you had your funds invested in managed funds held with Suncorp I bet you would not be too pleased with the news.  What do you do?  Stick with the fund that you are in and risk reduced performance? or follow the management team and incur the costs of doing so?


We believe this is another risk involved with active management.  In contrast, our investment philosophy means that our clients should not be perturbed about who are the people managing their funds as the investment is based on academically proven strategies, namely using an index style fund as the core of a portfolio and building on to it other index style funds with weightings toward small and value companies. It is not about a fund manager picking winners and losers.



Scott Keefer

Posted by: Scott Keefer AT 09:07 am   |  Permalink   |  Email
Thursday, December 13 2007

The latest edition of our fortnightly email newsletter has been sent to subscribers.  If you would like to be added to the mailing list please click here to be taken to the sign up page.

The financial topic discussed this fortnight was portfolio turnover.  The latest edition also contained the following Market Update:

Market News


Market Indices

Since our previous edition, Australian and global sharemarkets have seen strong gains.  The S&P ASX200 Index has risen 2.38% from the 26th November to the 10th of December, up 16.85% for the calendar year so far.  The S&P Global 1200, a measure of the global market, has risen 5.79% over the same period, placing the index up 11.50% for the year.


Emerging markets also saw positive movement with the MSCI Emerging Markets Index rising 5.11% for the fortnight.  It is up 32.81% for the year so far.  Scott Keefer is again in Indonesia visiting his wife's family.  He reports that the Jakarta Stock Exchange (JSX) Composite Index has risen 54.54% over the year (5.37% in the past fortnight).


Property trusts have also experienced a strong rebound over the past fortnight with the S&P ASX 200 Property Trust Index rising by 1.47%, to be down 1.49% for the year so far.  The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, rose 8.82 % for the fortnight, and has fallen 6.91% this year so far.


Exchange Rates

As of 4pm the 10th December, the value of the Australian dollar had fallen again over the past fortnight with the Aussie dollar down 0.85% against the US Dollar at .8764, but still up 10.75% for the year so far.  It was also down 0.29% against the Trade Weighted Index at 68.3, still up by 5.24% for the year so far.  (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)


General News

The ABS has released the 3rd quarter economic growth figures with the Australian economy growing by 1.0% in the September quarter and by 4.3% through the year.  Last Tuesday, the board of the Reserve Bank of Australia decided to keep the target cash rate at 6.75%.

Posted by: Scott Keefer AT 03:49 am   |  Permalink   |  Email
Tuesday, December 11 2007

A key plank of our investment philosophy is basing our portfolios on academic research.  One of the great minds behind such research in the last half of the 20th century was William Sharpe.  Sharpe was awarded the 1990 Nobel Prize for his work on the Capital Asset Pricing Model (CAPM).


We think it is essential to listen to such experts and take note of their research.  William Sharpe has been recently interviewed for the Stanford Graduate School of Business - Stanford magazine published in November 2007.  In the article the author highlights Sharpe's 4 basic principles when considering investments for and in retirement:


  • Diversify.  For many investors a few highly diversified low-cost index funds may suffice,"
  • Economise.  If an index fund is right for you, as it is for many investors, why spend a lot of money on management fees in a likely vain attempt to beat the market?
  • Personalise.  As an example, Sharpe talks about an investor who works and owns a home in Silicon Valley. Personalizing her portfolio might well mean underweighting technology stocks, since a downturn in the Valley could cost her job and knock a big percentage off the value of her home. So why risk having the retirement portfolio going down as much with the other ships?
  • Contextualise.  "Asset prices are not set in a vacuum.  . It is impossible to choose an appropriate portfolio without a coherent view of the determinants of asset prices." In other words, consider the underlying factors, whether it be CAPM or other theories, that move markets.

I think these are pretty sound principles and ones which we incorporate in our work for our clients.



Scott Keefer


This blog was based on an article published by the Stanford Graduate School of Business and can be found at

Posted by: Scott Keefer AT 10:28 pm   |  Permalink   |  Email
Tuesday, December 11 2007

The Australian today reported on a study of Self Managed Super Funds conducted by three Queensland academics.  The sample size was small and geographically restricted but provides some anecdotal evidence of traps experienced by SMSF holders.


The study had three key findings:

  • The SMSF sampled were overweight in cash compared to standard commercial super funds
  • Less than a third of the funds performed better than the ASX300
  • The study concludes that funds need between 20 - 30 assets to benefit from diversification with the SMSF's sampled averaging only 12.


I think the report provides further evidence of the importance of diversification.  We believe that portfolios, including self managed superannuation funds, benefit from diversification across a large number, if not all, of the available assets within a particular asset or sub-asset class.  If not suitably diversified, investors significantly increase the risk of not attaining the returns they 'deserve' from investment markets.  Please take a look at our Building Portfolios web page for more details.


PS - We also believe that there are some other major traps for SMSF holders to consider for example paying too much in fees and understanding the ramifications to the fund on the death of one of the trustees, but more about these at a later time.




Scott Keefer

Posted by: Scott Keefer AT 10:26 pm   |  Permalink   |  Email
Tuesday, December 04 2007

The Australian Bureau of Statistics has today released the latest gross domestic product figures for the Australian Economy.  My previous experiences teaching Economics in Jakarta encouraged me to keep a close eye on economic statistics and their likely impact according to economic theory.  However, macro economic data such as the GDP figures also provide some practical insights into the economic climate for investors.  So what might the latest figures be telling us?

On the up side, the 4.3% growth rate in the Australian economy  provides news that the economic climate for businesses has continued to be strong over the past year.  This figure is significantly higher than the 3% to 3.25% experienced over history.  These results would suggest that Australian companies have been performing strongly over the period as evidenced by mostly strong profit results.  However the story is not all rosey.

On the down side, such a strong figure shows there is strong demand for goods and services in the economy.  This translates into strong demand for inputs into the production process - particularly materials and employment.  This has been backed up by Australia's strong unemployment data.  Unfortunately, this demand puts pressure on costs for businesses which in turn are passed on as higher prices to consumers leading to increased inflation (or lower profits).  We all are well aware that growing inflation leads to pressure on the RBA to raise interest rates the purpose of which is to reduce some of the demand in the economy.  This in turn slows down business growth which should result in less strong growth in share prices.

This is a very simple synopsis but hopefulyy highlights that strong economic growth is not always good news.  So what is a solution to the strong growth dilemma?  Economic theory would suggest that for an economy to sustain stronger levels of economic growth it has to be through increased levels of productivity in the economy not simply increased demand.  It will be interesting to see whether productivity growth can be achieved in the life of the next federal government.

Scott Keefer

Posted by: Scott Keefer AT 07:49 pm   |  Permalink   |  Email
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