Following the surprising Coalition win in the Australian Federal Election over the weekend, each of our portfolio manager’s has given a short summary of the implications for each of the main Prime Value Asset Management funds.
Broadly speaking, it is considered positive for investment returns.
CASH PLUS FUND – Matthew Lemke
The unexpected Liberal/National Party win in the Federal Election is positive for the Prime Value Cash Plus Fund. The Fund is predominately affected by the credit market. We expect this market to be buoyed by the rally in bank shares that we anticipate this coming week, the assistance the Coalition has promised small to medium sized business, the anticipated string of Budget surpluses, and the tax cuts pledged. Local credit markets will also be buoyed as the Coalition and its leadership team are seen by markets as being a “safe pair of hands” for the economy, and their credibility internationally. The bigger trend in the local credit market emerges from the broader international picture which has been positive for some time. The US/China trade dispute and the performance of the US and China economies are the critical international events at the moment.
We expect the Prime Value Cash Plus Fund to continue to perform well as investor capital has been assiduously invested into quality securities.
EQUITIES FUNDS
OPPORTUNITIES FUND – ST Wong
In the short-term, the share market will be broadly relieved that risks associated with the Labor Party’s proposed tax reforms will be removed.
Three risks specifically come to attention: 1) the removal of negative gearing on established housing and a reduction in the capital gains tax discount, 2) the removal of franking credit refunds, 3) industrial relations reform with a focus on higher wages.
In our view, the market has not been exceptionally negative on-high yielding stocks ahead of the election, although has held much more concern on housing related stocks. A second derivative outcome is that the election result offers a return to the status quo—on one hand it’s a positive with the removal of risks as highlighted above. On the other hand, the Australian economy has been softening. It’s one of the reasons why the Reserve Bank of Australia is largely seen to be in an easing policy mode.
Looking forward, we look for a return in confidence. Consumer confidence could be buoyed by increased housing confidence (household wealth effect) and the removal of uncertainty. From a policy perspective, we observe that a Coalition government would run a smaller budget surplus and larger tax cuts which would play a more supportive role compared to Labour policies.
Emerging Opportunities Fund – Class A – Richard Ivers
The Coalition’s win is positive for the Australian Emerging Companies listed on the Australian Stock Exchange.
At a macro level, income tax cuts and the absence of additional taxation measures is supportive of consumption and corporate earnings. Stocks attractive to yield investors will benefit from no change to franking credit taxation. Specific sectors will also get a boost from a more beneficial policy agenda including health insurance, residential property developers, building materials and mortgage brokers.
The list of beneficiaries from a coalition government is large but there are some losers. These include healthcare providers who would have benefited from a bigger spending agenda and retailers exposed to lower income demographics.
Overall we expect our portfolio to benefit from the election result.
IMPUTATION FUND – Leanne Pan
The market has been anticipating a change of government and some investors started to reduce their holdings in the fully franked yielding names.
The surprising result might cause a relief rally in some of these names. This is a good outcome for the Imputation Fund as the Fund always values franking for our investors. On average franking adds about 2 percentage points per annum to our headline return numbers.
On a broader note, business thrives on confidence and stability and we cannot exclude global factors. It is hoped that the Coalition in its third term can function effectively and provide a supportive framework for businesses.
ALTERNATIVE ASSETS
(Australian Agriculture, Infrastructure & Structured Products) – Elizabeth Blackhurst and James Everist
Returns on our Alternative Asset investments will be supported by the Coalition government’s policies.
For agriculture particularly, Coalition policies are aimed at facilitating the farming industry’s road map to grow farm gate output to $100 billion by 2030. There will be close attention to water resource management and they advocate a triple bottom line approach to the Murray Darling Basin Plan aimed at giving farmers and communities more certainty and transparency around water allocations.
We are also encouraged by their commitment to expand agricultural exports with an emphasis on horticultural produce. This is highly supportive of our investments and our belief continues to hold that alternative assets, as part of a diversified portfolio, will reduce portfolio risk and enhance returns.
PROPERTY
(The property assets are managed by our sister company, Shakespeare Property Group) – Robert Anderson and Sunny Yang
In some ways, the removal of franking credit refunds proposed by the Labour Government may have been mildly positive for commercial property and syndicated property investments due to the different method of distributing tax effective income to the investor. The Liberal government will be positive for the residential property market as there is now certainty of no change to the current taxation policies relating to negative gearing and capital gains tax. In addition, there will be an assistance program for 1st home buyers.
The surprise Coalition victory will also likely have a positive impact in the Queensland hotel/property market especially in Far North Queensland. The Federal Coalition government will take a more pro-business approach, mining activities in the region will be likely go ahead resulting in positive employment in the region, benefiting area’s like Cairns.
Overall we expect commercial property is likely to benefit from the greater investor confidence of economic management credentials of the Coalition party. Investment in infrastructure projects will also have location specific benefits to the commercial sectors.
In Summary
In an environment that seemed to be dictated by many headlines and uncertainties – perhaps what people wanted was some certainty. It may well be that this backdrop led to the incumbent Coalition party winning the Federal election, a largely unexpected outcome. In essence, the vote has been for no change – and there may be lengthy debates of what happened or what could have happened.
As a boutique fund manager with an impressive history of building wealth with investors since 1998 and with $1.7Billion in funds under management, Prime Value Asset Management and our investors, as market participants ourselves, look for three pillars for a positive environment, First, liquidity. Second, a strong policy platform and Third, political certainty.
The conclusion of the elections gives us these three elements, particularly political certainty, that will form the backbone of Australia’s growth for the future. Given the market sentiments look positive with the Coalition remaining in office for a further three years, we have confidence to continue building wealth with you and enjoying this journey together.
If you have further questions, please feel free to contact us, or the portfolio managers. If you want to know more about investing in our funds now contact our Relationship Manager, Andrew Russell on 03 9098 8088 or info@primevalue.com.au.