At Providence’s recent 2016 Christmas Party with clients, Grant Patterson, Manager Director commented on the year that has been for the Providence Team.
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Click here to read the Global Outlook and Strategy September 2016: Complex, Complicated and Confusing. For more information please contact us on (02)9239 9333.
As part of our ongoing commitment to being a trusted partner for our clients, Providence reviews a number of products each month, searching for investment opportunities that fit our clients’ individual requirements. Being an independent company, each opportunity is assessed solely on its merits regarding risk and return.
True to Providence’s promise of transparency and independent analysis, we share the basis of our decisions with our clients in this Quarterly Activity Report July 2016.
• We expect modest global economic growth for the remainder of 2016
• Global central bank policy remains the focus
• Economic growth in Australia is expected to fade
• Bond yields are depressed driving investors into higher risk assets
• Boutique property sectors with demographic support look attractive
• Valuations in risk assets are extended on an absolute basis but remain cheap relative to bonds
• We maintain an overweight to cash
• Long term asset class returns are expected to trend lower
Click here to read the Global Outlook & Strategy June 2016: Distortion in Asset Prices. For more information please contact us.
Grant Patterson, Managing Director at Providence provides comments in today’s article in the Australian Financial Review.
Wednesday 22nd June, 2016 – Navigating the Road Ahead: Real Estate Outlook
Providence hosted its Melbourne Quarterly lunch for clients and colleagues at the Westin Hotel on Wednesday 22nd June. Presenting at the luncheon was Greg Paramor, Managing Director of Folkestone Limited who has over 40 years’ experience in the industry.
With Greg’s 40 years of experience, he shared a detailed, thought provoking update on Folkestone’s views on the Australian property market.
Providence has enjoyed a long-standing relationship with Greg Paramor and Folkestone and has deployed client capital in a number of Folkestone direct property investment opportunities.
We thank Greg for his insights. His presentation can be seen here.
One Ventures CEO Forum, June 2016.
Grant Patterson, Managing Director at Providence presents at the Forum on the topic of Succession Planning. To view the slides from Grant’s presentation, click here.
By Grant Patterson, Managing Director
In December 2013, ASIC filed a report highlighting their concern about the advice provided by 10 licensees in relation to retail structured products. Despite their concern at the time, we note since the release of that report, there have been multiple enforceable undertakings made in relation to the appropriateness of some products in relation to client investment goals and objectives. There appears to be a continued and on-going industry review of the adequacy and appropriateness of such products for clients. In some instances, ASIC has gone so far as to highlight that some advice to clients has leant in favour of such products.
The above statements also raise the question of the vertically integrated business model in financial services and the potential of a conflict of interest with relation to the provision of advice. Recent government commentary points to the desire (by government) and perhaps ultimately the intent, to see product design and distribution obligations imposed on banks.
It is fair to say that the motivation by government and the various regulatory bodies charged with protecting the retail client, are focused on the complexity of such products despite in many instances as being labelled at ‘capital protected’ or ‘capital guaranteed’.
To illustrate this point, it is worth addressing the definition of a structured product. Wikipedia defines a structured product as thus:
In structured finance, a structured product, also known as a market-linked investment, is a pre-packaged investment strategy based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuance and/or foreign currencies, and to a lesser extent, swaps. The variety of products just described is demonstrative of the fact that there is no single, uniform definition of a structured product.*
The risks associated with many structured products, especially those that present risks of loss of principal due to market movements, are similar to risks involved with options. The serious risks in options trading are well-established and customers must be explicitly approved for options trading. The U.S. Financial Industry Regulatory Authority (FINRA) suggests that firms “consider” whether purchasers of some or all structured products should be required to go through a similar approval process, so that only accounts approved for options trading would also be approved for some or all structured products*.
The salient point to reflect on with regards to structured products and arguably the rationale for ASIC’s findings in 2013 is that these products are highly complex and it raises the question about how such products may perform vs. owning an underlying asset and more so, their appropriateness in many instances for retail investors.
When we at Providence delve deeper into many structured products that are presented to us we generally find them quite complex and very expensive in a fee sense, which is often difficult to measure. For that reason we rarely invest in such products and prefer to either own or not own, the underlying asset. Having this independence in research is one of the advantages of not being associated with a vertically integrated product manufacturer and advisory business.
References: AFR Wednesday 18th May ‘HSBC stands to repay those given poor advice’, *Wikipedia.
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