STOCK PICKS 2011

Has confidence returned?

INDUSTRY opinion is split on exactly when investor confidence will return to the stock market, but the consensus is that plenty of cash will be thrown around when it does.

The head of Queensland’s largest independent stock market advice and education firm believes the Australian Securities Exchange (ASX) will be a flurry of activity this year as savvy investors look to get aboard a multitude of opportunities.

Australian Stock Investment Group managing director Richard White, says a boost in recent enquiry indicates interest in stock investing has rebounded.

“The fear from the last three years has been alleviated and all forms of investors, including the ‘mums and dads’ are starting to get very interested in investing in the stock market again,” says White.

“Our business has increased 10-fold over the last few months with clients moving away from property investments and seeking faster returns. Stock has many advantages, including that you can finalise a large investment overnight rather than the lengthy buying/settling process with property. Speaking to the major firms we deal with, they’re all very excited about the year ahead as we start to put the downturn behind us.”

After analysing the latest Australian Prudential Regulation Authority (APRA) statistics, Elston Partners managing director Andrew McKie however believes it could take longer for investor confidence to really return.

“With the banks offering good interest returns of around six to 6.5 per cent, there is a record amount of funds in term deposits across Australia. The figure has risen from $800 billion in 2007 to $1.4 trillion today,” says McKie.

“To put that into perspective, the combined market capitalisation of the ASX200 companies is around $1.2 trillion. Retail investment on the other hand is at a record low of about $1.5 billion.

“This shows that retail investor confidence is still very fragile, and could take some time to recover to healthier levels. But with the interest returns on index funds likely to drop, people will go looking for other options. And with the amount of money tied up in index funds, we know that when that happens there is a great stockpile of cash ready to be moved around.”

Stonebridge Gold Coast analyst Craig Brown is more optimistic on the immediate future of the share market.

“Overall the ‘mums and dads’ who were affected in the GFC will take some time to gain confidence back, but as their personal and financial situations improve we’re seeing some positive results now,” he says.

Jumping on the resources boom

As the resources sector remains of particular interest to Queensland investors, Richard White says the option of investing in a commodity stock index rather than a company is catching on.

This diversified portfolio, called an exchange-traded fund (ETF), allows investors to buy a group of stocks focusing in one sector.

“Many people didn’t consider that option a few years ago but it is certainly growing in popularity,” says White.

“Investing in a stock index, like the price of gold for example, alleviates the risk of investing in one particular company. There’s been more investment activity in indexes and money markets lately.”

Andrew McKie agrees, but says stock indexes are particularly useful for investing in international markets. Resource companies that have operations in Australian and Asia for example are grouped in various ETFs.

McKie says the ETF market has ‘exploded’ in Australia as a safer option than putting ‘all your eggs in one basket’.

The message from Stonebridge’s Brown is to get the right advice.

“Investing in an EFT is a good strategy to hedge and diversify risk, but there are plenty of people who have a conviction in one particular company, buy that stock and make good money from it,” he says.

“Resources stocks are in very high demand. Many people still invest in the blue chip big guys, like BHP, Rio and Fortescue but there is a lot of money to be made in the explorers and IPOs.

“Last year, Stonebridge Group generated more than $100 million in investment for mid-sized resources companies alone. We did the IPO for Guildford Coal which floated at 20 cents and has since risen to 72 cents. Stanmore Coal floated at 20 cents in late 2009 and is now trading at $1.23.

“There are some great opportunities out there if you get onboard early."

Investor attitudes shift

While the investment managers are at the coalface, specialist finance educator 21st Century Education is heeding big demand for investment strategy advice and information.

CEO Jamie McIntyre says there are more advanced tools and learning processes available to potential investors than ever before.

“Investors are definitely a lot more cautious since the GFC and there is an emerging trend for people to take control of their own investing,” he says.

“Australian investors in particular are becoming more sophisticated and as their education increases then the level of control they desire generally does as well.

“This means more investors are seeking more advanced tools for investing. Instead of the traditional model of just investing into shares they are using sophisticated strategies such as options, CFDs, commodities, eminis and forex.”

21st Century provides courses for beginners and advanced investors as well as accounting and insurance services.

“We find most of our clients simply don’t know where to start when it comes to investing,” says McIntyre.

“Generally, the more educated someone is on investing the less capital they require to make the same returns. With no education the average person would need $1 million in the bank at 5 per cent return to make just $50,000. However with a financial education a sophisticated investor can make that kind of return on as little as $100-$150,000, say renting shares at 3 to 4 per cent a month. A regular person that gets educated can quickly outperform the average investment portfolio.”

New finance products emerge

Gamma Wealth director Brett Evans says client demand for more personalised investment strategies has driven a raft of new services in the financial planning sector.

The financial advisory firm’s new managed investment facility is one example of many products targeting a more sophisticated investor client.

“People are becoming more aggressive with their investment portfolios, not in the sense of taking risks but that they want to be better informed of what’s going on,” says Evans.

“The managed investment facility was born out of clients’ frustrations with the lack of transparency and the lack of control in a managed investment fund. These options appeal to investors who are happy to let the planner do the decision making, but need to know what the decision is and what the likely returns will be.”

Gamma Wealth has developed three investment models that can be applied to meet the different client objectives.

While Gamma’s balanced and income-orientated products provide safe returns, Evans says the active opportunities portfolio is favoured by clients seeking short-term investment returns.

“This is the most aggressive growth portfolio, allowing a maximum of 25 per cent investment outside of the ASX 200, and a maximum of 20 per cent in companies worth less than $100 million,” he says.

“There is the opportunity here to invest in the little guys, but good returns can come from medium-sized companies also.”

Evans says technology has been a major factor in the development of a more-aware investor. Clients can even use an iPhone app to easily check their investment portfolios.