Pie Face wants slice of sharemarket

BrisConnections chairman and Rothschild bigwig Trevor Rowe is eyeing another sharemarket listing. This time in the takeaway coffee and meat pie business.

Rowe is a key shareholder in the Surry Hills-based franchisor Pie Face, which has started putting the feelers out for a potential initial public offer later this year.

It is unclear if it will be listed in three instalments, as BrisConnections was.

Pie Face was established by the former Citigroup operative Wayne Homschek and his partner, Betty Fong, in 2003.

Other people to have a piece of the pie company include Pacific Equity's managing director, Paul McCullagh, Fat Prophets' founder, Angus Geddes, the retailing, bridge-climbing and bra expert Brett Blundy, investment banker Matthew Howison, former ABN Amro Rothschild investment banking boss and Corpac founder Robert Crossman, Japanese-speaking fund manager Warwick Johnson and a former Citigroup media analyst, George Colman.

Homschek has also recruited Ben Macpherson (brother of Elle) as a shareholder and his chief marketing officer. The two were ousted from the board of the loss-making listed talent agency Artist & Entertainment Group, of which Macpherson used to be chief executive.

Shares in the talent agency, which has since shifted its focus to coalmining, have been diluted more than 10 times since their 2004 listing. They have also fallen more than 90 per cent. But the buzz from the Pie Face camp is all positive.

''Feedback from potential franchisees has been extremely encouraging. They like our business model and excellent economics. They like the way we operate in a very transparent way. But most of all they believe in our food, product and service offering,'' Pie Face's chief executive, Homschek, said in a recent statement.

The pie firm also seems to be positioning itself in the metrosexual pie-eating segment, noting it already has a ''cult reputation'' for its ''cool'' and ''edgy'' brand.

It will be interesting to see how the market responds to a US-born entrepreneur's attempts to crack into a traditional Australian food segment.

Downturn may be 'the big one'

The risk of a Great Depression-style global debt-deflation cycle is one in three, according to an investment bank economist.

Beyond an anticipated cyclical slowdown in the next six months, Morgan Stanley economist Gerard Minack has raised the possibility of a substantial structural risk caused by lower asset pricing, high household debt levels, and a cash shortage.

"I think that for many Anglo economies the risk of a pronounced deleveraging-deflation cycle is higher now than it has been since the Great Depression," Mr Minack said in a note to clients.

"What makes this cycle different - and elevates the risk of a major unravelling - is the extremes that those trends have now reached."

In the United States, where the implosion of subprime debt values has affected other debt and asset markets, a number of economic gauges have risen to levels not seen since the time of the Great Depression, Mr Minack said.

Total US debt compared to the gross domestic product has surpassed levels seen in the mid-1930s. US household gearing is at an all-time high, as were US house prices before their fall in the wake of the subprime crisis.

Because of the tight links between the world's financial markets, a prolonged slump in the US could weigh down the global economy.

"The time is coming when we will all have to take a view on whether this cycle downturn is 'the big one'," Mr Minack wrote.

"That is, whether the virtuous forces that sustained the Anglo world's inter-linked boom in debt, leverage, and asset prices are turning vicious, leading to sustained debt reduction, asset price weakness, and, as a by-product, sharply lower rates and inflation."

Falls in home prices, employment levels and consumer spending give some suggestion about the magnitude of a possible slowdown in the months ahead, Mr Minack wrote.

He's not alone in his views that the slowdown we're seeing may not be of a cyclical, garden variety.

The International Monetary Fund released a report overnight warning that global markets remain fragile and face systemic stress one year after the subprime market crisis first emerged in the US.

The financial organisation noted there is no bottom in sight for the falls of the US housing market.

Looking ahead, the IMF expects global growth to stall, declining from 5% in 2007 to 4.1% in 2008 and 3.9% in 2009 amid an environment of "negative interaction between banking system adjustment and the real economy."

Bullish funds wrongfooted by the bears

Harvey Kalman is a man with a conundrum. As head of funds management with Equity Trustees he is responsible for Australia's best-performing diversified Australian share fund. But it's not something he can boast about. Over the past year the fund has lost 1.85 per cent.

The results posted by Australia's managed funds industry in the past two years provide a clear picture of what happens when a bull market turns bear. A year ago, investors were riding high. Share funds reported average returns of 25 per cent after fees and the best performing fund, Macquarie's Small Companies Fund, was up by 82 per cent. This year, according to figures from the research group Morningstar, the average share fund is down about 15 per cent and, thanks to an even worse performance at the smaller end of the market, that Macquarie fund has lost 33 per cent.

A year ago, investors were being rewarded for taking risks. Geared share funds took out four of the top five places for large-cap share funds, but this year those funds are languishing at the bottom of the league tables.

Colonial First State's 452 Geared Australian Share Fund, which last year topped the list with a 53 per cent return, has plummeted to the bottom with a loss of 43.42 per cent.

"Last year was the fourth year of the bull market and people who had been taking higher risks were seeing the rewards," says Anthony Serhan, the head of research with Morningstar. "This year we've seen the other side of that risk.

"It's a lesson in what happens if you go with last year's winners. Picking funds on short-term results is fraught with peril."

But while investors should brace themselves for short-term losses, there are funds that have bucked the trend. More conservative funds with less exposure to the sharemarket have largely remained in the black, though some bond funds have reported losses due to the subprime crisis, and funds holding unlisted investments also did better.

Serhan says uncertain times also tend to throw up "outlyers" - more specialised funds that are suited to specific market conditions, though they can perform equally badly when the conditions go against them.

Of the 20 best performing retail unit trusts over the past year, only eight have assets of $100 million or more. These funds are a mix of specialist resource share funds, unlisted property funds, and aggressive mortgage funds, which lend to the riskier end of the mortgage market.

The main exception is a BlackRock (formerly Merrill Lynch) global hedge fund which topped the tables with an annual return of 33.74 per cent. Its director, product specialist Vincent Lo Blanco, says this is a tactical asset allocation fund, which means the fund manager "can cherry pick the best ideas from BlackRock globally in the asset allocation world". Basically the fund uses derivatives to back its views on the merits of different investment sectors. For example, Lo Blanco says the fund is now long in put options over the German, US and British equity markets. It is also heavily invested in gold and commodities.

It can also take positions on the relative merits of investments. For example, Lo Blanco says the fund has been favouring US growth stocks over value stocks, energy stocks over the S&P500, the Australian dollar over the New Zealand and US dollars, and the Brazilian real over the euro.

Because the strategies are derivatives based, Lo Blanco says the amount of risk taken can reflect the degree of conviction the fund manager holds, and it is possible to manage risk by running stop losses to limit the downside if it is wrong.

Lo Blanco says the fund has a long-term target of earning 12per cent over the UBS Australian Bank Bill Index and probably benefited from the market turmoil last year.

"When markets and valuations are changing rapidly and medium-term trends emerge, the fund has more opportunities," he says.

In the critical Australian equities sector, the average fund struggled to beat the index return of -13.67 per cent. "When you have such a narrowly led market, with much of the growth coming from BHP, Rio, and Woodside, you don't get a lot of outperformance," says Serhan.

The top performing retail diversified Australian share fund was the Equity Trustees Core Australian Equity Fund with that loss of 1.85 per cent. Kalman says 30 per cent of this fund is invested in the wholesale SGH 20 fund which will probably be the only Australian share fund to report a positive return for the year. Managed by a boutique group, SG Hiscock, Kalman says the SGH 20 fund is a concentrated fund that holds only 15 to 25 stocks and the manager has a strong stock-picking track record. A further 50 per cent of the Core fund is invested in Equity Trustees' own Flagship Fund which focuses on income and has a low stock turnover. Kalman says it also did better than the average fund last year.

Other top performing equity funds included the Prime Value Growth Fund and the Equity Trustees Absolute Return Trust which Kalman says is able to take short positions to benefit from falling markets and to shift money between different sectors, such as moving from small to large companies.

Two of the worst-hit sectors over the past year have been smaller companies and listed property trusts, and the poor performance has flowed through to funds investing in these sectors. Serhan says the average small companies fund lost around 3per cent more than the index, which lost 20.5per cent. "A lot of active managers chose not to participate in a lot of the speculative resource plays that have driven the index," he says. "They've been quite cynical of the earnings of those companies, but it has hurt their performance."

He says funds focusing on the smaller end of the market were also hit by a liquidity freeze.

At the top of the table was the Portfolio Partners Emerging Shares fund with a loss of 5.38 per cent. This and UBS's Emerging Companies Fund were the only retail diversified small companies funds to lose less than 10 per cent, while at the bottom of the list, the Smallco Investment Fund was down 46 per cent.

Serhan says property securities funds also struggled to add value with the median manager pretty much in line with the index return of minus 37.7 per cent. Australian Unity's Property Securities Income fund managed a relatively impressive loss of 8.45 per cent, with the second-ranked fund, APN Property for Income Fund losing 28.03 per cent.

While the average diversified global share fund also tended to produce an index-type return, Serhan says there were areas where managers could add significant value. He says the index is unhedged, but a growing band of managers have been using some hedging to offset the impact of the rising Australian dollar. He says the index also has very little exposure to emerging markets, and even a small weighting to these markets would have boosted returns over the past year. The K2 Select International Absolute Return fund was the best of the large cap global share funds with a return of -7.04 per cent.

Falling sharemarkets also affected the returns of multi-sector funds where conservative funds which have lower sharemarket exposure tended to shine. The exception was BlackRock's Global Allocation Fund which has a value style of investing and can switch between shares, cash, and fixed interest. Fixed interest funds also tended to do better than those exposed to the sharemarket, though some felt the fallout from the global credit crisis (see column page 45).

Serhan says aggressive mortgage funds and unlisted property funds were among the best performers, but should be treated with caution. "A lot of funds, including the big super funds, will look good for the year because they have a large component of unlisted assets," he says. "But in all likelihood their assets will have to be marked down during this year. Valuations in unlisted assets move more slowly, but they will come through."

Serhan says loans in mortgage funds are also on the books at face value, making them look attractive against other funds where the value of debt securities was adjusted to reflect the blow-out in credit spreads. "A lot of the better performing mortgage funds are also more aggressive and fundamentally riskier propositions," he says. "You have to consider the risks attached."

Party planners

The performance of fund managers has been poor but it hasn't stopped them lavishing extraordinary largesse on the financial planners who spruik their products to investors. Stuart Washington details the duchessing.

A series of remarkable documents introduces investors to a world where their money is spent on $440 Melbourne Cup lunches, trips to the Bledisloe Cup and the State of Origin.

Less sports-minded investors can comfort themselves that their money was spent last year on nights out to concerts such as Eric Clapton, The Boy from Oz, or the Police.

Perhaps needless to say, investors for the most part are not invited to attend these fund manager-funded revels.

"Relationship building", "schmoozing", "building brand awareness": these are practices that are at the commercial heart of business in Australia. But while these tactics are well known in generic terms, they are seldom revealed in painstaking dollars-and-cents detail.

The practices are revealed in registers that document the money paid from fund managers to financial planners. The registers reveal a symbiotic financial services world carved up between manufacturers of product - the fund managers - and the financial planners they court for their distribution networks.

About 1000 people attended the Professional Investment Services conference in Las Vegas in May, with fund managers such as Skandia tipping in $19,800 each in generous sponsorships totalling more than $200,000.

That moment at the Planet Hollywood casino might be snap frozen as the last gasp of the noughties boom in financial planning.

The insight into fund manager behaviour is gained from disclosures of what is known as "soft dollar" spending. The term comes from "soft" commissions paid to financial planners in entertainment and sponsorship as opposed to "hard" commissions that have to be disclosed upfront to investors.

The details are kept in alternative remuneration registers by fund managers and financial planners under an industry code of conduct.

Registers requested by the Herald from four of Australia's largest fund managers reveal how they choose to spend their soft dollars. Large fund managers such as Colonial First State spent about $400,000 last year duchessing, entertaining and glad-handing financial planners.

With investors no longer enjoying the benefit of double-digit returns, it is perhaps unseemly, and even rude, to suggest that previous efforts will be matched.

Grave news indeed for attendees of this year's annual conference run by financial planning group Count Financial. They had to do without the $2079 "provision of an artist to create live caricatures" provided by BT last year.

Never mind. Five BT staff and five Count staff were still able to break bread at a BT-funded dinner in April that cost $1395.

NO DOUBT eager financial planners were squired along to a dizzying list of sports events last year, including (with their providers in brackets) the Australian Open Tennis ($7263, AMP Capital Investors); Derby Day ($1320, Aviva), Oaks Day ($660, MLC), Tri Nations ($500, BlackRock) and the Cox Plate (Colonial First State). These entertainments can occur on a considerable scale. A formula one grand prix entertainment package from its key sponsor, ING Australia, can cost more than $4000, although most are priced at $1247.83. Last year more than 90 financial planners received the benefit in a program that cost ING just over $200,000.

(In fairness, journalists are frequently invited to these kinds of events, and thankfully no known registers are kept.)

Most industry participants such as Barry Martin, the joint managing director of financial planning group Millennium3, say this kind of spending is not as bad as it once was. For example, the nexus between fund managers offering incentives to financial planners for extra sales has been broken.

"There's not too many that work the way they used to," says Martin, an industry veteran. "There are no volume-based incentives as far as I know out in the marketplace."

This leaves marketers to espouse fairly limp metrics for the success of their spending. Felicity Nicholson, the general manager of marketing for fund manager Skandia, which spent about $70,000 entertaining and educating about 40 financial planners at its annual sponsorship of Geelong Sailing Week in January, says: "The objective is to talk about our products and anchor our brand in front of people." Not everyone talks brand-speak. "Organisations have a range of sales managers to build a range of relationships," says Paul Forbes, the chief operating officer of Professional Investment Services, the largest financial planning group in Australia. "Is there a conflict? There's always a conflict if you have sales teams out there promoting their product."

This conflict goes to the heart of why there are soft dollar registers: it enables people to monitor whether those conflicts are kept in check. Whether planners are being unduly influenced to select certain fund managers ahead of others.

And for the most part the spending seems to fit within reasonable parameters. But there are exceptions. For example, Millennium3's Victorian state manager, Cos Rullo, chosen by Martin to attend a week-long study tour to Paris at fund manager Axa's invitation.

A single fund manager getting the ear of a senior financial planner for a week? Priceless.

Other "study tours" are slightly more understandable. An AMP Financial Planning analyst received a $20,000 trip to Europe paid for by 15 external fund managers.

The large group funding potentially reduces the conflict. Still, nice trip.

All this spending indirectly raises another aspect of financial planner remuneration: exactly how clear is their remuneration from all sources being spelled out?

SOME in the industry choose to avoid the conflict created by giving and accepting soft dollar payments altogether.

Kerr Neilson, the managing director of listed fund manager Platinum Asset Management, does not accept entertainment invitations from brokers (which do not have to be disclosed) and does not spend money on financial planners.

He says of his principle: "The position we had was that if we were any good people should (buy us). Everything was predicated and remains predicated on that."

But he says this is not the way many in the industry think about the supply chain of frequently small financial planning businesses. "I talked to one guy who said there was only one way to run a business: to pay your distributors," Neilson says.

"He then gave me a number that was so large that it made a joke of getting up every day and fighting the market."

Todd Karamian is an adviser with financial planner Bluepoint Consulting, which targets high net-worth individuals and has about $300 million under advice. In something of a rarity in the financial planning world, he shares Neilson's views.

"We have a policy that we tend to reject all of those offers that come around, purely on the fact that we don't want to be a beneficiary of a gift through my clients' money," he says.

And he believes the potential for distorted decisions within the financial planning community is real.

"If you are a large dealer group and you are having consistent discussions and you are consistently getting sponsorship or gifts from large fund managers or insurance companies, it can start influencing the relationship, in my opinion," he says.

This is not the way those in the thick of the soft dollar payments see it. Professional Investment Services - either at its planner level or head office level - received sponsorships for items as varied as its annual conference last year ($15,000 from AMP Capital Investors), the PIS South Australian Golf Day and the PIS Townsville Annual Race Day (both sponsored by Colonial First State), the PIS v The Fund Manager cricket challenge ($550 from BT) and the PIS Strategic Partners Golf Day ($450).

"The best relationships are with the people who we give the most business. Because we give them lots of business, they are all over us," Forbes says.

IN TERMS of soft dollar payments it is worth noting that the entertainment - apart from marquee events such as ING Australia's formula one spending or Skandia's Geelong Sailing Week - is outstripped in dollar spending by seemingly mundane - and frequent - "sponsorships" of conferences.

Mundane, that is, until you realise many of those conferences are held overseas.

MLC's financial planning business, Garvan Financial Planning, is no slouch in this area, collecting $630,000 from 19 different fundies for its Hong Kong Advice Conference in September last year.

Everyone runs a reasonably consistent line that these are terribly serious affairs and there's not much fun to be had.

MLC's chief executive, Steve Tucker, who has boldly positioned MLC's financial planners as a group moving towards receiving advice-based fees rather than fees from commissions, says he has no concerns about the sponsorships.

"We like to have as many suppliers attending the event as possible," he says. "On these types of payments we have looked through it pretty hard and we think it's pretty reasonable to go through the way we do it."

In relation to the Professional Investment Services conference in May in Las Vegas (no sirree, no fun at all), PIS's Forbes says the three-day conference was "one of the hardest working conferences in the industry".

The mechanics of the event start revealing the importance of the sponsorships to the event being held. There were 1000 attendees, made up of about 720 advisers, with the rest being partners or sponsors. Each of the delegates was subsidised to the tune of about $1400 - in part by PIS, and in part by sponsors.

Large groups like Garvan and PIS can possibly lay claim to these sponsorships being little more than presentation time from the fund manager and a bored staffer sitting on one of those stalls where everybody avoids eye contact.

But the situation of smaller financial planning groups receiving large conference sponsorships is perhaps a little less clear cut.

Brian Dau, the chief executive of the mid-sized Melbourne-based financial planner Meritum, says he received about $110,000 for his conference in Las Vegas in May this year.

A lot of money from a small group of fund managers for a relatively small business. The potential of influence is obviously high.

THERE are fears within the industry that many financial planners have a compromised business model that may, in part, rely on soft dollar and other payments to limp along.

These payments include rebates from the investment platforms that they choose to offer the investor, raising the prospect of a whole new range of conflicts.

"It's a payment that was introduced to help dealer groups be in a position to break even and show a profit," says Millennium3's Martin. "There's a hell of a lot of dealer groups that are not profitable or aren't showing great returns on their investment."

This parlous state exposes the industry to the very charges that it is trying to avoid through laborious alternative remuneration registers and painfully high disclosure obligations.

Tucker is big on transparency and simplicity when it comes to the broader issue of payments for financial planners. Not only have MLC's planners adopted a position of moving to fees-for-advice, but any rebates received are passed to the end customer.

"We took a view in the medium term this was the way we wanted to set up our business model. We think we are well positioned," he says.

Others are still hooked on rebates as a source of income.

"It costs a lot to run distribution. You have to pay for the fact that we're going to have to continue to run that," says PIS's Forbes.

Martin makes clear that it's not all beer and skittles in financial planning land. He can't remember the last time he was invited to a golf day.

No, but his register shows he was invited within the past 13 months to Derby Day by Aviva, a Police concert by Comminsure, the Bledisloe Cup rugby by Suncorp and the NRL grand final by Comminsure.

Again, this is not world-class duchessing. But there are still risks.

The head of Australian Unity, David Bryant, says of the issue of payments to financial planners: "I think if you rated it the industry has taken itself from a C or a D to a solid B. The question is, what else can the industry do?"

Look what they've done to my super funds, Ma!

On the brink of the worst super returns in years, investors should ignore the urge to purge.

Brace yourself. Some time in the coming months you'll be hearing from the trustees of your superannuation fund about how it performed over the past financial year. It's likely to be ugly. How you respond to the numbers you see when you open the envelope or the email will determine whether things get uglier still in years to come.

An ill-advised switch to another fund or a poor decision to change investment options, just because of poor performance over the past 12 months, could set you up for much bigger financial problems later.

The superannuation ratings firm SuperRatings estimates the average so-called "balanced" fund (a fund that has its money spread among a range of different asset classes) will post a loss of about 6.4 per cent for the financial year. That's painful enough, but there will be worse news for investors in funds that have a more concentrated focus. SuperRatings estimates "growth" funds will post losses in the order of 9.7 per cent and "high-growth" funds 11.8 per cent.

[These funds' names refer to the proportion of "growth" assets - such as shares and property - that they hold. The higher the growth objective, the higher the proportion of growth assets, and as some members are about to find out, the higher the volatility and the greater the probability of short-term losses.]

But even investors in growth and high-growth funds will be looking at the returns from Australian and international share funds and breathing a sigh of relief: SuperRatings estimates that Australian share funds' losses will be in the order of 12.2 per cent for the year and international share funds' losses in the order of 17.3 per cent.

So-called "capital stable" fund options have done exactly what it says on the tin: the average return for the year should be about 0.6 per cent, according to SuperRatings.

Meanwhile, cash funds have increased in value by about 5.4 per cent over the year. And while that might seem like a clear indicator cash is the best place to invest your retirement savings, it has been discussed on these pages recently why investing in cash can look smart in the short term but in the long term leave you looking foolish.

So, faced with bad news from your fund, you have decisions to make: do you accept the returns your fund has produced and stick with it, or do you seek out a better alternative? Do you stay where you are but switch to a different option within your existing fund?

Switching investment options is simple. So is seeking out an alternative fund - certainly it's far simpler than it was the last time super funds produced such poor results, now that choice of fund is available to the vast majority of members. For precisely the same reason, it's also easier to make a dud choice.

Before switching, you need to take into account several factors, not least of which is whether you're 100 per cent sure the fund you plan to switch to is a better prospect than the fund you intend leaving.

John Paul, chief executive of industry super fund Asset Super, says switching from one investment strategy to another, or from one fund to another, could force you to crystallise losses that have already happened.

He says there are also insurance issues to consider if you decide to switch funds - the arrangements of the fund you're moving to may not be as generous as those of your existing fund, or there may be some other reason why you cannot get the same cover.

A decision to switch should not be a knee-jerk reaction, Paul says.

"People forget very quickly that the sharemarket has given more than 20 per cent [returns] now for three years in a row," he says. "That's 60 per cent growth in a three-year period, but this year it's gone backwards and they [members] are upset."

Paul also advises members to make sure any comparisons they make between funds are true like-for-like comparisons. For example, the returns of each fund need to be calculated and quoted on the same basis - it could be disastrous to make a decision to switch if you compare the gross return of one fund with the net return of another.

"But it's not just gross versus net returns - you've got to compare the mix of assets," he says. One "balanced" fund might have a 60/40 split of growth and defensive assets; another "balanced" fund might have a 70/30 split. This difference can have a big bearing on performance, and the funds' returns can't be directly compared.

Andrew Boal, managing director of the consultancy firm Watson Wyatt Australia, says chasing past performance has its dangers. It's very difficult to pick in advance which fund is going to perform best, he says, and picking a fund on the basis of past performance is almost guaranteed to cost you a lot of money.

Boal says a good illustration is someone who switched regularly between two different types of super fund - a growth fund and a conservative fund - over the past 20 years. Boal assumed the person started out the period in the growth fund.

In the first year - 1988 - the growth option returned 9.2 per cent and the conservative option returned 14.5 per cent. So the investor switched to the conservative option for the next year. But in 1989 the growth fund returned 19.6 per cent and the conservative fund 14.8 - so they switched back for the third year. Then, in 2000, the growth fund returned just 1.4 per cent and the conservative option returned 13.1 per cent - so they switched funds again. And so on.

In total, over the 20 years, there were 10 switches (only 10, because in some years the fund they were in was the best-performing fund so they stayed put). At the end of the period, Boal compared the return earned by the investor with what they'd have earned if they'd stayed put for the whole 20-year period. He found the strategy was successful at one thing in particular - destroying value. In fact, it wiped an average of 0.7 per cent a year off the return the member would have received if they had sat tight and accepted that poor years every now and then are part and parcel of investing in growth assets.

It might seem like 0.7 per cent a year isn't a big deal - no great damage done. But the effect of a poor switching strategy can be significant. Consider two fund members, both earning $58,000. Each has contributed the maximum 9 per cent superannuation guarantee contributions over their working lives. One sits tight and the other switches, as described by Boal. The member who sits tight and earns 8.5 per cent a year on his savings would reach retirement at age 65 with about $400,000 accumulated. The "switcher" who earned 7.8 per cent a year (that is, 0.7 per cent a year less) would reach retirement with $340,000 - a difference of 15 per cent.

The poor switching strategy puts the switcher behind the eight-ball from the moment he retires. Pursuing the same strategy in retirement can cause you to fall further behind during the decumulation phase, too.

Imagine you've reached retirement, that you're single and that you earn about $58,000 a year and plan to retire on an income of about $38,000 a year (that is, about two-thirds of your pre-retirement income). Boal says that if your retirement savings earn about 8.5 per cent a year, your retirement savings will last from age 65 to age 79.

But if your retirement savings earn 0.7 per cent a year less (that is, 7.8 per cent a year), your money will run out three years earlier. Boal says that when you factor in the age pension entitlement, the investor who sat tight would have savings that last 20 years (almost until age 86), while the switcher would run out of money 4.5 years sooner, at 81.

Depending on your perspective (or who you listen to), 2007-08 has been the worst year for superannuation fund members since 2001, since 1994, in the past 20 years, or ever. But that's partly the point - if you only vaguely recall the events of 2001, 1994 or 20 years ago then you can take some comfort from the idea that the events of the past financial year will also eventually be just a vague memory.

Despite the turmoil in financial markets, there is nothing that professional investors can point to to suggest that the way we go about investing should change. So, as long as you're in the right fund now, there's not necessarily a need to radically change where you're investing your retirement savings.

Brian Parker, investment strategist for MLC, says if your aim is long-term wealth creation - and for most superannuation fund members that is the case, whether they're in the accumulation or the decumulation phase - then a healthy exposure to shares is still critical. But so is a properly diversified portfolio, and Parker questions whether a typical "balanced" portfolio, which may have performed well in the 20 years to date, is sufficiently well diversified to perform as well over the next 20 years.

"In virtually all of the asset allocation work that's done, one fundamental premise that it's based on is that, over time, higher risk tends to be associated with higher reward, and higher return comes from taking 'business' risk," Parker says.

"We're living in a free-market economy, and wealth in a free-market economy is built by businesses. So, if I want to build wealth for my retirement I need to have exposure to business.

"Will it still pay to have a fairly substantial chunk of equities as part of an investment strategy? The answer is a resounding 'Yes'.

"But another part of it is how people arrive at their asset allocation. If you decide your asset allocation in a relatively naive way - if you just say that over the past 20 years shares have returned this, bonds have returned that, cash this and property this, and I am going to determine my asset allocation based on what has happened in the past 20 years, and 20 years is a long time and that's as good a guide as any to what is going to happen in the future . . . it would be easy to come to the conclusion that a typical diversified fund is set for a re-run of the past 20 years.

"If the next 20 years looks like the past 20 years, then that type of diversification is home and hosed. And there's every chance that that could work out quite beautifully - but I am just wondering if the typical diversified fund out there is diversified enough.

"Does an over-reliance on Australian shares still make sense?

"To the extent that people have been a bit unconventional [with asset allocation] in the past few years … I think that you can make a case to say that some of the 'alternative' strategies that have been incorporated into some funds - in some cases the emperor has no clothes. People have taken risk that they do not know about, or they have been prepared to give up too much liquidity for not enough return.

"You could also make the case that some people think they are putting their money into strategies that were meant to generate good returns when things got tough, but what they have ended up with is really just a leveraged exposure to high-risk markets or high-risk assets."

Parker says asset allocations that are rigorously "stress-tested" - those that are designed to stand up well under a wide range of positive and negative investment scenarios - will fare best in coming years. And that means super funds, and fund managers, have to find assets that provide genuine diversification, not just take on more risk in the hope of higher returns, or take geared exposure to the same asset classes they already hold.

"[You have to] really stress-test your asset allocation, and I don't think there has been enough stress-testing done," Parker says.

"We need to do our homework a lot more and really stress-test … a wider range of scenarios than just looking at the last 20 years and hoping that the next 20 years is exactly the same."

Bottom-up analysts ignore the big picture

INVESTORS nervously considering the forces acting on their share portfolios are caught between two opposing camps.

On one side, the company-focused analysts are still basking in 15 years of economic sunshine, confidently forecasting profit growth in industrial companies this financial year of a rosy 9 per cent.

On the other, the macro-economic analysts - known as equity strategists - are predicting a fall in profit growth in the same companies by up to 10 per cent.

They can't both be right.

It makes a weird time in the sharemarket even weirder when the macro analysts in one stockbroking firm find themselves in violent disagreement with the company-based analysts in the same firm.

In a report this week, a Goldman Sachs JBWere equity strategist, Chris Pidcock, said: "We continue to believe that the EPS [earnings per share] growth forecasts … remain too optimistic (in particular fiscal year 2009), with sales growth and margins still at unrealistic levels given the macro and domestic outlook."

And this was after the company-based analysts there downgraded their 2009 profit growth expectations for industrial companies from 12.1 per cent to 8.4 per cent.

Last month, Macquarie Group's equity strategists predicted a fall in profit among industrial companies of up to 10 per cent in 2009, against a company-based analyst consensus of more than 10 per cent growth.

"You have got a set of numbers that assumes some sort of recovery," Macquarie's equity strategist, Tanya Branwhite, said when releasing the report. "Unfortunately, that's premised on the cycle we have seen in the last five to 10 years. What is facing the economy at the moment is nothing like we have seen in the last five to 10 years."

Brian Han, an analyst for the fund manager Constellation Capital, also believes company-based analysts may find it hard to give up extrapolating from the bull market conditions experienced in the past five years.

"When you are a bottom-up analyst [after] such a period of conditions, bull market conditions, the easiest practice is to say it will recover in 12 to 18 months," he says.

Part of the problem is the information analysts receive from the companies.

Don Williams, the chief investment officer of Platypus Asset Management, says of company guidance: "At the moment most of them will tell you it's tough, but we expected it to be tough. There hasn't been a lot of changes to guidance outside of retail and other specific companies. That's probably the reason a lot of the bottom-up guys are hanging on to their numbers."

But Mr Williams is expecting any company guidance on future profits in the forthcoming reporting season to be severely constrained. "Not many corporates come out and say, 'Our outlook for the next two years is completely stuffed'," he says.

Mr Han agrees there will be a lack of guidance. "If I were a chief executive I wouldn't be brave enough to predict 12 months out."

But, funnily enough, Mr Han expects this lack of guidance will eventually push the two divergent forecasts closer together, because company-based analysts will be forced to read the economic signals to divine a company's fortunes. "What they earn is a function of where the economy goes," he says.

Roger Montgomery, the managing director of the fund manager Clime Asset Management, says company-based analysts look at the wrong things and in too short a time frame.

"Analysts live in a world that the rest of Australia doesn't inhabit. They live in that very narrow real estate band from the beach to the Harbour Bridge," he says.

"They don't travel west beyond that and as a result they are not attuned to what, in this case, the economists can see."

But Mr Montgomery, who espouses long-term value investing, argues they are too short-term in their views - generally focused on next year - rather than a company's growth over a five- to 10-year period.

As for the "value" that is being found in the sharemarket after it fell through 5000 points, there is probably one simple question to be asked of company-based analysts.

If even their own colleagues do not believe their profit forecasts, why would you believe their predictions of value?

The year everything changed

The stormclouds are gathering. Our market has plunged below 5000 for the first time in two years, oil prices are soaring, America is in (unofficial) recession and the Reserve Bank is clearly worried about the home front.

After years of partying, many believe it's time for the inevitable hangover when gloom and doom replace the exuberant optimism that just a few months ago seemed as though it would never end.

But how much of this is just another cyclical downturn and how much of it is related to a more permanent shift?

I'm going to go out on a limb here with a couple of bold predictions. I think we are at a pivotal point in history; that we are witnessing the early stages of a massive shift in the global economy, in the balance of power and in the way we live.

Australia has become a barometer for these far-reaching changes. We are being pulled in opposite directions as we send vast quantities of resources off to China while a virus that started on Wall Street and spread across the US and Europe has infected our financial system.

In years to come, it's quite probable we will look back at 2008 as the year in which everything changed. And most of the changes being wrought upon us relate to energy, our use of it and its cost.

There are several powerful forces at work at the moment; some cyclical and some far more fundamental.

Let's look at the cyclical ones first. The worst credit squeeze in history is under way. Given it follows the biggest debt binge the world has ever seen, it's not surprising. On top of that we have a recession under way in the US.

On their own, those events are not particularly worrying. Markets and economies go up. And then they go down. What is worrying, however, is that in the early stages of a recession, Wall Street's biggest financial institutions already have been forced to go cap in hand to the Middle East and Asia for emergency funding.

And that's where we come to the more fundamental and permanent changes at work on the global economy.

What is happening in China and, to a lesser extent, India is akin to what occurred in North America in the 19th century. Back then, the balance of economic power shifted from the Old World to the New World. It's happening again now.

There are differences - vast differences - in this new shift. Unlike the rise of North America, China and India already have vast populations. And as these populations move rapidly from Third World to First World, they will demand more resources, to live the lifestyle we enjoy.

Until recently, both these nations were low-cost exporters, providing cheap manufactures to the West. In reality, their main export was low inflation as our clothing and electronic goods became ever cheaper.

Now they are becoming self-sufficient economies - similar to the US. Their own economies are fuelling their growth and they are becoming less reliant on exports.

Tom Albanese, the head of the mining giant Rio Tinto, doesn't exactly see eye to eye with BHP Billiton's chief executive Marius Kloppers on much.

But the one thing they do agree on is China. Both see continued strong economic growth for years, and even stronger growth in the appetite for metals.

Metals are one thing. The real change being wrought on us is in energy. And it is energy - or rather the cost of energy - that will determine our future.

It was energy that started the Industrial Revolution 200 years ago - when we first started burning hydrocarbons in the form of coal. And it was energy, in the form of oil, that sparked the transport revolution a century ago.

You'd have to be blind not to notice what is going on now. It's all over the news, it hits you in the hip pocket every time you pull in at the petrol pump.

Pfff, we've had oil price spikes before, I hear you say. But the oil price shocks of the 1970s were caused by an artificial restriction of supply. This time around, the spike is being driven by demand. And if you ask any seasoned oil explorer, even they now talk about peak oil being just a few years off.

Peak oil is the point where we are on the downhill run in known supplies. There is still oil out there. But it is in ever deeper water, in more politically unstable areas or in tar sands where the cost of extraction has been so high it has been uneconomic. Some of it will be developed, which will stabilise prices and perhaps even push prices temporarily lower. But supplies are finite and demand is soaring.

Think about our energy use in the West. Take an average Australian of a century ago and compare him or her with us in terms of our energy consumption. We've got electricity on tap, 24 hours a day. We ride around in fast fuel-guzzling cars. We leave home and land in Los Angeles in 16 hours.

Until recently, several billion Chinese lived as we did a century ago. Imagine their energy demands rising to our levels and you'll quickly figure oil prices aren't going to return to the levels of a year ago.

Add to that the damage we are doing to the environment in the form of greenhouse gas emissions and the extra costs of pricing that damage through carbon trading.

So is this the ultimate disaster scenario?

Not necessarily, according to a recent issue of The Economist. Higher oil prices make alternative energy sources more viable - biofuels, solar and wind power. And if money and expertise are invested in those areas, they will become more efficient, more economic and maybe, just maybe, lead to a bright future. But prepare for a lot of pain along the way.

FAQ - Technical Bourse Data

FAQ - Technical
Connection
Why do I see a "Not Connected" Message?

The Not Connected message is usually coupled with another message, which will provide more information as to the reason you cannot connect. These are listed below.


"Connect Failed"
This message will usually appear if there is a firewall or proxy server on your PC/network blocking either the Bourse program (bda6.exe) or the port that we use to send data (8372).
"Hostname Resolution Failed"
This message will usually appear if there is an issue with your Internet connection/Internet Service Provider or Firewall.

"Access Denied"
This message will usually appear when a username or password has been entered incorrectly. It may also appear if your Bourse account is already logged into The Bourse software on another PC.


How can I configure my firewall to allow the Bourse to connect?

Detailed step-by-step instructions for the most common firewalls can be found here:
Norton Internet Security set up for Bourse application
Disabling Windows XP Firewall
ZoneAlarm Firewall setup to allow the Bourse

Charts
To include the new features of current price and volume on your chart, you will need to follow these steps.


Close a chart
Reopen the chart and check for the current price and volume boxes on the Y Axis.


Replicate for each chart in your layout.

Why am I missing today's data on my chart?

If the market has opened, the most likely reason that you are not getting the current day's data is because you are not logged into the Bourse (See: Connection)
Why do my charts only go up to a certain date?

There can be a few reasons for this. The stock may not have traded since the last date on your chart. Also, your time and date settings on your PC may be incorrect which will affect the chart.
There appear to be gaps in my charts - what should I do?

If there are gaps in a particular chart, close the chart then click on the Chart menu and select the Data Maintenance submenu, then select Clear Daily Code. In the window that appears, enter the symbol for the particular security that has a gap in the data, and then click OK. You will now need to re-request the chart data for that security. If this does not fix the problem, call our friendly Customer Care Team on 1300 363 766.
When I bring up a chart, none of the chart axis labels appear. That is, there are no prices showing.

This can occur if you have modified your chart colour settings. For example, if you have changed the background of the chart to white you need to ensure that the foreground element for the label colour is set to black (or some other colour that will show up against a white background. Instructions for modifying colour settings can be found in the software help.)



General Maintenance

How to save a watchlist


Shut down the The Bourse.
Right click on The Bourse icon on your desktop. In the menu, left click on “Properties”.
In “The Bourse Properties” window, left click on the “Find Target” button (“Open File Containing” for Vista customers).
This will open “TheBourse6” folder. Here, open the “Bin” folder.
Rename any watchlist file you would like to keep, e.g. v6.8.3_SAMPLE_TOP100.wcl. All watchlist files must end in .wcl
Rename any indicator style file you would like to keep e.g. v6.8.3_Volume.sty. All indicator style files must end in .sty


Options

Why are the current months contracts not appearing on my options screen?

On the day of expiry, the current options contracts will move to the bottom of the options list.
What do I do if I have contracts/series missing from my options page?

You will need to run the Options Fix patch that is available here.