IN BRIEF

INVESTING

Alternative

to term

deposits

SamMorris,investmentspecialist,ActiveX

A

s recentlyas

2011 youcould

collectanannual

returnofmorethan

6%ontermdeposits.Sincethenthere

hasbeenconsistentdeclinein ratesto

justover2%,wheretheysitnow.

Andmuchofthecommentary

oninterestratesindicatesit willbe

sometimeyetbeforetermdeposit

ratesshifthigher.Investorsare

oftenwillingtoacceptthisbecause

theyfeeltheirmoneyis secureand

accessiblein a bank.However,there

areviablealternatives.

Forexample,fixed-income

exchangetradedfunds(ETFs)are

convenientandeasilyaccessible,

offertheabilitytobuyandsellduring

thestockmarket’sopeninghours

andcanoffera higherrateofreturn

thantermdeposits.

TheseETFsdocarryextrarisk

comparedwithtermdeposits,

includingcapitalvaluevolatility

causedbyday-to-dayfluctuationsin

thevalueoftheunderlyingsecurities

andnothavinga government

guarantee.However,theycancarry

lessriskofpermanentcapitalloss

andday-to-dayvaluemovement

thanequitiesorrealproperty

investmentsheldforincome.

Lowerrisk

A bondis a fixed-incomeinstrument

thatrepresentsa loanmadebyan

investortoa borrower,typicallya

companyora government.It hasan

enddate,whentheprincipalis due

tobepaidtothebondowner,and

usuallyincludesvariableorfixed-

interestpayments(coupons)that

willbemadebytheborrower.

Bondsareeasilytradable,but

oftenonlyin denominationsof

$500,000andabove.Assuch,most

individualinvestorsaccessbonds

throughmanagedfundsandETFs.

Mostimportantly,becausebond

investorslegallymustberepaidtheir

capitalbymaturity,fixedincome

is consideredmuchlowerriskthan

sharesorrealproperty.

ButnotallbondETFsareequal.An

activelymanagedbondfundcanbe

a sensibleoptioncomparedwitha

passive(orbenchmark-hugging)one

becausefixed-incomebenchmarks

aregivinginvestorsmuchlower

returnswithmoreriskthanthey

were 10 orevenfiveyearsago.

Ata timewhenself-managed

superfundshavea high

concentrationofAustralianequities

andhighamountsofcashin term

depositsandsavingaccounts,a

fixed-incomeETFis onealternative

todiversifya portfolio.

XMORE

INVESTING

STORIES ON

P64-

COMPILED BY DARREN SNYDER

INCOME ETFs

T

he healthcare sector was the

major beneficiary of Chinese

investment in Australia during 2018,

receiving more than $3.4 billion.

It accounted for more than 41%

of $8.2 billion invested here by

the Chinese last year and signifies

a trend away from large strategic

investments in resources, energy and

infrastructure. However, this total

was down 36.3% year on year.

A report by KPMG and the Univer-

sity of Sydney says that after a steady

growth trajectory since 2015, health-

care represented 41.7% of total Chi-

nese overseas direct investment (ODI)

in 2018. It was followed by commer-

cial real estate (36.7%), energy/gas

and oil (8.8%) and mining (5.6%).

Doug Ferguson, the report’s co-

author and KPMG head of Asia and

international markets, says while this

annual result brings Chinese ODI in

Australia back to the second lowest

level since the mining and gas-driven

investment peak of 2008, “there is no

reason why Australia can’t return to

higher levels of Chinese capital inflow

seen historically.

2018 need not

define a trend of

lower Chinese

investment in

Australia into

the future but it isa

moment to reflect upon.

“Australian companies seeking

further investment must continue to

explore and present unique oppor-

tunities that appeal to the key value

drivers of targeted Chinese inves-

tors,” says Ferguson.

Chinese investors back a healthy Australia