A Look Into The Future Of Investing In Equities

FULL-SERVICE PORTFOLIO SERVICES TEAM

Our portfolios and equities services team can assist with purchasing and selling any shares- Australian Shares, International Shares, ETFs, LICs, and others. With our extensive range of offerings and exposure to multiple platforms and investment technologies, share executions can be completed for our investors on the ASX and other established and emerging markets exchanges.

Equities or shares represent part-ownership in a company. Equities or shares are typically traded on a stock market and an individual can buy or sell shares directly or through a brokerage firm. The share market historically offers an opportunity for strong capital growth over the medium to long-term. When an investment is made to purchase a parcel of shares of a listed company on the stock market, this act is considered equity investing.

Shares can be either listed or unlisted. Listed companies are required to abide by Australian Securities Exchange (ASX) listing rules for their company shares to be traded on the ASX.

To provide our investors with some level of diversification, potential capital growth, and tax-effective income, we incorporate equities and ETF portfolios in their investment strategies. Also, our equities portfolio can provide a regular dividend income stream, exposure to specialty market sectors such as infrastructure and technology, taxation benefits from dividend imputation credits, and more investment control over current and future tax positions.

PFA can assist with the purchase and sale of any shares- Australian Shares, International Shares, ETFs, LICs and others. With our exposure to multiple platforms and investment technologies, shares executions can be completed on the ASX and other developed and emerging markets exchanges.

How we buy and sell shares for our investors?

  • Investors can purchase listed shares on any trading day by placing an order with our brokers.
  • Investors can purchase new shares by participating in float or in an Initial Public Offering (IPO).
  • We execute equities transitions on behalf of investors operating a managed discretionary portfolio with us.

PFA can assist with the purchase and sale of any shares.

Risk associated with equities investing?

Whilst shares have been known to outperform other asset classes such as cash, fixed interest and listed property historically it is important to understand that the share market may be affected by factors such as general economic condition, market sentiment and the performance of the company itself.

The investment returns may, therefore, fluctuate and there is also the risk of capital loss over the short-term. You should take into consideration your investment time frame as well as your tolerance to risk.

Benefits of equity investment?

Wealth Accumulation – Historically, shares provide potentially higher return on investments compared to other asset classes over medium to long-term. By investing in shares, you can grow your wealth at a greater rate over the long-term.

Tax Efficiency – Due to the franking credits attached to the dividend, investors can benefit from the fact that tax has already been paid on the income received by the company. Depending on your marginal tax rate, you may receive tax credits, or you may not have to pay any tax on the dividend you receive. Any unused imputation credits can be used to offset tax payable on other income.

Company Benefits – Investors are able to participate in company meetings, receive shareholder discounts (if offered) and take advantage of special share issues offered by some companies.

Liquidity – Listed shares can be easily bought or sold on ASX.

Dividend Reinvestment Scheme – The dividends can be reinvested to purchase additional shares without incurring brokerage & generally at a discounted price to the market value. Note investors are still required to pay tax on the income to be reinvested.

Diversification – Spreading your investment portfolio over various asset classes means investors can take advantage of investment upturns of different investments.

Why invest in Interest-Based Securities?

Interest-Based Securities such as Australian Government Bonds, Corporate Bonds, and Hybrid Securities are traded on the ASX. Other high-interest-paying debt securities are available under a managed funds structure, private debt opportunities, and other alternatives. 

Investors looking for regular income and utmost stability with low to no market price fluctuation can benefit from our interest-based securities strategies. Interest-Based Securities are debt investments that pay a fixed or floating rate of return. When you invest in debt securities, the investor is lending money to the issuer and in return receives interest payments from the issuer and an agreement from the issuer to repay the debt security at a specific time. An issuer can be a bank issuing a fixed income product in a form of term deposits, or government issuing out bonds, or companies raising capital via the issuing corporate bonds.

PFA can provide exposure to higher fixed-income private debt opportunities to our Sophisticated and Wholesale clients. With minimum deal sizes ranging from $500,000 to $20,000,000, we have created a platform that provides specialist funding solutions for mid-size projects in infrastructure development, healthcare, business lending, real-estate projects, and other risk-adjusted commercial settings.

Key Benefits:

Capital preservation

The principal or absolute asset value of an investment can be protected with fixed interest securities. Fixed interest assets such as bonds are less volatile and can provide some level of certainty or comfort to investors. Fixed-income allocations are typically popular among investors nearing or in their retirement. This class of investors typically requires income distributions and may not have sufficient time to recoup losses in events where the value of their portfolio falls significantly. 

Regular Income Distribution

For investors with the need for a steady regular distribution of income, a fixed income allocation can help deliver that in a portfolio. Income is distributed across regular intervals in a form of coupon payments on their fixed interest holdings as in the case of bonds or term deposits. There are alternative fixed income products available for investors seeking higher distributions of fixed income when they assume a higher risk above the traditional sense. 

Diversification from share market risk

Fixed income can provide investors the opportunity to diversify away from the share market into allocations that are focused on minimizing fluctuations in the capital. Fixed income is often considered less sensitive to market events and can be suitable for retirement planning investments for investors who have a very low tolerance to risk to investors who are prepared to accept some fluctuations in capital to pursue modest capital growth. 

Key Risk:

Inflation

Inflation can be the biggest risk to fixed-income investments. Interest-based securities such as bonds and term deposits pay out a lower interest which makes them risky when interest rates rise. As these securities are mostly executed under a fixed coupon or interest rate agreements, they are heavily influenced by inflation rates. Investors can protect the absolute value of the principal, however, a fixed income allocation can lose its value over time due to inflation.  

For example, if the coupon rate for a bond is 3% but the inflation rate is 5%, then the coupon will have relatively less value. 

Portfolio Management BMS:

PFA and its discretionary investment management arm B. PFA, were formed as part of our commitment to provide transparent and logical investment management solutions for Financial planning firms, High Net worth investors and institutional clients.

Our investment framework incorporates diversified listed and unlisted multi-asset classes, including derivatives and alternative income funds, and builds on our expertise in the domestic and international markets.

BMS aims to keep our respective end investors’ goals and objectives at the forefront of all our portfolios and fund strategies. Most importantly, we work to stabilise the expenses associated with managing our portfolios and promote efficiency and performance combined with regular reporting to our clients and co-investors.

Multi-Asset – Multi-Manager

With diversification being a key risk mitigator, our premise is to add a wide range of assets and fund managers to our model portfolios. BMS has a dedicated equities team for researching and picking performing assets across diverse investment opportunities.

  • Direct shares – Domestic and International
  • Exchange-traded Funds – Domestic and International 
  • Credit and fixed income 
  • Property and Property Trusts
  • Infrastructure Trusts
  • Derivative funds
  • Managed funds
  • Government and Commercial bonds
  • Cash Management

Platform Agnostic

With the evolution of technology changing the dynamics of investing, it is essential to offer robust and cost-effective solutions for structuring our client investments.

Our investment solutions are agnostic to the major platforms and seek to provide the best and most efficient way to execute portfolios on behalf of our stakeholders. Electronic verification and signature, coupled with low client touch, enable advisers to focus on their services to their clients.

What is an Option:

An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a parcel of shares at a predetermined price on or before a specified date. To acquire this right the taker pays a premium to the writer (seller) of the contract.

There are two types of options (Call Options and Put Options) traded on the ASX. At a specified price, on or before a specified date:

  • Call options give the taker the right, but not the obligation, to buy the underlying shares
  • Put options give the taker the right, but not the obligation, to sell the underlying shares

Advantages of option trading

Risk management:

Put options, when taken, allow you to hedge against a possible fall in the value of shares you hold. The strategy to purchase put options on a share portfolio one is buying is to ensure that we have a maximum defined risk on the investment.

Time to decide:

By taking a call option, the purchase price for the shares is locked in. This gives the call option holder until the expiry day to decide whether or not to exercise the option and buy the shares. Likewise, the taker (buyer) of a put option has time to decide whether or not to sell the shares. 

Ease of trading (Speculation):

The ease of trading in and out of an option position makes it possible to trade options with no intention of ever exercising them. If you expect the market to rise, you may decide to buy call options. If you expect a fall, you may decide to buy put options. Either way, you can sell the option before the expiry to take a profit or limit a loss. 

Leverage:

The ability to leverage with an options strategy provides the potential to make a higher return from a smaller initial outlay than investing directly. However, leverage usually involves more risks than a direct investment in the underlying shares. Trading in options can allow you to benefit from a change in the price of the share without having to pay the full price of the share. 

Diversification:

Unlike purchasing shares directly, the ASX options market can allow you to build a diversified portfolio for a lower initial outlay.

Income generation:

Allocation holders can earn extra income over and above dividends by writing call options against their shares. This includes shares bought using a margin lending facility. By writing an option you receive the option premium upfront. While you get to keep the option premium, there is a possibility that you could be exercised against (have to sell the shares) and have to deliver your shares at the exercise price to the buyer of the options. 

Derivatives

It is important to recognise that options along with all other derivatives are a leveraged instrument and as such may not be suitable for everyone. As a general rule, a derivative can result in significant losses, and as such care must be taken to ensure that investors completely understand the inherent risk on every position entered into their portfolio. The specific use of options in most strategies is to be used as a mechanism by which to reduce volatility and risk in comparison to traditional share portfolios.

Risks of options trading

Time value erosion:

An option’s time value erodes over its life and this accelerates as an option nears expiry. It is important to assess whether the options selected have sufficient time to expiry for your view to be realised. 

Effect of ‘leverage’ or ‘gearing’ :

Options transactions are ‘leveraged’ or ‘geared’. The use of leverage can lead to large losses as well as large gains. 

Liquidity and pricing relationships:

Market conditions (for example, lack of liquidity) may increase the risk of loss by making it difficult to effect transactions or close out existing positions. 

ASX Education Material:

ASX –  ETO Adjustments

ASX – Investment Tools & Resources section provides educational materials including Options and Warrants. 

What are warrants? 

Warrants are financial instruments or a form of derivatives issued by banks and other institutions and are traded on ASX.

Warrants can be issued over securities including shares and ETFs, a basket of different securities, a share price index, debt, currencies, or commodities and it derives its value from some other instrument. With warrants, investors can be allowed to trade an underlying instrument without having to own the specific securities outright. There are different types of warrants- self-funding instalments, guaranteed stop-loss minis, equity warrants, index warrants, barrier warrants, currency warrants, commodity warrants, endowments, structured investment products, and others. However, warrants can be either call warrants or put warrants.

Call Warrants:

Call warrants benefit from an upward price movement in the underlying instrument. The exercise price is paid by the holder of a call warrant to the issuer in exchange for the underlying asset.

A deliverable call warrant generally gives you the right to buy the underlying instrument (eg a share) from the warrant issuer at a particular price on, or before, a particular date.

Put Warrants:

Put warrants benefits from a downward trend of the underlying instrument. The exercise price is paid by the holder of a put warrant by the issuer in exchange for the underlying asset.

A deliverable put warrant generally gives you the right to sell the underlying instrument to the warrant issuer at a particular price on, or before, a particular date. For cash-settled calls and puts, the value of the warrant is paid to you in cash.

Some Benefits of Warrants:

Some of the benefits of warrants include tax effectiveness, market exposure without necessarily owning a large portfolio, flexibility to be tailored to the investment needs of a specific investor type, and along with being an eligible form of gearing within SMSFs, some warrants may provide additional benefits for SMSFs earnings and contribution offset.

Other advantages of warrants include the ability to leverage with most warrants; speculation ability to carry on more risk for an expected higher return; the ability for some warrants to be structured as longer-term investment products; can be used for income as holders of instalments are entitled to the full dividends and franking credits; portfolio protection or hedging ability as equity and index put warrants allow to protect the value of portfolio against falls in the market or particular shares; and more.

ASX Education Material:

ASX – Warrant

The risk with Warrants:

There are certain risks involved in investing and trading warrants and some of the general ones are: 

Issuer risk – ASX is not a guarantor- While ASX provides the platform for warrants to be traded, neither ASX nor its subsidiaries in any way guarantee the performance of the warrant issuer or the warrants issued.

General market risks – The market price of warrants is affected by the same risks that affect all stock market investments.

Limited life- Most warrants have a limited life. On expiry, warrants cease trading and can no longer be exercised.

Leverage risk- As well as being a benefit, leverage is also a risk of warrants and must be considered by investors before implementing a portfolio with warrants.

Other risks associated with warrants are currency risk, Liquidity risk, possible suspension from trading by the ASX if an issuer is unable or fails to comply with the ASX Operating Rules, early termination or expiry risk, and others.

Managed Discretionary Accounts

Managed Discretionary accounts are administrative investment facilities governed by ASIC allowing Investment Managers to act with discretion under a specified investment mandate. An MDA can ease the regulatory burden as its discretionary nature means portfolio changes can be made without a record of advice. This can also be carried out across an entire practice’s model portfolio offering the ability for businesses to scale.

The strategy in conjunction with our designated MDA operator means the promotion of a dynamic asset allocation and the ability to adapt to a fast-changing macro environment.

Managed Discretionary Accounts (MDAs) offer a unique portfolio legal structure allowing advisers and/or financial institutions to trade on behalf of clients at a discretionary level on selected model portfolios. The term discretionary refers to the ability of the MDA provider to autonomously buy or sell securities (stocks, bonds, managed funds, etc) on the client’s behalf according to the previously agreed upon investment mandate of the client’s account. The PFA MDA program promotes efficiency by eliminating the need for multiple authorities in order to rebalance portfolios via tactical or strategic asset allocation. This structure allows practices and advisers to plug into and utilise the MDA designation of B. PFA via a service.

Our derivatives investment managers can help buy and sell futures under a managed account (MDA) structure at a competitive brokerage. Your portfolio can be well-diversified across different geographical opportunities and products. Your MDA investments can be hedged or be speculated on price movement in multiple financial markets domestic and international using some of the following futures contracts:

Breadth of Product Options:

  • Agricultural Products – Livestock, Grains and others
  • Currencies
  • Soft Commodities – Coffee, Sugar, Cocoa and others
  • Energy – Crude Oil, Natural Gas and others
  • Equity Indices
  • Fixed Income
  • Interest Rates
  • Metals – Precious, Base and others
  • Single-Stock Futures
  • Volatility Indices and more

Why Use MDA:

An MDA can be created for any legal structure or client type, such as an individual, a self-managed super fund, family trust or a company account.

Adviser and Client BENEFITS:

The client or entity remains the beneficial owner of all holdings within the MDA and has complete transparency over the investment. Although the agreed investment mandate allows the MDA operator discretion when managing the account, the client still has full discretion over the investment program to be implemented via the MDA.

ESG & SRI Investing

Advisers can also implement an Environment, Social, and Governance (ESG) and/or Socially Responsible Investing (SRI) overlays into the model portfolios. This allows the client to feel comfortable with their final model portfolio. MDA’s are regulated by ASIC via RG179 and meet such conditions under the Corporations Act 2001.

Benefits:

+ Ability to invest in exclusive investment funds which usually have very large minimum contributions (in excess of $500k).

+ Hassle free and active account management with instantaneous response to market conditions.

+ Platform access offering visibility of account with administrative convenience.

+ Investment flexibility with a choice of portfolios according to the client’s risk profile.

+ Access to a number of asset classes and geographies resulting in a more diversified portfolio.

+ Combining assets with low correlation to other asset classes resulting in a higher risk adjusted return.

What is an ETF?

An ETF, or Exchange Traded Fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike managed funds, an ETF trades like a common stock on a stock exchange, and they are often considered low-cost managed funds that can be bought and sold on an exchange, like the ASX. As they trade similar to stocks, they can be for implementing a broader range of investment opportunities. ETFs can provide a greater degree of opportunity for investors to gain exposure to certain markets or industry sectors that are otherwise inaccessible or can be expensive to them.

Key Features:

ETFs are selected over direct share investments on some occasions because ETFs require less ongoing maintenance, reduce specific Business Risk, and overall Market Risk is reduced.

ETFs include Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs) and Listed Investment Companies (LICs)

ETFs – provide access to diverse exposure through investment in one asset. ETFs also provide retail access to wholesale investment strategies.

Key Benefits:

Low-cost- the majority of ETFs have a low management expense ratio (MER) and they can be significantly cheaper than most actively managed funds.

Diversification- provides the ability to diversify within markets, specific sectors, or assets that can be difficult to access. An example can be a portfolio of Top 50 banks shares, or mining shares, or other single sectors. 

Transparency- ETFs publish the net asset value.

Active Funds Management- easy-to-trade and more.

Key Risk:

Market or Sector Risk- The market sector being tracked can underperform. An example is if the ASX 200 performs below the benchmark.

Currency Risk- when invested in the international market. This is similar to the risk associated with investing in international shares.

Liquidity Risk- some invest in assets that are illiquid and may take time to redeem a portfolio.

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PFA Provides Full-Service Stockbroking Services To Investors. As A Client You Can Benefit Form Tailored Share Portfolios, Gain Access To Global And Domestic Equities Listed On The ASX And Other Global Exchanges, Access To The Latest Company IPOs And Capital Raising Investments, Portfolio Management Services And Other Ad Hoc Equities Services.

Our Private Wealth advisers provide daily recommendations on equities and options. PFA equities advisers provide general advice and discretionary equities advisory services to investors looking for both income generation and growth portfolios.

As a client, you can benefit from gearing advice to increase your equity and placement in a range of investment offerings including shares, property-based assets, high-yield private debt investments, and also improve your after-tax investment returns.
Our clients benefit from equity capital markets opportunities such as IPOs, capital raising, and placements, ongoing research, and excellent execution and distribution services.
We are here to provide you with insights and guidance. Our simplified new way to asset management is to stay connected and supportive via our private wealth clients access portal to create positive client experiences in a manner that promotes transparency and accountability.
Seamless and cost-effective superannuation and SMSF specialist services and asset allocation advice built around our private wealth clients. Similar to a traditional super fund, we have centered everything around our clients and their assets are managed for them.

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