Changes to the managed account screen
We have been working closely with our software providers to upgrade the Managed Accounts access screens and reporting structures. You may notice some improvements this week to reports and to the colours on the screen which will bring us up to date with our logo.

New Staff
Andrew Moylan
Over the past few months, we have been re-engineering our systems and client processes to improve our service offering to you.  Key to this process has been an industry-leading expert Andrew Moylan who has accepted our offer to be our new Head of Practice. 

Andrew is a Chartered Accountant and has 25 years experience in financial planning practice management. We now have four employee's by the name of Andrew. There are no plans to change our name to Henderson Andrew.                        

Rosanna Martinelli
Rosanna has filled us for the position of Receptionist & Events Manager in the Sydney office. Previously, Rosanna worked at the ANZ head office in Sydney for 8 years.  Rosanna takes over from Sally who has moved into a Client Service Officer role with Andrew Zbik, Sam Henderson and Diana Chan.  

Abby Hamdan
Abby has recently taken the new role of Client Service Officer working closely with Andrew Chan and Hoa Tran. Abby's role is to assist with preparing client reviews and general client administration. Abby comes to Henderson Maxwell after serving many years at AMP and Hillross Financial. 

QR National Float – Should we or shouldn’t we apply for shares?
By Allan Wise, Senior Financial Adviser, Melbourne

QR National is the second largest float in Australia’s history.  QR National is not without its attractions. It is the privatisation of a transport asset with a top management team leveraged to the China boom.  But like any investment, it is not without risks - execution, competition, weather disruptions and lower than expected coal volumes are of concern. There is also the burden of owning and operating infrastructure; there is more money to be made in moving goods than owning infrastructure.

The most important question is: What should we pay for this nice shiny $7 billion bundle of rail assets? Retail investors will pay a maximum of $2.80 a share (with a low expected dividend yield of 2.0%) and a discount of 10¢ a share to the price paid by institutions. But price is one thing. Our valuation is lower and I will explain why.

Due to the miserly dividend of 2%, the company is being heavily marketed as a growth story.  Whilst they are making a 5% return and the dividends are being funded from borrowings (negative cashflow after expenditure).

Independent views have been few and far between as it is a who’s who on the broker payroll whose job is to drum up rabid interest from retail investors and squeeze institutions to push the share price higher. But it will be the institutions that ultimately set the price when they get their allocation. They may or may not get it right (they didn’t with Myer which was down 30% in the first 6 months). With the company to be quickly included in the ASX 50, index funds will buy the stock regardless of value. An ultimate example of dumb money as they take a position based on index weight.

Henderson Maxwell’s company view is that the stock appears overpriced, dividend is too low and the outlook for growth is somewhat limited.  We are not in favour of taking up the offer to apply for shares in QR National and it will not be appearing in our Henderson Maxwell Managed Accounts. 

Shares sail on the QEII and a double dip recession fears fade

I'm not talking boats here unfortunately.  QEII is the latest round of quantitative easing (QE) initiated by the US Federal Reserve to pump more money into the sluggish US economy. Whilst private sector jobs remain strong and home sales have shown signs of recovery, unemployment remains stagnant. Also, 25% of all mortgage holders in the US owe more than they own so any increase in asset values will be welcomed by the US populous.

QEII is a process whereby the Federal Reserve buys back 2-5 year government bonds from the banks to increase their cash reserves. The Fed has to print more money to pay for the bonds and as cash supply increases so too will spending and investing - or at least that's the plan. The Fed is hoping to increase inflation as more cash rushes into the ailing economy.

The reality is a tad more complex. The benefit to the average American will be minimal as they don't own many assets and their assets have fallen in value. The bankers, however will have more cash to invest in foreign exchange, futures markets and commodities, which is why share markets have all risen over the past week. The strategy will bolster the banks further and ensure the US banking system remains well lubricated with cash. The flow-on for the average American will be slow but it should work over time if the asset value increases flow onto housing and job markets.

If house prices rise in the US, many of their woes will be solved and if industry starts to spend again, then they will start hiring more people and the unemployment problem will be solved. These two key fundamentals will drive US economic growth and thus drive global growth for asset values.

In summary, the prognosis is that shares will most likely increase more than cash rates and long-term rates of return should come back into play as global economies recover. The Aussie dollar should continue to rise. Our interest rates will moderate from here on in as the property cycle takes a breather for a while. Unemployment will remain around current levels in Australia for some time yet and slowly fall if conditions remain robust.

Investment Report - month ending 31st October 2010

To view the investment report click on the below link to download as a PDF

HM Portfolios Newsletter 311010