Wealth Within - All Ords Report 31 July 2007
There is a new trend in the Australian investment arena with the introduction of Listed Managed Investments (LMI) or Exchange Traded Funds (ETF) in recent years. Put simply, these are managed funds that are traded on the Australian stock exchange; therefore it is like buying a share in BHP or any other listed share on the ASX.
The trend has resulted from the enormous success of ETF in the U.S. where funds generally try to mirror an index such as the S&P 500. The implication is that anyone buying shares in the fund should achieve the same returns as the index. I don’t believe the same strategy would apply to the Australian market given that the All Ordinaries Index is ruled by the top 20 shares on our market. Therefore buying shares in an ETF that mirrors the All Ordinaries is not a really good investment in my opinion.
You would do better to simply buy the top 10 shares on the Australian market. That said, LMI’ also invest in areas such as property and infrastructure, which may be worth investigating if this suits the risk profile of your portfolio.
So what is happening in the market?
I know I have said this before, but predicting the market on a regular basis is a tough job and one where you are constantly open to criticism. You could be forgiven if after reading my last report you thought I was a little ‘nuts’ suggesting the market was bearish, especially since the All Ordinaries Index had just made a new all time high only two days earlier. However, the heavy fall in the market over the last week not only confirmed my thoughts, but re-enforced the point I made, which is to always assess what we know rather than what we think. Unfortunately I am sure there have been many who have lost money in the last two weeks thinking the market was bullish.
The recent falls on our market does not necessarily constitute an end to the bull market, therefore now is not the time to panic, rather it means you need to be conservative and watch your open positions for any triggers to sell.
So where is the market heading? I believe it will rise slightly over the next one to three days as it rebounds before falling away again. I expect the market will fall to below 6000 points and possibly as low as 5900 points in the next few weeks. Following this the market will rise and present some great buying opportunities for those who are ready.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst
