All Ords Report 25 August 2016

When looking to invest in the share market, do you consider yourself to be a ‘responsible’ investor?

Responsible investing is said to be primarily about giving consideration to environmental, social, governance (ESG), and/or ethical factors.

Having spoken with thousands of investors over the years, most tell me that their focus is on what they stand to make, rather than whether the shares they purchase are a ‘responsible’ investment. Also, only a small minority choose to exclude companies from their portfolios based on environmental, social, or governance reasons.

However, according to a report released by the Responsible Investment Association of Australasia, ‘responsible’ investment constitutes around half of all assets managed in Australia. So, are more Australian funds making the decision to become more ‘responsible’ to meet demand? Or, is it predominantly a marketing exercise? In my opinion, it’s probably largely the latter.

The report also identified a high level of variability in the degree to which fund managers incorporate these factors. Reportedly, the funds are not bound by any public disclosure requirements, making it difficult for an investor to clearly understand whether a fund is ’responsible’?

One investor told me that she was bitterly disappointed with a fund she thought was making ‘ethical’ decisions when selecting shares. On closer inspection, she found that the fund invested in big mining companies, which she viewed as being unethical. So, do your own research before you invest and look for a fund that allows you to exclude companies you don’t like.

If you haven’t had the chance to listen to my podcasts lately, you will find some helpful pointers in my two part series called ‘How to create a powerful portfolio’. While not specially being about ‘responsible’ investing as mentioned above, these recordings will give you important information to consider before setting up a portfolio.

What do we expect in the market?

The Australian share market has moved up strongly over the past few months, which indicates further upside is likely. However, I would prefer to see the All Ordinaries Index pull back for at least a couple of weeks to build support before the next rise occurs.

A short term decline on the market can actually increase the probability of a sustainable medium term rise. If the market does pull back from here, it may come back to test support at around 5350 to 5400 points before moving higher.

How the market unfolds from here will determine whether it will continue to meet my medium to longer term targets. Just remember that despite all of the global unrest this year, our market continued to rise as the analysis indicated would occur. A strong close above 5640 points will confirm the next rise is well underway.

Last week, the US market reportedly shed some of the recent gains, however on closer inspection the move down was minor. Just goes to show how important it is to look at any market in its entirety after reading a headline. Given the recent gains, a pull back on this market would be quite ‘normal’. However, until the S&P500 falls below 2147 points, it’s still rising.

Markets are anticipating that the US Federal Reserve is likely to lift rates next month. If this occurs, and many say this is likely, it will be interesting to see whether the market shakes off the move. I believe there may be a little volatility around the time of the announcement before the market moves on.

Locally, reporting season in Australia is progressing well. This week is a very intense week as far as company reporting goes so you can expect to see volatility increase for some stocks, which has occurred in the Energy sector. Companies including Santos (STO) and Origin (ORG) failed to excite the market this reporting season. Following long term declines both stocks have done well to see their share prices rebound off January lows, as they test support from buyers. This first test is very important in determining what will occur over the medium term.

Dale Gillham is Chief Analyst at Wealth Within