Australian Shares

The Australian Stock Exchange (ASX) is the main financial trading centre in Australia. All the major companies that make up our everyday living are quoted on the Exchange, and investors can purchase or sell shares in these businesses. Owning a share, and thus becoming a shareholder, is simply owning part of a business. The number of shares on issue, multiplied by the share price, gives the value or market capitalisation, of a company.

The level of sharemarket ownership has been increasing, a result of greater awareness through major privatisations and recent floats of companies such as Telstra, Commonwealth Bank, AMP, Woolworths and QANTAS. Locally WA Newspapers, Bankwest, Alinta and Multiplex have been the major companies to have listed in recent times.

Indeed, most people unknowingly have share market investments, as most superannuation funds have some allocation to this sector.

Listed share market investments have the following characteristics and strengths:

• Shares have the capacity to produce both income and capital growth. Some businesses can pay very good dividends with little growth whereas others have a growth expectation and little or no dividend prospect.
• Over the long-term, shares will outperform all other investments.
• The income paid, or dividends paid from company profits, often carry tax advantages through the dividend imputation system.
• They can be bought and sold more readily than property holdings.
• There is no stamp duty on transactions.
• They provide a hedge against inflation.
• They can be bought at a lower cost than managed investments and property.

If we look at the Australian share market by sectors we start with the main division, Industrials and Resources.

Industrial companies tend to produce higher profits, and, therefore, higher dividends. “Blue chip” is a frequently-used term to describe a company that is stable in profitability and payment of dividends. It is also usually large in market capitalisation. Resources companies, such as mining, metals, oil and gas are often involved in exploration and company earnings are directed into this area, not paid to shareholders in dividends. As shown below, industrial-based companies now make up approximately 90% of the ASX, if we look at the Australian share market as a sector example.

The five broad categories are as follows:

The largest sector, interest-sensitive, includes the banking sector, insurance and property trusts.

Each market sector will have its own characteristics, and produce returns accordingly. We can therefore analyse sectors of the market in different ways, and place varying levels of risk. Shares are traded daily and the share prices will move according the level of buying and selling demand. These daily measures can often lead to short-term decisions being made for investments that are best viewed as long-term. Movements in the market are measured through a variety of indices. Each sector has its own index, and the main 300 (approximately) companies, as measured by market capitalisation, is referred to as the All Ordinaries Index.

The general reluctance by people to invest in managed Australian share funds can be largely attributed to three factors:

i) a lack of knowledge
ii) fear, usually fuelled by the media
iii) volatility

Clearly, shares are more volatile than other forms of assets. In other words, the returns can fluctuate more widely from year to year. However, with a long-term view (five years +), you should generate satisfactory returns from a quality portfolio.

Remember, with shares you are ultimately investing in a business, you are not investing in “the market”. The performance of this business, measured through profits, will eventually be reflected in the price on the Stock Exchange.

We have a preference for fund managers with little or no currency hedging policy.