Rudi’s View: Link Admin, Clinuvel Pharma & Altium

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | May 17 2019

In this week's Weekly Insights (this is Part Two):

-All About Dividends
-Royal Commission: Ongoing Impact
-Quote Of The Week

-No Weekly Insights Next Week
-FNArena's Corporate Reporting Monitor

-June Rebalance For ASX200 Index
-Conviction Calls (with update)
-Rudi On Tour
-AIA Conference Special

[Non-highlighted parts appeared in Part One on Thursday]

By Rudi Filapek-Vandyck, Editor FNArena

Royal Commission: Ongoing Impact

A recent encounter with an industry veteran has taught me the domestic industry of funds managers and financial planners is most likely facing even more upheaval and transformation than I had assumed previously - see also Weekly Insights last week, "Value & The Eye Of The Beholder".

On one hand we have the cohort of aging pensioners and retirees who, faced with Labor's new franking ideas and low returns in general, will be eying further reduction in costs, where possible. This points to direct shares ownership or ETFs, but certainly away from actively managed funds whose costs are higher and not necessarily offering a better return (certainly not for income oriented investors).

On the other hand, there already is pressure on financial planners to lower the costs of managing the income generating capital. Since financial planners like to retain their own margin, here too a trend is being established towards ETFs, away from actively managed funds.

Thirdly, industry super funds are also taking another look at their costs and allocation of funds with outside managers. Their problem is the size of the Australian share market, which remains rather small, in particular at the top. In practice, this translates into lots of overlap in share ownership between internal and external managers, as well as between the external managers.

Meanwhile, Australian investors continue to redirect funds away from retail funds, owned by AMP ((AMP)) and the banks, or otherwise. Here the winners are industry funds. Recent data suggest a cumulative $7.5bn in funds flowed out of AMP, National Australia Bank ((NAB)), Westpac/BT ((WBC)) and ANZ Bank ((ANZ)) in the six months to March 2019.

Morgan Stanley's industry sources suggest many industry funds are budgeting for similar flows out of retail funds and under their management in the six months ahead. Underlying growth in membership for industry funds has lifted post Royal Commission to more than 3.5% from less than 1% previously. This is a sizable step up.

One of the obvious beneficiaries of the latter trend should be Link Administration ((LNK)) whose share price has been creeping up from a low near $6.40 in December to $7.80 more recently. Morgan Stanley estimates every new member of an industry fund whose member accounts are administered by Link translates into an extra $50 per annum in revenues.

While this doesn't sound like much, the analysts add 3% growth in membership thus means $10m extra for Link, which equals in excess of 4% of the company's earnings.

Link Administration is included in my personal selection of All-Weather Performers (see website) and has been part of the FNArena/Vested Equities All-Weather Model Portfolio for quite a while (with the intention of keeping it there for much longer).

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