Tex Matdasu case study

Tex Matdasu case study

Your client, Tex Matdasu, is single and aged 32. He has come to you for investment advice.

Tex has built up a portfolio of assets in his retail superannuation fund (ABC Super). His superannuation portfolio is currently valued at $450,000. He constructed the portfolio himself 10 years ago using the superannuation fund’s available investments. His current investment choice allocations are shown below.

ABC Super portfolio

Note: An APIR Code is a unique identifier issued by APIR to participants and products within the financial services industry.

Background information on Tex

The following key background details have been collected in the fact find:

• Tex has not altered the portfolio holdings over the past five (5) years. The funds are rebalanced to the percentage weightings noted in the table above on a six-monthly basis.
• Tex has been making concessional contributions of $20,000 p.a. to the superannuation fund (being a combination of his employer’s 9.5% superannuation guarantee and salary sacrifice contributions).
• He works as a financial analyst and his employment income — after these superannuation contributions but before tax — is $100,000 p.a. Based on 2019 tax rates, his net income after paying income tax and the Medicare levy (assume 2%) is $73,503.
• He is currently renting a property with his partner and pays $3,000 a month in rent, of which Tex’s contribution is $2,000 per month. He spends an additional $2,000 per month on other living expenses.
• There are no immediate plans to have children, but Tex would like to purchase a property in
  five years time.
• He does not wish to change his superannuation fund as he is happy with ABC, including the level of service they provide and the low fees charged.
• In addition to his superannuation, Tex has a personal cash balance of $350,000 (currently earning 1.5% p.a.) in a flexible high interest account. These funds are a combination of savings and an inheritance recently received from his grandmother’s estate.

Scope of the required advice

Tex is seeking investment advice and recommendations for both his superannuation portfolio and his assets outside of superannuation.

Risk profile

After several discussions and the completion of a risk profile questionnaire, you believe Tex can take on an ‘above-average’ level of investment risk. Tex agrees and you have settled on the following agreed risk profile and long-term strategic asset allocation (SAA):

Moderately aggressive

Investment considerations

• Tex is seeking an overall return of 4.5% p.a. above inflation over a rolling five-year period.
• Tex has a preference for index funds as he believes fund managers will not, on average, beat an index.
• However, Tex has recently read articles on the efficient market hypothesis (EMH) from Assignment 1 and understands that there may be opportunities at times to outperform the market. He would like to understand your views on this and whether there is any point in having active managers in a portfolio and if so, where you think the opportunities are.
• Tex does not wish to hold direct shares but would consider holding listed investment companies (LICs).
• Tex has a preference for property investments, as he has been told that property ‘always goes up’.
• Tex would like to purchase a property in five (5) years time, with the goal to have a deposit of over $500,000. He is not interested in purchasing property within a superannuation structure.
• Tex discloses he had a bad experience with a leveraged high-yield sub-prime bond fund during the global financial crisis (GFC), so has not invested in any fixed income product since this time.
• Tex is averse to gearing or leverage and does not want to borrow within his portfolio nor invest in any funds that utilise leverage.
• He is interested in alternative assets but has been ‘too scared’ to invest in this asset class as he has been told they are ‘too volatile’.
• He is interested in having some exposure to socially responsible funds.
• He is of the view that the Australian dollar (in relation to the US dollar) will fall further from its current levels.
• He would like to keep a cash balance of $25,000 in case of emergencies.
• Tex is looking to retire at age 60.

Articles on EMH

The following articles are available in the databases in the Kaplan Library in KapLearn. The relevant database is specified in the reference.

• Easton, S & Kerin, P 2010, ‘Market efficiency and the global financial crisis’, The Australian Economic Review, vol. 43, no. 4, pp. 464–468, viewed 12 July 2019, EBSCOhost database available within the OpenAthens portal in the Kaplan Library.
• Holton, L 2009, ‘Is Markowitz wrong? Market turmoil fuels non-traditional approaches to managing investment risk’, Journal of Financial Planning, vol. 22, no. 1, January, p. 20, viewed 12 July 2019, EBSCOhost database available within the OpenAthens portal in the Kaplan Library.
• Livanas, J 2006, ‘How can the market be efficient if investors are not rational?’, JASSA, issue 2, winter, pp. 24–28, viewed 12 July 2019, ProQuest database available within the OpenAthens portal in the Kaplan Library.
• Malkiel, BG 2003, ‘The efficient market hypothesis and its critics’, Journal of Economic Perspectives, vol. 17, no. 1, winter, pp 59–82, viewed 12 July 2019, EBSCOhost database available within the OpenAthens portal in the Kaplan Library.

Appendix

• ABC Super Investment Options.