Research Notes

We all know that the world is changing rapidly, and this has seen a flow-on impact on how society thinks about charitable giving. Social media, technological change and our day-to-day cost of living means that Not-for-Profits need to think differently to ensure they remain relevant to this new socially conscious generation and how Not-for-Profits invest their funds to continue to benefit their ongoing mission and values.

According to the 2020 Australian Communities Report, Australian givers are looking for a more personalised experience and to build relationships with organisations that they donate to or partner with. This may mean being practically involved in the organisation (volunteering) or even as simple as understanding the impact that their donation makes.

The 2019 Community Trends Report shows that Australians seek transparency and impact from charitable organisations. The key issue that Australians want transparency over is administration costs with seven in ten Australian givers rating this as an extremely important charity essential. Most believe that charity administration costs should comprise 20% or less of the organisation’s total revenue. For those younger Australian givers, having a website is also seen as an important part of the engagement and communication process when dealing with a charity.

The report also highlighted how much the cost of living is impacting on Australians’ ability to donate to charities. More than half of Australian givers agree that the cost of living and changes to housing prices have significantly or somewhat decreased their ability to give to charities.

Some key takeaways from these reports that NFPs should consider:

• Focus on local causes as Australians prefer to support charitable organisations with a local/national focus

• Consider how your charity can highlight a specific issue that people can directly donate to, rather than just raising awareness generally of an issue

• Ensure you can provide givers with a detailed breakdown of where donations are allocated

• Consider how you currently report on the impact donations are having on your charity’s goals and mission, can you improve or change the way you report?

• Simplify your organisation’s mission and ask “will this help achieve our purpose?”

• Where possible, invest in developing effective leaders and communicate leadership wins of the organisation to donors

Investment Watch is a quarterly publication produced by Morgans that delves into key insights for equity and economic strategy. This latest publication will cover;

• Asset allocation – Migrating toward a risk-on strategy
• Economic strategy – The view from the FED
• Equity strategy – Preferencing cyclicals and small-caps
• Updated Morgans Best Ideas
• … and much more

Morgans clients receive exclusive insights such as access to our latest Investment Watch publication. Contact us today to begin your journey with Morgans.

Preview

In recent months, debate has shifted away from ‘recession risks’ towards expectations for a ‘soft landing’ or even the possibility of a ‘no landing’ scenario for the US economy. Inflation has remained on a mild downward trend, there is better visibility on the US rate cutting cycle and China’s increased stimulus is reducing downside risks both domestically and globally.

These are all ingredients supporting the market’s migration toward a risk-on footing. We saw this in the February reporting season via a broad rotation from expensive defensives toward more economically leveraged cyclical industrials and small-caps. We discuss opportunities to put cash to work in global equities, real assets, and fixed income. In Australian equities we favour the healthcare, financials, retail, travel, resources and energy sectors, and we also call out several small-caps via our Best Ideas report.

Shares represent your part ownership (or share) in a business.

Companies can raise money to finance their business by 'going public'. Going public means being listed on a stock exchange and issuing shares to investors.

By paying for the shares, each investor buys part ownership of the company's business and becomes a shareholder in the company.

The money that a company raises in this way is called equity capital. Unlike debt capital which is borrowed money, equity capital does not need to be repaid as it represents continuous ownership of the company.

In return for investing in the company, shareholders can receive dividends and other benefits. A dividend is the distribution of a company's net profit to shareholders.

Shares that have been issued to investors by a listed company can be sold to other investors on the sharemarket. You make a profit when you sell your shares for more than you paid for them.

Buying and selling shares

Your adviser can buy and sell existing shares on your instruction on any business day on one of the recognised Australian securities exchanges (ASX or Cboe).

Orders to buy and sell shares are entered into a computerised trading system by your broking firm (e.g. Morgans). Buy and sell orders are matched by price in the order they were entered into the system.

That way, every order is processed by price and on a first in, first served basis. Larger orders do not have any priority. A trade occurs whenever a buy order is matched with a sell order.

Trades are settled on the second business day after the trade takes place. This means ownership of the shares and related payments between the buyer's broker and the seller's broker are transferred on that day.

All Australian listed shares are registered electronically on either the Clearing House Electronic Sub-register System (CHESS) operated by a subsidiary of the ASX Group, on behalf of listed companies, or on the companies' own sub-registers.

New shares

Alternatively, you can buy new shares that are issued by companies from time to time by applying to participate in a float or initial public offering (IPO). Shares you buy through an IPO are registered as Issuer Sponsored Holdings. The price of shares issued in a float is generally specified in the prospectus.

If you wish to buy shares in the float, you should first review the prospectus then fill out the attached application form specifying the number of shares you wish to buy and lodge it with your adviser before the application deadline.

Once new shares are issued and listed on a recognised Australian securities exchange, they may trade at a market price substantially different from the issue price (either higher or lower). This is due to supply and demand for the shares in the company.

Share performance

Sharemarket indices represent the overall performance of companies listed on a stock exchange. Investors can use these indices to track how an investment is performing by watching its share price.

The key sharemarket indices in Australia are the Standard & Poor's (S&P)/Australian Securities Exchange (ASX) indices.

These include the All Ordinaries Index (All Ords), which is a market capitalisation index comprising the 500 largest companies listed on the Australian Stock Exchange, and segments of the ASX, called:

• S&P/ASX20 – Top 20 stocks
• S&P/ASX50 – Top 50 stocks
• S&P/ASX100 – Top 100 stocks
• S&P/ASX200 – Top 200 stocks
• S&P/ASX300 – Top 300 stocks

Another way to track your shares' performance is to calculate the dividend yield from your portfolio on an annual or more regular basis. This can be a more reliable measure because share prices rise and fall on a daily basis, whereas dividend income is usually much steadier and often grows over time.

Risk and benefits

Capital growth

As a longterm investment, shares have the potential to provide better returns after tax than any other major investment. However, past performance is no guarantee of future returns.

Although share values have risen over the long-term, this has been punctuated with periods of short-term volatility, where prices can go up or down very quickly. For this reason, it is usually important to adopt a medium to longterm investment view of five years or more.

Dividend income

Another benefit of being a shareholder is dividend income, although dividend yields vary greatly from company to company.

Companies trying to grow their business might provide a low dividend yield (perhaps 2-4%) while other, more established companies might provide a higher dividend yield (potentially between 6-8%).

Tax benefits

Shareholders have to pay Capital Gains Tax on any net capital gains made by selling shares; however, their income tax liability can be offset through dividends they receive with franking credits.

Franking credits pass on the value of any tax that a company has already paid on its profits. A company can pay a fully franked dividend if it has paid full corporate tax on the profits distributed as dividends. A partly franked dividend would be paid if the balance of the franking account was not sufficient to pay a fully franked dividend. An unfranked dividend is declared where there is nothing in the franking account.

A company will advise shareholders of the status of the dividend at the time of payment. If you receive franked dividends, you must declare both the cash amount and any franking credits as assessable income in your tax return. Then you can apply the franking credit amount to reduce your income tax liability.

Risks

Share prices of any company, even a blue chip, are always subject to change. Some investors fall into the trap of putting all their money into one asset class – usually at its peak, and then watch as another asset class takes off without them. It is important to have a number of different shares in your portfolio to reduce the risk inherent in share investing.