TIP Group Newsletter, August 2023

New Joint Venture - 
My Financial Fitness

TIP Group and Clime Investment Management have united to introduce My Financial Fitness, an innovative online financial education program.

This joint initiative aims to empower Australians to navigate economic uncertainty by improving their financial self-management skills.

My Financial Fitness combines TIP Group's investor education expertise with Clime's wealth management knowledge to offer personalized content and guidance.

Subscribers gain access to an online portal with self-study resources, monthly webinars led by experts, and personalized financial health checks.

The program covers essential topics like investment fundamentals, asset protection, tax management, and various asset classes.

Additionally, it delves into complex concepts such as risk-reward dynamics and the impact of biases on financial decisions.

Online resources are becoming more popular for managing finances, but there's a risk of relying on non-expert advice from social media influencers.

Annick Donat, CEO of Clime Investment Management, highlights the need for evolved financial advice to cater to Australians' changing needs.

The collaboration between Clime and TIP Group emerged from a shared goal of enhancing financial literacy.

Andrew Coleman, CEO of TIP Group, stresses the program's aim to make professional advice more accessible, bridging the gap for tailored guidance.

This partnership underscores the growing demand for improved financial education in Australia.

John Abernethy, Clime's Chairman, sees the program as a way to guide investors in contributing to Australia's future.

Read the articles below for more information:

New JV targets financial wellbeing, education - Financial Newswire 

Clime and TIP Group launch financial education program | Money Management

Corporate Advisory

Our team is committed to empowering our clients with tailored solutions to meet their unique financial needs. Here's a snapshot of the services we provide:

Asset Management: We offer top-notch custody services and property management for estates and trusts, ensuring your valuable assets are safeguarded and optimized for future growth.

Business Insurance: Our expertise lies in helping businesses spend wisely on insurance, ensuring they make the right investment to protect their interests.

Financial Products: For those looking to introduce new products, we provide Trustee and Financial Services Licensing Services, ensuring compliance and facilitating smooth market entry.

Private Equity and Debt: Our skilled team excels at structuring transactions to attract investors, enabling businesses to thrive in their growth journey or succession planning.

Property Development: We empower land-owners to unlock the full potential of their assets, maximizing their value and profitability in the dynamic real estate market.

UK Connect: With expertise in cross-border transactions, we facilitate seamless operations for clients engaged in international business activities.

At TIP Wealth, we take pride in delivering excellence across a wide spectrum of financial services. Whether you need asset management, strategic insurance advice, product licensing, or assistance with property development, our experienced and exceptional team is dedicated to achieving your financial goals. 

Meet our team:  Corporate Advisory Team

Retail Advisory

Personal Insurance – why has it become so expensive?

The last few years have seen the premiums for personal insurance cover, and in particular income protection, increase significantly. Whilst it does not change the reality of having to pay more for your cover, the insurance industry had been facing very significant sustainability and profitability challenges that include:

• Record losses
• Soaring Income Protection (IP) claims
• Covid19 severely impacting Insurers’ ability to invest premiums adequately.
• Subdued new business and poor customer retention.
• Increased lapse rates
• Prolonged, ultra-low interest rate environment

Ensuring you are adequately protected against life’s unforeseen events is not just about the amount of cover you have, it is just as much about striking the right balance with the premium you need to pay for your insurance. With the recent price rises now may be a good opportunity to engage the Enva team and review your cover. Not only will we provide guidance and advice on adjusting your sums insured (if required), we can also look at alternative insurers to see if superior or more cost-effective options are available.

For our clients who hold income protection policies that are more than a couple of years old, with the changes that APRA introduced in October 2021 it is important to be aware that these superior income protection products are no longer available. If you do let your income protection policy lapse, we can replace with a new policy but this, whilst still protecting your income, will not offer the same level of benefits as you enjoyed previously. Therefore, if you are contemplating cancelling your cover, please contact us first to see if there options we can explore to help you retain your policy.

Mortgage Broking

RBA holds cash rate at 4.10%

For the second consecutive month, The Reserve Bank of Australia (RBA) has decided to hold the official cash rate at 4.10%.

The decision to keep the official cash rate at 4.10% follows the annual household inflation rate falling from 7% in the March quarter to 6% during the June quarter.

If you'd like to have a chat about what this news means for you and your finances, please don't hesitate to get in touch.

Economic Update

ASX Market Update and Economic Outlook – 30 June 2023 

Equity Markets Highlights  

It is fair to say, equity markets have been incredibly resilient in the face of monetary tightening both here and in the US 

By historical standards the market rally has been ‘narrow’. This has been most evident in the US, with the Nasdaq and S&P500 up 32% and 16% respectively in the last 6 and 12 months, and five mega cap technology stocks (Apple, Microsoft, Nvidia, Amazon and Meta) in the S&P500 accounting for 62% of Index performance. 

The performance of the ASX over the last year has been less ‘narrow’ than the US market, but still relatively concentrated with the Materials, Financials and IT sectors delivering 75% of the Index performance. 

Inflation 

United States 

The last quarter saw the US Government narrowly avoid defaulting on its debt. This is not new, and we see that America has strong bipartisan support. 

The Fed’s fight against inflation is still impacting negatively on markets and the expectation is that long term inflation is expected to rise with potential for further increases in interest rates.   

Australia 

The Australian economy has held up well however this could change quickly. 

There is a strong likelihood that the RBA will continue to raise rates especially with wages and property values rising and productivity falling. 

The effectiveness of increasing interest rates impacts the demand side of inflationary pressures while supply side pressure build. Supply side inflation is driven by a number of factors and as pointed out in the AFR on 15 June 2023 pandemic supply chain disruptions and the war in Ukraine have caused half to three quarters of Australia’s inflation spike so far, but price pressures are now building.  

July 2023 Highlights 

The last week of July saw softer than expected inflation. Investors are getting more optimistic that the RBA will successfully engineer a soft landing and we are near the end of this rate hiking cycle. 
 
The US Fed raised rates to the highest level in 22 years and left the door open to further hikes. The European Central Bank also pushed through its ninth successive rate hike. 
 
In China, the Chinese Communist Party held its annual Politburo in the last week of July. Most policy guidance was a reiteration of recent policy announcements. Notably, there was an emphasis on growth in the consumer and incentivising more private investment. Despite many investors’ hopes, there was no indication the property stimulus ‘bazooka’ will come out of its holster any time soon. 

July saw the Australian market extend YTD gains with small and mid-caps outperforming their blue chip peers. 

Energy was the top performing sector in the Australian market. 

Looking back at our 2022 Predictions 

When TIP Wealth Invest No. 1 Pty Ltd took over the Access Fund in June 2022, we made some predictions for the 12 months ahead just for fun in a presentation to the investors.  

One year on, we have revisited our predictions to see how well we performed with our forecasting. The results were quite interesting.  

We predicted: 

• Unemployment would remain under 4.5% (currently 3.5%)  

• The RBA rate would exceed 3% (at the time it was 0.85%) and it is currently 4.1%.  

• We thought the All Ords might struggle to stay above 7200 (it was 7000 at the time) and is now 7616 so the market outperformed expectations.  

• Yields on corporate debt would increase – it’s currently at a 12 year high.  

We count that as 3 out of 4 correct.  

Stock Highlight

JB Hi-Fi (ASX: JBH)

JBH listed on the ASX in 2003, with current director Richard Uechtritz then the CEO. During the 2000’s, JBH expanded into other market categories, including computers, phones and computer gaming. In 2016, JBH acquired The Good Guys for $870m, financed with debt and a capital raising. 

The business (JB HiFi especially) is very low-cost, and no frills. JB HiFi stores especially feature virtually no fitout, with very simple, low-cost product display, which combined with very high sales per square metre allow for a very low Cost Of Doing Business (CODB), enabling the company to be a price leader, while still earning strong margins. 

They have a substantial online business as well - both delivery and click & collect, which largely grew out of necessity during COVID. 

History: 

1974 - Established by John Barbuto 

1983 - Sold to 3 partners who grew to 10 stores and $150m sales 

2000 - Sold to private equity 

2003 - Listed on ASX at $2.50/share 

2004 - Acquired Clive Peters (QLD) 

2006 - Acquired Hill & Stewart (NZ) 

2016 - Acquired Good Guys for $870m (29% home appl & 24% CE share 

2018 - Ranked 7th largest CE Retailer Globally 

Debt:  

• Most of the company’s current debt is due to lease obligations 

Moats: 

• Geographic store network, online and omnichannel capabilities 

• Lowest cost operation, enabling lowest prices 

• Scale & Supplier relationships (ANZ market penetration as the leading retailer in category) 

• Brand (reputation, culture, staff expertise etc.) 

Potential Future Risks: 

• Significant and sustained economic downturn 

• Unsuccessful, large acquisition or international expansion  

• Severe and sustained supply chain disruption 

• Cyber attack, system outage, or reputational damage 

Latest Company Announcements: 

Corporate Governance | JB Hi-Fi Solutions (jbhifi.com.au)

Shareholder updates

Graham Lusty Trailers

Congratulations are in order for Shay Chalmers, the CEO of Graham Lusty Trailers, who has achieved a remarkable feat by making it to the prestigious top 300 shortlist for the 40 Under 40 Awards Program!

This distinguished global initiative takes center stage in recognizing and applauding the most accomplished young leaders and entrepreneurs in Queensland. These individuals are being honored for their noteworthy contributions, forward-looking vision, and admirable philanthropic endeavors.

Shay, an exceptional figure in the realm of Engineering Executive, has consistently excelled across diverse manufacturing domains, ranging from steel production to the development of medical devices. Her extensive proficiency and diverse roles, spanning from shop floor responsibilities to executive leadership, have left an indelible mark across private, public, and not-for-profit sectors.

Shay's commitment to fostering Australian innovation has earned her the distinguished National Women in Industry - Excellence in Manufacturing Award in 2021, in recognition of her remarkable contributions to the field.

 Shay Chalmers receiving her award

Private Equity Fund

We are pleased to share a recent development in the TIP Wealth Private Equity Fund and its evolving investment strategy.

As part of our ongoing efforts to diversify and strengthen our investment portfolio, we have taken a measured step adding to our private equity and commercial loan investments. We are excited to announce that the TIP Wealth Private Equity Fund has made a new investment in a venture that aligns well with our investment principles. This investment exhibits promising growth attributes and is backed by an experienced management team.

We have invested in the Pennington Cliffs Property Trust which is established to acquire, develop and invest in premium tourism assets on Kangaroo Island, South Australia. The focus is on the delivery of a world-class destination golf course and the further development of premium tourism assets and experiences on the Dudley Peninsula of Kangaroo Island while staying true to the unique natural appeal, beauty and sustainability of Kangaroo Island. The Fund will acquire the Penneshaw Pub, Seafront Hotel and Seafront Holiday Park in Penneshaw and The Terraces in American River.

Future Property Fund

Windsor Property Project

Experienced Melbourne based Property Developers, the Chapter Group (Chapter), have partnered with experienced Real Estate technology and innovation company, Taronga Group (Taronga) to establish the High Street Windsor Development Partnership to undertake a commercial property development at 196 - 206 High Street Windsor.

Currently disposed as the John Blair Honda site, post settlement the property will be demolished, with a 6 storey Retail and Commercial office building to be constructed.

Funding Details:

Capital Partner: Australian Real Estate Fund I (50% Partner in the High Street Windsor Development Partnership)

Purpose: Contribute to the Partnerships pre-construction costs in relation to the development site at 196 - 206 High Street Windsor, including but not limited to; Property acquisition costs, Development approvals, Architecture, Engineering, Design and Project Management expenses. 

Targeted amount (excl. construction facility): $3m

Return Rate: 14% p.a from date of contribution to anticipated project completion in April 2025 + a proportional share of profit should Development Partnership IRR hurdles be exceeded based on the final value at sale or repayment.

Source of clearance: sale of property at 196 - 206 High Street Windsor. Estimated Market Value "EMV" on completion of $95,000,000 - $105,000,000

Corinthian Balanced Fund

The Corinthian Fund is an unregistered managed investment scheme designed explicitly for not-for-profits and charities. The fund combines our long-running and highly successful Conscious Investor equities strategy investing in Australian and US shares with high-yield asset-backed commercial debt and off-market transactions. We know that every dollar we charge takes money from a charity's purpose, and, therefore, we are only paid if the fund achieves a compounding return above 6% per year. We put charities first.

The following table outlines the long-term benchmark asset allocation ranges: 

Current Assets 

The following graph details asset allocation as at 30 June 2023: 

Compliance with Investment Plan 

Current allocation to Cash is higher than the target allocation and higher than the maximum outlined in the Investment Policy.  

The asset allocation committee are monitoring this position and expect the cash holdings to be outside the long-term benchmark ranges for the short to medium term until funds are further deployed into equities and asset-backed commercial debt investments in the next 2 years. 

Conscious Investor Fund

Conscious Investor Fund