The Efficient Market Hypothesis (EMH) & Wholesale Australian Share Fund - Financial Assignment Help

Assignment Task -         

Tex Matdasu 

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

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

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 utilize 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.

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