With a Labor victory in next year's Federal Election seemingly firming, a Daintree Capital director is calling on professional investors to prepare for a change in government, and the policies to come with it.
Speaking at a media briefing yesterday, Daintree founding director Justin Tyler said next year's Federal Election would change the environment for investors, and they needed to be ready to adapt.
Tyler said given the Coalition's recent "implosion", he would be surprised if Labor didn't find itself in Government after next year's Federal Election.
"I don't know how controversial I am being here to say that there's probably going to be a Labor election victory next year at a Federal level," Tyler said.
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"Unexpected things happen, but I think as an investor it's our job now to prepare for the fact that there might be a change in power and different policies that we need to deal with."
According to Tyler, a Labor victory would have a meaningful impact on Australian markets, with the former CFS portfolio manager adding Australian investment portfolios were "overweight" equities.
"One of the flagship policies the Labor party is talking to is abolition of refunds for franking credits for most self-funded retirees. I think that's actually going to have quite a meaningful impact on markets here in Australia," he said.
"The reason is that most investment portfolios in Australia are very much overweight equities."
Tyler said the entire Australian market - not just retirees - would be affected by Labor's policy, noting the franking credit system was well entrenched in Australia.
"Many people rely on franking credits as part of the return profile, so the policy that's been announced is not going to remove franking credits, it's not that severe," he said.
"But I guess the risk factor that we're looking at is that the market reacts a little bit as if that is the case - that you do get a correction in the dividend paying stocks."
However Tyler stopped short of criticising the policies, adding he personally agrees with the thrust of Labor's changes.
"I'm not saying the policies themselves are wrong, I actually think the idea of changing these policies is a good idea," he said.
"But how it impacts on people who have put their financial plans in place as a result of them, that's one issue."
The firm views changes to the franking system as a potential boost for fixed income, with Tyler saying he'd begin moving his portfolio away from stocks paying high franked dividends if he were an equity investor.
"Our perception as professional investors is that many retail investors tend to take quite a 'hands off', passive view to their investments. Then when something happens, they react. Which precisely the wrong way of doing things," Tyler said.
"For us as bond investors this is actually a good thing. What we hope is that we start to see a rotation on the part of Australian investors towards fixed income as an asset class. If it's Daintree, great."
Tyler said he would be happy given the current climate to take long positions in Australian interest rates, adding a Labor victory would likely push the RBA from 2019 to 2020, anchoring the short end of the Australian yield curve.
"We think to some extent right now bonds have come off a little bit, but there might be some more of that to come as a result of this election victory if it does happen. This is just a political risk factor that we have in our mind," he said.
"These are meaningful changes in policies that have been in place for a long time, and many retirees have based their financial planning around these policies."