Investment Matters

The budget and your investments

In contrast to the impact of the budget to your wealth structure, the impact on your actual investments was relatively minor, and with a positive flavour.

The largest impact (a positive) is for Challenger Financial, a large holding in clients' equity portfolios.

The budget has delivered reforms making Deferred Lifetime Annuities (DLA’s) and other pooled risk longevity protection products eligible for earnings tax exemption. While having become widely expected, the detail is incrementally positive, with multiple premium payments to be allowed for DLAs, reducing sticker shock and preventing customers being locked into prevailing low interest rates.

The government will consult on age pension means test treatment ahead of these reforms taking effect from 1-Jul-17. This is a positive for Challenger, clearing the way for a new long-duration product at a time when fixed-term annuity duration is reducing in a low interest rate environment.

Challenger has been a fantastic long term investment for First Samuel clients. It has transitioned from being a relatively small and unloved company to be a market leader in its field with strong continuing growth prospects. We look forward to seeing it continue to grow.


Another beneficiary of the budget was free-to-air TV businesses, through the 25% cut to license fees announced. Southern Cross Media, via its regional TV business will be a beneficiary of this cut (which takes the fee from 4.5% of TV revenue to 3.375% for FY-16 and paid in Dec 2016). This will assist Southern Cross' earnings further into FY-17 after announcing a small upgrade this week for FY-16 earnings (to Jun-16) - see below for more detail. It is worth noting that Australia's FTA licences' fee remains high by global standards (it is sub 1% of revenue for Canada, NZ, Hong Kong, UK, Italy and the US for instance).

The remainder of your companies were relatively unaffected, when compared to prior expectations, and we expect to see government regulation having a low overall effect on our investment portfolio.