Dear ,

This year’s 30 June ritual of frantic activity is being exacerbated by volatile markets and the credit crunch. Whilst it must be tempting to urge your clients to do absolutely nothing (other than load up on canned beans and toilet paper), there is no better time to show your clients alternative investments to make their income work harder.
 
The Australian Agribusiness sector warrants a fresh review.  Agribusiness offers investors strong prospective returns that are uncorrelated to equity markets. The Commonwealth Banks Agri Indicator Report show the high demand for agricultural commodities in Asia delivered investors a return (including dividends) of 42.8% over 2007 (Jan to Jan) whilst the S&P/ASX 200 accumulation index returned 6.3%.
 
National Australia Bank’s General Manager Agribusiness, Mike Carroll, has stated that since 1987 top farm businesses have enjoyed a compound annual growth rate (CAGR) of 12%, compared to the All Ordinaries 9.7%, property 11.5%, bonds at 10.4% and cash at 7.7%.

In addition, Agribusiness Managed Investment Schemes provide investors with up to a 100% tax deduction. This “reimbursement” (assuming your client is PAYG), can be used to pay down non-deductible debt, reinvest into other products (or fund a holiday in Europe). Whatever the focus, tax effective investment can be a powerful tool, particular in the current market.  Here are some of our suggestions for the 07/08 season:
 
1.    Only invest if the product makes sense without the tax benefit. That’s why we support businesses supplying end-products that are in high demand, highly priced, and difficult to supply. Australian Agribusiness Group (AAG) state that the top 25% of Agribusinesses have produced returns inline with the S&P All Ords over the past 23 years but with a fraction of the volatility*.

2.    Finance will be difficult to obtain in 2008, potentially impossible for some projects. Currently there are only 6 financiers offering agrifinance to the market and researchers such as AAG and AdviserEdge warn that they will be much tougher on applicants. Make sure you get your finance in early (not the last week of the products open), AAG suggests applying for two types of finance, the preferred provider and your own financier. Make sure that you receive confirmation that you have provided all the information required by the financier and GET YOUR APPLICATIONS IN EARLY.

3.    Every year that you delay implementing tax-effective strategies your client will receive approximately 30 – 40% less income. Fund Managers should be able to assist you with resources including: someone to help identify the right clients, to deliver presentations, provide you with marketing templates, and a bit of extra elbow grease.

* performed in line with the S&P All Ords  in the last 25 years S&P All Ords to  top 25% of Agribusinesses (ABARE - Australian Bureau of Agricultural and Resource Economics) have performed in line with Australian equities over the past 23 year but with significantly lower volatility.

STRONG END MARKETS OFFER YIELD POTENTIAL FOR TAX-BASED AGRIBUSINESS INVESTORS

Blurring the overall investment worthiness of agribusiness products is investors’ primary motivation – the ATO approved tax benefits.  Whilst this is clearly a useful benefit, investors may overlook the manufacturing capacity of agribusiness.  We believe it is as important to understand the upfront tax benefit, as it is to understand the potential price triggers at cropping.

TFS Sandalwood as the manager of the world’s largest Indian Sandalwood plantations is a case in point. (Click Here to read more...)

Sharemarket returns in the quarter to 31 March 2008 were the worst seen since the dark days of late 1987, with the bellwether ASX 200 index losing almost 16%.
 
There has been much wailing and teeth gnashing in financial services, along with calls for Federal Government bailouts of the mortgage industry, increased regulation of financial markets and the banning of such arcane practices as stock lending and short selling. Yet amongst thoughtful investors and their advisers has come the sensible question that follows market routs – is now the right time to buy? (Click Here to read more...)

Don't forget that we have recruited Tom Elliott as a regular commentator. Many advisers sent in questions that they would like Tom to answer so please submit any that you have to questionTom@bdmdirect.com and we will select one each month for the newsletter.