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A growth focus can risk your investment returns study finds

GOING for growth is not the best way for investors to build long-term wealth through shares, research has found.

A University of Adelaide study of more than 30 years of Australian share returns shows that a portfolio of so-called growth stocks companies seen as having potential for higher future returns rather than paying large dividends today has performed worse than the overall market and been more risky.

In contrast, value stocks such as the big four banks, BHP Billiton and Telstra have performed better than the overall market. Value shares tend to trade at lower prices relative to their profits, pay higher dividends and are often seen by investors as bargains.

Dr Paskalis Glabadanidis, a senior lecturer at the universitys Business School and a researcher for its International Centre for Financial Services, says growth stocks are often priced for perfection.

Investor sentiment and an overly-optimistic view of future economic fundamentals can push their prices too high, he says.

Popular growth stocks in recent years have included Dominos Pizza Enterprises, health supplement companies such as Bellamys and Blackmores, several healthcare companies and website operators such as

Glabadanidis analysed financial valuation ratios to determine growth and value stocks over three decades and his findings suggested investors concentrate on shares with value characteristics.

I think that value portfolios had higher average returns and lower risks because they are associated with less uncertainty about their future economic fundamentals and because they have an established history of solid cash flows, he says.

Sorting stocks and combining them into portfolios based on high dividend yields tends to generate higher average returns than portfolios consisting of stocks with low or zero dividend yields.

Catapult Wealth director Tony Catt says its wise to hold a mixture of both value and growth shares.

He says growth stocks are often more expensive but you are paying for quality.

Growth stocks are usually finely priced and it doesnt take too much for them to have some hiccups when they dont deliver on their promises,’ he says.

Catt says stocks can switch between growth and value, such as Woolworths, which today is seen as a value stock but previously had been growth-focused.

Sometimes with value shares you have to be a little more patient you are buying things that people have fallen out of love with, he says.

I look more at it from a sector point of view you have to have the right diversification across different sectors of the market.

You dont want seven banks in your portfolio just because they are all value, or seven healthcare stocks just because they are growth.


Anz bank slashes hundreds of jobs

ANZ Bank is cutting 200 local jobs, blaming tough economic conditions and low lending growth.

The changes are in response to subdued economic conditions, low lending growth and the need to simplify our business and improve productivity, a ANZ spokesman said in a statement on Tuesday.

The axed roles are largely based in Melbourne and are mostly managerial, plus back-office positions in marketing and project management.

The 200 job losses equate to around 0.95 per cent of the banks 21,000 strong Australian workforce. In total, the ANZ has around 49,000 staff worldwide.

All affected staff will have access to support services such as ANZs career retraining fund and will be able to apply for other roles within ANZ, the ANZ spokesman said.

ANZ also has an external hiring freeze, implemented in December, to maximise redeployment opportunities inside the bank, he said.

ANZ, the fourth-biggest Australian bank by market value, recently cut its dividend for the first time since the global financial crisis in 2008 after posting a sharp drop in profit.

Cash profit, the key figure tracked by the banking sector, dropped 24.3 per cent to $2.782 billion its lowest since 2010. The drop was primarily due to a $717 million hit from writedowns and restructuring charges.

At the time, ANZ said the charges were necessary given the more challenging business environment.

On May 3, ANZ cut its interim dividend by six cents to 80 cents for a payout ratio of 67 per cent.

The bank also reiterated its determination to pull the ratio back from the higher returns of recent years to between 60 and 65 per cent.

At 1056 AEST, ANZ shares were up 30 cents, or 1.23 per cent, to $24.61, valuing the company at $29.59 billion, in a higher Australian market.

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