The Challenges Facing Australian Investors in 2026 and Smarter Ways to Overcome Them

Next up, we welcome Marc Jokum, who's GlobalX's product and investment strategist, responsible for investment research and all things ETF.

Mark has previously worked at StockSpot, Morgan Stanley, AMP, and KPMG.

He holds a bachelor of business, a diploma of financial planning, and is a CFA level one.

His presentations are always very insightful and illuminating, and we look forward to hearing what he says today.

Over to you, Mark.

Thank you, Darren, for that very good introduction and welcome everyone today to a topic that I'm very passionate about, talking about investing, particularly within Australian equities, but more importantly, talking about some of the key challenges that I think people may be underestimating at the moment about investing in the Australian share market.

obviously a very volatile time at the moment.

But overall, I think we remain very optimistic around investing.

So today, my job is to give you some really nice golden nuggets or things that you can take away as part of your portfolio to address some of these challenges.

First things first wouldn't be a webinar without the mandatory disclaimer.

So yeah, anything I do, anything I say is general nature does not take into account your personal circumstances.

If you want any information about what I've said or any of the exchange traded funds, the ETFs that I've talked about, please jump onto our website, you can view the TPS and the TMDs over there as well.

Darren gave me a very nice introduction, but for those who may not know about who GlobalX is, GlobalX is a leading ETF manager founded back in 2008.

We have more than 450 ETF strategies globally.

We've got about 49 here in Australia and collectively between the group managing over $200 billion in terms of assets under management.

We are owned by a Korean asset manager in Mirai Asset Management, who really is a multi conglomerate powerhouse when it comes to investment management capabilities, you know, managing close to almost a trillion dollars in assets under management and continues to grow.

A lot of you may be familiar with our

domestic suite over here.

We were the first ETF issuer to launch the the inaugural gold ETF, the first gold ETF in the world back in 2003.

But now we've decided that we wanted to branch out and talk about other things, which is what I'm going to dive into this presentation around income growth core, there's a whole bunch of different strategies we offer.

So if you do want any more information about our funds, do jump onto our website to find out more.

So yeah, as Darren said, my name is Mark Joachim.

I'm a senior product and investment strategist here at GlobalX.

And today's agenda, I want to take you through three key problems that I see for investors investing here in Australia.

And also some solutions that we're going to talk about with how to solve these common problems.

Because it is a bit of a jungle out there.

But my job is to give you some insights into how you can implement these in your portfolio to

solve some of these common problems.

First, we're going to be talking about income, then we're going to be talking about growth.

And then finally, how to address some of the concentration that we do see in the Australian market.

So the problem one that I see in the Australian equity market is that income is not what it used to be.

We are long gone from the Nirvana days of call it the late 1980s, where we had, you know, very generous term deposits paying double its dividend yields were great.

Because now, unfortunately, the challenge is, is that the Australian equity market is not paying the same level of income that it did historically.

If you look at the chart on the left hand side of your screen, you can see that excluding the COVID blip that we had during 2020, the current dividend yield on the Australian share market is around about 3.2%, which is the lowest it's been for decades.

Now, this is both a function of two things.

One, we've seen strong capital growth within the Australian equity market over the last year or two.

And secondly, dividends have not kept our pace with where the capital growth has led to, which has led to those compressed yields.

So the dividend yield over the last 10 years has been around four to four and a half percent, but right now we're at least a percent lower.

And the chart on the right hand screen is I find very interesting because over the last three years, dividends in terms of totality have actually been coming down.

What this means is that even though you may have seen in reporting season now, and we'll talk about that in February from February 2026, about people increasing and companies increasing their dividends, overall, in totality, they have still not increased.

So it hasn't kept up to date with the rising share market, whether that be companies deciding to hold on to more of their cash to reinvest for growth or not distribute as much.

This

both a really challenging environment for Australian investors, once you even include franking credits, because income is not what it used to be.

And because most of Australian investors do want to build a sustainable income stream, this poses a key challenge for investors to meet those cash flow needs.

Not just that, but we also are seeing an issue around dividend traps overall.

And a lot of people might say, well, Mark, look, I'm just going to reach for companies that are paying very high dividend yields based on what they paid over the last 12 months.

This is what a lot of people call dividend traps, because just because they dividend yields are inflated, and look really attractive doesn't mean that that's what it's going to be like going forward.

It's really important that investors don't look at just the trailing 12 month dividend yield, look at the forward dividend yield or what is projected by some of these companies.

Because if you look at all the stocks on the table on your screen, a lot of them

experience significant price declines, which when you think about it, you take the last 12 months dividend yield, the dividends that they paid divided by the current price, which has been compressed, that leads to a really high dividend yield.

So again, be very cautious because if you invest in some of these companies,

that really have been paying historically high dividend yields, the total return actually might be negative.

And I've plotted on the right hand side of your screen, a chart of three, let's call them historical dividend darlings and AMP, Lendlease and Maya, all paying pretty decent dividend yields, anywhere from around about three to five to 6%.

But once you take into account their capital return, they've actually underperformed the index significantly over the last 10 years.

So really think about it from a total return perspective.

If your income from the dividend isn't meeting that total return goal, don't be afraid to sacrifice a little bit of capital, which can also be seen as an income enhancement as well.

And again, pay attention to the forward looking dividend yield, which can be very, very different from the last 12 months as well.

So that's problem one, income.

Income is not what it used to be.

So you would think, well, maybe the growth is making up for it.

However, once you actually look into the Australian share market, the second problem I find is that growth is very scarce in Australia and there hasn't been much earnings growth.

Now, when I dive into actually what leads share markets over the long term, you know, sometimes there might be short term price movements, psychology, fear and greed.

But overall, over the long term, it's really earnings growth that dictates the majority of total share market returns, especially when you're looking over a multi decade period.

And a lot of us investors have that long term horizon.

The chart on the left-hand side of your screen paints a really big contrast between the US market, which is plotted in the blue line, versus the Australian market, which is plotted in the orange line.

This shows the earnings growth or how much profit these companies have made within the underlying index using both the ASX200 and also the global share market.

Sorry, correction, it's not the US market, it's the global share market.

And you've seen about 11% earnings growth for global shares and only about 4% for the ASX 200.

So even though you might say, well, the ASX actually performed all right, a lot of it is actually based on the multiple that people are paying or how much they're willing to pay for a dollar of earnings compared to the underlying earnings growth.

I mentioned before that Australian companies may not be paying out as much of their profits in terms of dividends, but we still have one of the, if not the highest dividend payout ratio out of our developed global peers.

When you look at other countries, a lot of them, when you look at Korea, the US, or India, all the way on the right hand side of that right hand table, they are reinvesting for growth.

They're not paying out as much because their economy and their domestic market is not as income focused as Australia.

Whereas we love our dividends, we love our franking credits, so we're paying out anywhere from 75 to 80% of our profits in terms of dividends and not reinvesting for growth.

So again, the Australian market doesn't have that same growth dynamic that a lot of the other global markets have.

Now, the issue with the Australian market, when you look at it from a sectorial basis, is that we are heavily reliant in industries that we consider to be quite mature.

If you look at the chart on the left-hand side of your screen, it's a nice little bar chart of all different countries, Australian orange, you've got the US, Europe, and then emerging markets like China and India, we are heavily weighted into two powerhouse sectors, financials and materials.

They make up 50 to 60% of the total share market here in Australia.

Where we are underweight or where we have less exposure to is sectors that are growing in nature and that are not as infant, such as technology, consumer, communications.

We are significantly underexposed to that here in Australia.

And whilst that may be important from a diversification perspective, having that sectorial bias could also lead to not having those stocks in those particular sectors that are projected to grow their earnings over the next couple of years.

Remember, earnings drives the majority of share market returns.

Because even though financials are expected to grow high single digits, materials don't look too bad, given we're in a bit of a commodity super cycle at the moment.

Areas like IT, technology sectors, are projected to grow double digits over the next couple of years.

Same with areas like industrials as well, or communications leading into 2027.

So overall, we want to be exposed to these sectors that have strong tailwinds, strong earnings growth.

And in Australia, it might be hard to get that, given we have that mature

industry bias towards the likes of financials and materials.

So first problem, lack of income in Australia.

Second problem, lack of growth in Australia.

And the third problem is to this point that I was talking to earlier is around the sheer level of concentration.

If you actually have a look in terms of the total of the ASX 200 index of what the top 10 companies make up, it is now the highest it's been probably in the last 10 years.

And whilst that may be good because we have had some really strong performance from the likes of CBA and BHP most recently, it doesn't bode 100% well when markets are so heavily concentrated because that means that you're often reliant on a few companies to do the heavy lifting.

And whilst there's only a few companies that generate the majority of share market returns over the long term, actually being able to pick which companies they are is quite difficult.

And if you look at the actual return contribution from these sectors over the last year, and I've posted both global shares and Australian shares to show you the difference.

Even though it may look like Australian shares are at par with global shares, it was really just those two big bars, both the materials and financial sector, which made up around about 10% of the total 12 to 13% return we saw in the Australian share market.

That's about 70 to 80% of the return driven by two sectors.

Whereas if you look at global share markets, you had more even contribution, technology, financials, industrials, materials, health care, all these sectors contributed a little bit more than others, given that, you know, in the US, there still is that heavy tech bias.

But again, I want to get the message clear that in the Australian share market, we are heavily reliant on two sectors and a handful of companies to do the heavy lifting.

that if they experience some sort of earnings trough or multiple decline in their price to earnings ratio, that could bode quite negatively for the overall share market overall.

I mentioned around some of these leading companies that are leading the pack really in terms of there's only a couple of them.

But what I wanna show is that this idea of dispersion or this idea that multiple companies are leading the ASX 200 higher is not actually true.

Because if you actually look at the number of companies or the percent of companies that are trading above their 200 day moving average, that's just the price signal that a lot of people look at for momentum.

That's actually been declining over the last couple of years, which tells me that, again, there's only a few companies that are making those new highs.

It's not being evenly spread throughout the entire market.

And yes, you can keep investing in these leading companies.

And to give you a context, CBA and BHP, they make up, you know, over half a trillion dollars of the total market cap, which is more than if you look at the chart on the right hand screen, more than the other banks altogether, as well as even some of the healthcare companies like CSL.

So again, you're heavily concentrated into a couple of areas, you're hoping that that narrowness continues.

But who's to say that it will, you know, this is where we need multiple sources of diversification, and multiple sectors and multiple companies being able to drive it a little bit higher.

Because when you have half of the stocks in the index, making you highs, that's not a sign of a healthy bull market, you want more companies reaching those 200 day moving averages, like what we've seen in the US and other global markets, which are well above the 50% mark.

So I've spoken about the three problems in Australia.

I've talked about the challenge around income.

I've talked about the challenge around growth and then the challenge around such a heavy concentration to just a couple of sectors and companies.

Now let's dive into solution mode.

Where can exchange traded funds or these other types of investment ideas help you solve some of these structural challenges going forward today?

Let's dive into the first challenge.

How can we improve the overall income profile of our portfolios?

When you look at meeting your cashflow needs or keeping up with inflation, don't just look at what inflation has been over the last 12 months, which has been around about three and a half to four percent.

I like looking at the last three years because that's the experience that we've had to face over the medium term, which is around about four to four and a half percent.

It's very rare to see four to four and a half percent yields, whether you look at things like residential property, even from the Australian share market I mentioned is now below that term deposits are not there, even though we have seen a bit of repricing given the RBA is likely to keep on increasing interest rates.

But really, there's only a handful of asset classes that meet that threshold.

And you don't just want to blindly chase yield.

You want to take the same level of risk or make sure that you're adjusting for risk given the income that you're taking.

And when you look at things like covered calls, which I'll dive into, hybrids, which are being phased out, bank credit bonds, these are the types of asset classes that can actually meet that threshold.

And I mentioned why risk is important.

Using a strategy like a covered call strategy where is where you essentially just go to the options market and you sell a call option whilst holding the underlying shares might sound like a technical way to get exposure to this type of asset class.

But it's actually been practiced for centuries, if not decades.

It's a very common investing practice.

And you can see that you can get a very similar return, at least historically speaking, to the broader ASX 200, but taking less risk and most of all maximizing that income

At the moment, a covered call Australian share strategy is paying a yield of around about nine to 10% per annum.

Again, you're not gonna get the capital growth aspect, but if you're focused on income, I think this idea of manufacturing income through very intelligent investment products like ETFs, which can give you exposure to the options market without you having to worry about writing those options themselves individually is a really interesting way that you can blend it with your Australian shares portfolio to increase the overall shares, to increase overall income

without materially adding too much risk.

So that's on the income side.

You can also find high yielding dividend shares, which I'll talk to in a minute.

But one other thing to look about is how do we find growth in this market?

The Australian market I mentioned, very mature, doesn't have a lot of growth behind it.

But there are certain pockets where you actually can see elevated areas of growth.

And this is where we like the idea of a growth at a reasonable price strategy, also known as GARP.

as an acronym.

We love our acronyms here in the finance world.

Why this is important is because when you're blindly chasing growth, a lot of people stretch for valuations.

They go to the IT sector, which is trading at a very high PE ratio here in Australia.

But we wanted to normalise that.

How do we seek out growth whilst maintaining a valuation discipline and trying to avoid overpaying for companies?

What you can see in the table on the right hand side of your screen is that by applying this idea of finding growth companies, but that are trading at a reasonable price, you can get that PE ratio down from around about 20 to 21 times, which is where Australia is currently priced.

That's in the top percentile that we've seen historically speaking, down to around about 15 times, a lot more palatable for investors, given that a lot of the time in terms of forward looking returns,

When you have high PE ratios, it tends to not bode well.

And when you have low PE ratios, the returns over the next five to 10 years tend to be more positively correlated.

You're not sacrificing on the dividend yield too much, which is quite encouraging in case, if anything, having that valuation tilt increases the overall dividend yield.

But I really like those growth metrics at the bottom and those profitability metrics.

Yes, the sales growth over the last three years particularly hasn't been as much as the broader ASX200 that is because of the large banks, and I'll talk to that in a minute.

But really that earnings growth, you're getting quadruple the amount of earnings growth that you're getting in the broader ASX200 by applying a Gart strategy.

Where I feel this fits very nicely in portfolios, and there's a lot of what they call smart beta ETFs in the market, which essentially just ETFs that track a bunch of companies not weighted by market capitalization, is it's significantly underweight the financial stocks.

Now that's really important when you don't own any of the big banks because they haven't grown their earnings as much and they are trading quite expensive.

It is the definition of not a GAF stock.

It can actually blend quite nicely because it's only about a 30 to 40% overlap with the broader ASX 200.

So when you're looking at piling on an existing strategy, a new strategy, sorry, to your existing ASX 200 or ASX 300 exposure, think about GARP.

Really, really interesting play in terms of finding not too much holdings overlap, but increasing the overall growth part of your portfolio.

And it's not just on the growth side that's important.

What we also find is

They do very well when it comes to recoveries.

So once you've reached the drawdown, but actually during that drawdown, sometimes it's actually able to cushion some of the returns because you do have that valuation tilt.

So value helps you on the downturn and growth helps you when it comes into that recovery phase.

What I've done is I've plotted the ASX 200 index in blue and the GARP version of it in orange.

And you can see that whether it was the GFC, the Euro debt crisis, we've got the Chinese slowdown back in 2016 and 17, trade wars, COVID-19, the inflation shock, and most recently Liberation Day.

What we found is that a GARP index fell by, if not the same, a little bit less than the broader share market, but recovered a lot quicker.

In fact, we found that it helps cushion the downside by around about three and a half to four percent less in terms of the severe drawdown and recovers around 500 days quicker than the broader share market.

So again, really important that investors get exposure to meeting that recovery to get back to even and making sure that you have that growth tilt in your portfolios.

Otherwise, if you look at the GFC, I mean, it took 10 to 12 years for the Australian share market to get back to even.

So when you can have a GARP strategy overlaid with something like that, I think it bodes really nicely from a diversification perspective and also can help you during those turbulent markets.

Now, how do we build a robust Australian equities portfolio with all these different components?

You can just invest in the ASX 200, but I really feel that challenging times calls for beyond ordinary solutions.

And that's where if you blend, not just a core ETF, like we've got our A300 ETF, which tracks the largest 300 companies in Australia, if you blend that with that GARF strategy that I mentioned,

the covered call strategy that I also mentioned earlier for solving problem one, and also focusing on high yielding dividend shares, which is represented by our ZYAU ETF, you can actually get a little bit of an increase in return overall, but not increasing the overall volatility too much, which is that table in the left hand side of your screen.

Look at that sharp ratio.

That's the number that I think a lot of investors need to look at with making sure that they can get those higher risk adjusted returns, not just on a drawdown perspective, but also making sure that we're protecting our capital.

We're making sure that we're taking a high level of return for that given level of risk.

So by just making a few little tweaks in your portfolio, nothing too crazy.

We've just gone still to 50% of a core based strategy.

You can look to amplify some of those components and solve some of those problems that we had before.

And I had a look at what a strategy like this.

So doing 50 percent Australian shares, 25 percent GARP and then 15 and 10 percent in terms of high yielding shares and covered calls.

It actually outperforms the broader market over a five year basis, 98 percent of the time.

So again, very, very popular strategy for those who are looking to get those excess returns, which works out to be about 80 basis points per year.

Doesn't sound like a lot, but can compound over time.

So again, just a different framework for investing in Australian equities, not just trusting the index, looking at ways to amplify income, capturing growth and overall that diversification piece too.

Now, the question is, how can you play it?

The beautiful thing working for an ETF issuer is that we can build products that can solve these issues.

So for that income problem, the covered call strategy that I mentioned is our AYLD ETF, paying a yield of around about 10% per annum, paying your quarterly distributions.

You get income from your dividends, your franking credits, and the options premium overall.

And that's for a low fee of 60 basis points, which is less than what some active covered call strategies are targeting as well.

Then you can go for a high yield approach by investing in high yielding Australian shares currently paying a yield around about a percent higher than the broader market.

And again, this focuses on forward looking returns in terms of the dividends being paid.

Remember, we're not focusing on dividend traps, we want to look at the forward looking dividend yields.

And also it also avoids dividend traps by applying a really smart momentum filter to get rid of the bottom 10% stocks that have experienced price declines.

So that's our ZYAU ETF.

And if you want to go on the bond side, go a little bit of a less risky option, but also looking for high rates of income.

I didn't talk about this one in particular in my presentation, but look at Bank.

It invests in the leading Australian banks in terms of the debt side of their balance sheet, paying a yield of around about five and a half percent at the moment, which is a lot higher than what you can get from the Aussie bank dividends.

And then finally, this is one of our newest ETFs, which is the Australian GARP ETF, TigerCo GRPA, one of the lowest cost smart beta ETFs in the market charging 25 basis points.

It's holding 50 of the leading GARP companies growth at a reasonable price companies here in Australia.

And like I mentioned, significantly underweight the banks, overweight financials, overweight energy,

I'm sorry, overweight energy, overweight materials, overweight industrials, all sectors that have performed very well.

And it is one of the best performing factors since we have launched it and has proven over time to outperform the broader share market.

So that's a little bit about some of the strategies.

I hope you found this insightful, even though there are inherent problems in the Australian market, don't let that deviate you from a long-term strategy and don't let that negate any possibility of finding tactical or creative ways to try and solve those problems.

Think about your income, think about your growth and think about the concentration that you currently have in your Australian shares portfolio.

With that, I'll hand it back to Darren to hopefully go through a few questions and answers.

Thank you very much Mark for those insights and those very concrete and tangible ways that investors can make some improvements to their portfolio.

That was very insightful.

Now when I think of portfolios and the strategies.

We are often influenced by things that are happening around us and we've just recently been through the February reporting season for Australian companies.

I'm sure you were keeping close tabs on everything that was happening last month.

How should investors interpret the recent reporting season for their portfolio positioning?

Yeah, I mean, hopefully a lot of us are long term investors.

And I always say, look, if it's not going to matter in over the next five days, it's not going to matter over the next 10 years and you don't have to worry about it.

But reporting season does catch a lot of people off guard because of how volatile it can be.

And even though it was a volatile reporting season,

We actually saw it being a blockbuster reporting season for the Australian companies, one of the best we've seen in a long time.

That being said, it was quite volatile.

We saw about 50% of companies experience a plus or minus 5% move on their earnings result date.

So extremely volatile and you had some great wins.

The financials continue to lead.

I think they surprised the entire market overall.

Materials doing quite well.

Even boring companies like Woolies, you know, jumping up, you know, five to 10 percent on one day.

It's not really normal for a company like that to do that.

So there were some winners, but there were also some really bad losers as well.

whether it be in the consumer area, like you have the likes of Webjet and Temple and Webster down double digits, AMP, and a whole bunch of other companies as well, where if you don't meet guidance, you know, the market is going to punish you.

And I think it's a very valuable lesson that if you look at a broad-based index like our A300 ETF, that outperformed around about 78% of the companies during reporting season.

So very volatile period, but nonetheless, a very good earning season.

And I mentioned around earnings growth being a challenge for Australia over the next year.

Earnings growth is actually expected to increase by double digits here in Australia, which we haven't seen in a long time.

So could bode quite nicely for the Australian market, but I think the bar has just been set even higher in Australia.

So if companies don't meet that bar at the next reporting season, and we'll get some guidance before the August reporting season, when companies update us in the second half of this year, if there's any weakness that could see a material pullback in the overall share market in terms of price levels.

But overall, very, very good earning season.

Just remember that sometimes a single stock volatility can really wipe out some of your positions overall.

So make sure that you do have your position sizes relative to your overall portfolio.

And maybe turning back to public markets for a final question, Mark, you indicated the forward earnings growth actually looks quite positive.

But obviously disruption can happen at any time and we've seen what's been happening in the Middle East.

Are there any, as a final call out, are there any particular implications that you think investors should consider in light of what's been going on?

Yeah, it's a good question as well, Darren, because things are changing by the hour, to be honest.

You know, by this time tomorrow, things might be rectified.

Trump could come out and say something.

We really are living in a headline driven market, which makes it very challenging for investors.

But I will just say that investors do need to know that this is normal.

This is the price of admission that investors pay to being invested in the share market to hopefully lead to better long term outcomes.

Sometimes you need to stomach these really gut wrenching and stomach churning volatility which no one likes to see.

So if you're checking your portfolio balance, you might see negative, but

Overall, I still think Australia is quite is positioned okay.

And the reason I say that is even though we do have some risk of high inflationary pressures, and you know, there could be some fall through in terms of rising oil prices, we are well insulated because in the midst of a commodity supercycle, which I believe we're in at the moment, we actually have a resilient earnings base with companies who are exposed to that.

where you have the likes of BHP, Rio, Glencore and a lot of these other companies who have high copper exposures.

I think I'm really bullish on copper as a whole and moving away from iron ore, given the electrification that we're seeing with this AI build out.

Not just that, but there are some oil and gas companies like Santos,

who can benefit from and Woodside who can benefit from rising oil prices.

So I do think that Australia is relatively well insulated from something like this.

That being said, you know, as an importer of gas and an importer of fuel, it is something we need to monitor.

But my call out to investors is that I think that Trump is going to want to see this as a

not prolonged war.

The bond market is pricing that it may not last as long as what people think it will.

So I'm hopeful that things will look to improve, but things are changing by the hour.

Don't forget that earnings does drive the majority of share market returns.

So if Australian earnings are projected to grow double digits this year, that could provide some insulation over the long term as we get through some of this early blip, similar to what we had last year with the Trump Liberation Day back in April 2025.

So just another blip in terms of the overall share market return.

Wouldn't say it's necessary to make changes to your portfolio overall.

If anything, it's a good time to rebalance, take some profits of things that have done well.

Gold's been obviously doing very well, good inflation hedge, solid geopolitical shock hedge as well, and look to deploy it, especially when things are going on discount as well.

So yeah, that would be my advice, Darren, for navigating this crazy Iranian conflict and Middle East conflict that we've seen play out

Thanks very much, Mark.

I like that you finished on a positive note for future earnings growth for Australia.

So we'll wrap it up there on that.

Thank you very much.

Beautiful.

Thank you very much for having me, Darren.

And thank you, everyone, for tuning in.