Today’s News

The Big Picture

• Australian bond yields fall after recent 15-year-high. Australia's 10-year government bond yield fell to around 5% yesterday after reaching 5.15% for the first time in 15 years earlier in the week. RBA Assistant Governor Sarah Hunter flagged persistently elevated inflation expectations as a key risk to the economy. (Trading Economics)
  
  

• Iran formalises Strait of Hormuz toll system as Trump delays military strike. Iran has formally launched the Persian Gulf Strait Authority, the body managing ship transits and collecting passage fees through the Strait of Hormuz. Meanwhile, President Trump has announced he is holding off a planned military strike on Iran at the request of Gulf state leaders, posting on Truth Social that Qatar, Saudi Arabia and the UAE had asked him to stand down as "serious negotiations are now taking place." (AOL | BBC)
  
  

• Tanker backlog in Iran hits post-blockade high. 23 tankers have been spotted around Iran's Kharg Island, the country's main oil export hub, which is the largest cluster since the US Navy began its blockade and seizure of ships a month ago. (World Oil)
  
  

• China's economy misses expectations in April. China's economy slowed in April, with retail sales, industrial output and investment all missing expectations as the Iran war dampened momentum in the world's second-largest economy. Retail sales rose just 0.2% compared to last April the weakest growth since December 2022. (CNBC)
  
  

• Government blocks private colleges from enrolling international students. The federal government has temporarily blocked private colleges and training organisations from applying to offer new courses to international students. Concerns about poor quality providers and an oversupply of colleges in the international student market we the key reasons. (ABC)
  
  

• Consumer sentiment ticks up in May. The Westpac Consumer Sentiment Index rose 3.5% in May, a modest improvement driven partly by easing fuel prices following the temporary excise cut, but consumers remain firmly in pessimistic territory. (AFR)

Companies in the news

• Elon Musk loses lawsuit against OpenAI. A US jury has ruled against Elon Musk in his lawsuit against OpenAI and founder Sam Altman, finding the company not liable for allegedly abandoning its original mission to benefit humanity. Musk had accused OpenAI of manipulating him into contributing $38 million before going behind his back to attach a for-profit business to its nonprofit structure. (ABC)
  
  

• Canva loses four senior leaders amid AI pivot. Four senior leaders, including its chief technology officer, head of design, senior engineering director and growth lead, have departed Canva recently as the design giant repositions itself as an AI platform. The exits follow the company's recent announcement of a suite of AI features at its Los Angeles conference. (AFR)
  
  

• NextEra to acquire Dominion Energy in US$420bn deal to power AI boom. NextEra Energy has announced plans to acquire Dominion Energy in a deal that would create America's largest utilities company. The deal is driven by surging electricity demand from the AI boom, with Dominion's Virginia base home to the majority of American data centres. (NYT)
  
  

• Ford launches Ford Energy providing battery storage for data centres. Ford has launched Ford Energy, a new subsidiary that will provide battery storage for data centres, marking a significant pivot away from electric vehicles. (FT)
  
  

• ASIC takes Rex chairman to court over. ASIC has told a court that Rex's former executive chairman approved a market update predicting an annual profit while knowing the airline was on track for a $35m loss. The regulator is accusing Lim Kim Hai of misleading the market over a February 2023 update in which management expressed optimism about recording "positive operating profits" for the financial year. (AFR)
  

What the…?

US debt just hit 100% of GDP and nobody seemed to care. The United States recently crossed a sobering milestone, with federal debt surpassing 100% of GDP for the first time. This was a moment deficit hawks hoped would finally shock politicians into action. Unfortunately that wasn’t the case.

Within a week, the Pentagon was defending its largest ever budget request and the Senate was pushing through a $72 billion immigration enforcement package. The more troubling reality is that there is no end in sight, and if this milestone couldn't spur action, it is unclear what will. (NYT)

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Today’s Insight

Thematic ETFs for everyday investors

Financial adviser Dylan Pargiter-Green from Bold Wealth answered one of our community questions about his views on thematic ETFs.

Are thematic ETFs (AI, clean energy, etc.) worth considering for everyday investors? 

Thematic ETFs have had a significant rise in popularity and I think they’re great for those who want to dabble in conviction without knowing the in’s and out’s of company valuation and individual stock selection.

One issue that comes through in these thematics is that people tend to allow personal views create biases toward particular sectors, which may cloud their judgement on whether or not something is a good investment or not. Just because you believe something is of high value to the world, does not mean that makes a good investment company. Clean energy is a great example here – many (not all) clean energy initiatives are at a high cost, heavily reliant on subsidies and government funding or grants as a means to get through their earlier stages or consistently generate new revenue. This means we’re effectively reliant on a second, non-market based source of economic input to ensure the success of the business; an added layer of risk. 

Recency bias is one we see often – people chase the recent winners, only to buy an ETF that is full of companies that are at high values, leading to relative low return on equity and sell offs when these underlying assets cannot or do not meet earnings expectations. If you believe in something or genuinely believe something is going to be a good, great or even revolutionary sector – using a small portion to invest in this in a diversified way is not going to be a bad thing, but don’t expect NVIDIA size returns from a diversified chip portfolio – you’re diversifying to reduce risk and therefore likely returns.

Interested in speaking to Dylan or any of our hand-picked financial advisers? Fill out the form on our website and we’ll put you in touch with an adviser that suits your needs.

Today in Equity Mates