O WEEK EDITION | 21st February 2011

2011 EDITION 01 | 28th February 2011

2011: A NEW DECADE, A NEW LEAF

Dear reader,

I would like to give a warm welcome to new members who signed up to UNIT during
CONTENTS O-week. Our organisation at Sydney University is committed to providing free, current
Charting Does Work ........................................... 2
and industry-driven information that aims to help navigate you through your trading
Julia Lee
and investing ventures. Actions speak louder than words of course, so here I present to
A New Day ........................................................... 3 you our first edition of Fully Franked for 2011.
YourTradingEdge

Getting started on Trading and Investing……...6 With issues including European sovereign debt, US economic recovery, Chinese
The UNIT team monetary tightening and currency control, political instability in the Middle-East set
How much is that Dollar in the Window? ........ 8 to dominate the international outlook, and the economic impact of the Qld floods, the
Nevin Spoljaric ASX-SGX merger, and the entrance of Chi-X stirring on the domestic front, 2011 will
Ethical Investing in Australia ........................... 10 not disappoint in bringing new lessons and excitement to those in the investing and
Nhi-Y Pham trading world.

Inside this edition, the UNIT team has prepared a special introduction to share trading
and investing for those among us looking to make their first pot of gold in the market.
I would also like to thank our sponsors Bell Direct and YourTradingEdge (YTE) for
providing two high quality pieces- Charting Does Work by Julia Lee and A New Day by
the YTE staff.

Special thanks go to Nhi-Y Pham, publications director at UNIT Central, for her
enormous help in compiling articles and liaising with our affiliated chapters at UNSW
and UMaq.
Proudly sponsored by:
2011 is an exciting year for UNIT at Sydney University. We have lined up speakers
ranging from the ASX to top brokers and hedge fund managers in the country to come
and share their insights into and from their respective fields of practice. Keep an eye
out for event updates on our website http://www.usydunit.com.au/events.

Risk comes from not knowing. Happy reading!

Justin Zuo
Editor

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Charting Does Work
Julia Lee introduces the technical analysis toolbox
Technical analysis — also
known as charting — has been
used by traders in all sorts of
assets, not just in equities, for
centuries. But how can you tell if
technical analysis actually works
for the sharemarket?
Charting to track the
sharemarket is still a relatively
new area compared with
fundamental analysis. However,
recently more studies have come
to light that support the idea
that technical analysis or using
charts can outperform against
the sharemarket.
Recent studies
One study found that there are
26 technical trading rules that
when applied correctly could
actually outperform a buy and
hold strategy. Brock, Lakonishok
and LeBaron (1992) looked at 26
technical trading rules over
almost 100 years, from 1897-
1986. They looked at the Dow
Jones Index, then evaluated a
buy and hold strategy on
particular stocks versus using
two trading methods: moving
averages and trading range
breaks. By comparing the results
of buy and hold versus these two
main technical analysis
methods, they found that the 26
technical trading rules
outperformed.
In a related study, Levich and
Thomas (1993) provided more
evidence that moving averages
produced profitable trading
signals. The data was for the
foreign exchange market for the
period 1976-1990.
And in a third study, Gradojevic
and Lento (2007) looked at
different moving average
combinations: 1 day/50 day, 1
day/200 day, 5 day/150 day. The
study applied the combinations
to the S&P/TSX 300 index,
NASDAQ composite index and
Canada/US spot exchange rate.
The researchers found that
excess returns were generated
using moving average
crossovers.
Moving averages
A moving average is the average
price over a time period. For
example, a 200 day moving
average is the average price of a
stock or index over 200 days.
This type of analysis is useful
because it generates a trend-
following mechanism.
Buy and sell signals
Generally if the price of a share
moves above the 200 day
moving average line, it’s a buy
signal and if it moves below, it’s
a sell signal. 200 days is quite a
long line on the market and it’s
thought of as a long-term
indicator, suitable for a trader
looking to catch long-term
trends.
If on the other hand, you’re a
short-term trader looking to
trade a couple of times a month,
you would use a shorter time
2
ISSUE 1 | 28th February 2011
frame such as 15 days to watch
moving averages.
Combining charts
You can even use two moving
averages of a shorter and a
longer time period to generate
buy and sell signals.
For example, if you chart a 1 day
and 200 day moving average,
and you see that the two lines
cross over (called a ‘moving
average cross over’) it indicates a
buy or sell signal.
A buy signal is generated when
the shorter period line (like the 1
day moving average line) moves
above the longer period line.
Conversely, a sell signal is
generated when the shorter
period line moves below the
longer period line.
The moving average crossover
tends to work well when there is
a strong uptrend or downtrend
in the sharemarket, but not
when prices are moving
sideways. The problem with a
sideways market is that it causes
‘whiplashing’, that is buy and
sell signals appear at the same
price.
Let’s have a look at an example:

A New Day
YTE looks at six essentials for day trading successes.
At various times and for a
variety of reasons, traders from
all walks of life are lured to the
sphere of day trading. Long-
term trend followers, medium-
term active investors, futures
traders, options traders – you
name the trader and the
markets they trade, and
invariably either they have had a
go at day trading or they are
giving it some consideration.
But is it for you? Will it suit your
lifestyle, personality, capital
base and trading style?
Let’s look at some of the pros
and cons of day trading and
discuss why it may or may not
suit your trading vision and
goals. Despite the lure of
moving in and out of the market
quickly and producing a regular
daily or weekly income, day
trading requires a level of
commitment and discipline that
not all traders are capable of
sustaining. Whilst it will suit
some, day trading will be
completely unsuitable for
others.
Discipline and patience
Day trading requires extremely
strong self-discipline and
endless patience. The nature of
3
ISSUE 1 | 28th February 2011
In this example you can see the
shorter time period in black and
the longer time period moving
average in red. When the black
line moves below the red line it
generates a sell signal.
While moving averages have
been shown to have been
effective in the past, it is not a
fool-proof system. Other
technical analysis indicators can
be combined to increase you
chances of success in the
market.
Happy trading!
Julia Lee is an equities analyst
and head media presenter at Bell
Direct. She will be the guest
speaker at UNIT’s first event for
2011: Julia Lee – Charting your
course to success on
Wednesday 09 March.
the day-trading beast requires
that you can access market
information during the times
the markets you trade are open
– every day of the week. It
becomes an all-engrossing job
that requires you to constantly
interact with the market
whenever that market is trading.
This requires constant vigilance
to monitor existing open
positions and scan the market
for potential new trades. It
requires a disciplined and
structured approach and a well-
researched and well-
documented trading plan that
must be adhered to at all times.

You need the discipline to
execute every trade that comes
along, and, at the same time, the
patience to wait for the trades to
set up before you trigger an
entry based on your rules of
engagement. Jumping into
trades in front of your own entry
rules can have devastating
results. Watching and watching
a potential trade, you can be
lured into it early, thinking it is
just about to reach your entry
price or your entry criteria are
moments off being met. So you
jump in early, pre-empting the
trade, and then watch appalled
as the trade goes into reverse
and results in a loser!
Time available and time
management
For those people day-trading
futures or share markets in their
own time zone, finding and
managing time is not too
onerous. For those attempting
to trade markets outside their
own time zone or markets that
trade 24 hours per day, the time
required becomes a burden.
Decisions have to be made
about which markets you will
trade and during what times. It
is physically impossible to trade
through the day in your own
time zone and then attempt to
sit up at night trading a global
market. You may be able to do it
for a while, but eventually sleep
deprivation, mental exhaustion
and the fact that you no longer
have a life outside trading will
destroy you mentally and
physically.
The time you have available to
day trade will be influenced by
many factors, such as other
work commitments, family and
social aspects, and travel
requirements. There is no point
even contemplating being a day
trader if your job or other
commitments don’t allow you to
have access to market prices or a
computer screen throughout the
day.
Managing your time through the
day is also important. You will
have to decide the most
appropriate times of the day to
trade and when to take breaks
from the screen. You may need
to structure your day so you can
watch the opening and closing
times of the market(s) you are
trading and a period either side
of these times when the
volatility and volume is high and
activity is intense. You may find
periods during the day when the
market is quieter. During these
periods you need to allocate
time for the other activities
associated with trading. They
may include filing and
paperwork, editing spreadsheet
information and record keeping,
reading and further research.
You will also need to allocate
time for breaks to allow you to
eat, do some exercise or even
have a rest period if you are
trading in more than one
timeframe.
Have a trading plan – and use
it!
The active nature of day trading
means a trading plan is
4
ISSUE 1 | 28th February 2011
imperative. Your trading plan
must detail every aspect of your
trading activities so that you are
never making decisions ‘on the
fly’ or on the spur of the
moment. Your trading plan
needs to be well researched and
well documented before you
engage the market. It will
include all the details of every
aspect of your trading– from
entry and exit rules, through
times to trade, to the ever
important money management
rules that you will employ, and
everything else.
All traders must know exactly
what they are planning to do
and how they are planning to do
it, but these factors are
especially important for the
short-term day trader, who is
constantly interacting with the
market. Decisions need to be
made quickly and, at times,
under pressure, so it is vital that
you have every aspect covered
and know exactly what to do in
the heat of the moment. This
includes contingency plans for
when things go wrong, such as
times when trades go against
you quickly due to an
unforeseen event or
announcement, as well as when
Internet connection issues or
other computer-related events
affect your ability to trade or
close out of open positions.
Choosing the markets to
trade
In addition to choosing markets
to trade based on your time
zone, time available to trade,

and times that you want or are
available to trade, there are
several other considerations in
choosing markets to trade.
Perhaps the most important of
these is liquidity. As a short-
term trader it is essential that
you are able to enter and exit
trades seamlessly. Your trade
volume should be able to be
consumed by the market with
ease and not affect price. In
essence, your trades have no
impact on the market; they just
slip in and out without causing
any disturbance to the normal
order of that market’s trading
activity. There is little point in
trying to trade large volume on
thinly traded shares or illiquid
futures contracts – you may be
able to enter your trades
without too much fuss, but
getting out may be a problem!
Technical or fundamental?
Short-term trading is well suited
to the application of technical
analysis. The interactions
between price, volume and time
that occur intraday, and the
resultant impact these
movements have on technical
indicators, allow them to be
applied across a variety of
timeframes. For both the highly
active tick trader to the less
active but still busy trader using
hourly bars, technical indicators
and their interactions provide
thousands of combinations
upon which short-term trading
systems can be based. The speed
with which these interactions
can occur, and the resultant
trades that then need to be
placed, mean fundamental
analysis cannot be applied.
Auto-trading
Day trading is ideally suited to
the use of mechanical trading
systems because of the speed
with which markets set up, and
then trigger, entry and exit
signals. Traders using
discretionary decision-making
techniques will have difficulty
executing trades when using
small timeframes. They may be
watching a market for a
potential entry point when a
certain price or indicator value
is reached. Suddenly, that point
is reached. By the time they
react and then go through the
process of executing the trade,
the market has ‘taken off’ and
perhaps even reached the target
price for the trade. The trader is
left to lament what might have
been. If, however, the trade had
been programmed in via an
auto-trade function the trade
would have been entered and
exited according to the trader’s
rules with no need for the trader
to interact with the market.
Auto-trading is ideally suited to
markets that trade electronically
over several time zones and that
have huge liquidity. The Foreign
Exchange (FX) market and some
5
ISSUE 1 | 28th February 2011
of the highly liquid
electronically traded equity
index futures contracts, the E-
mini S&P for example, can be
traded in this way. The traders
‘job’ becomes that of developing
or identifying systems that work
and then monitoring their
performance, rather than one of
actually placing trades.
Such systems can be traded on
markets that are active 24 hours
a day without the\ trader having
to be awake. In essence, the
power of the market and of the
Internet can be harnessed to
allow us to trade around the
clock whilst we get on with
doing other stuff. The vital
components, other than a
proven system, are a reliable
computer, and a fast, secure and
reliable Internet connection.
Day trading will not suit
everyone. If you think it sounds
like fun and would suit you,
then give it a go. Many online
trading platforms now have
demo or simulated accounts
where you can test systems and
your own ability to trade on a
short-term basis without risking
real money. If you think it all
sounds stressful and a hassle,
then stick with your current
trading style. In the end, it
comes down to personal
preference and trading style.
YourTradingEdge staff
(www YTEmagazine.com)

Getting started on trading and investing
The UNIT team explains the first steps towards having your own portfolio
They say that the first step is
always the hardest - but this is
not true for shares. With the
rapid growth in number of
Australians that own shares,
along with technological
advances in share trading
systems, opening your first
share account will often be
easier than applying for a
bank account.
However, before we get into the
specifics of how to open a share
account and trade shares, let's
just take a step back and quickly
consider how the Australian
share market operates -
although it's entirely possible (as
some of us have found out from
experience) to trade and make a
killing (or be killed) on the share
market without any knowledge
of how it works at all.
If you feel like you are ready,
then at any time flip to the last
section on how to start trading!
How do I buy Shares?
In Australia and internationally,
there are two ways an investor
can end up owning shares in a
company. The first way is to buy
shares when they are offered for
the very first time to the public
in what is known as an Initial
Public Offering (IPO) - Myer
and QR National should sound
like recent examples. In practice,
this often relates to finding and
filling out a prospectus
containing the details of the IPO
and sending a cheque to the
company.
Participating in an IPO gives you
shares that are brand new - so
you are said to be a participant
in the primary securities
market. But what happens if an
investor wants to sell some
shares? Or what happens if an
investor wants to buy shares
that had its IPO years or
perhaps decades ago?
This is where the secondary
market comes in and believe it
or not you are all actually more
familiar with this market. The
secondary market is essentially
the place where the majority of
buying and selling of shares
happens, and in Australia this
occurs on the Australian
Securities Exchange (ASX).
When we say it occurs on the
ASX, it really happens
electronically on servers
operated by the ASX although
there once was a time where
people actually went to
securities exchanges to buy and
sell shares. The electronic
trading system that operates in
the ASX today is known as the
Integrated Trading System (ITS).
How does the ASX work?
As mentioned before, sometime
in the past a stock exchange
simply operated by people going
to a physical location and
trading stock certificates (titles
of ownership similar to a house
deed) for cash. The same thing
6
ISSUE 1 | 28th February 2011
happens nowadays, only it is
now all electronic.
There are several key points
regarding how the ASX operates.
Firstly, only a few select
individuals can actually "talk" to
the ASX - these special
individuals include brokers,
banks, listed companies and
other financial institutions.
While this might seem strange,
just imagine what would happen
if 21 million Australians
suddenly attempted to
communicate with the ASX - it
would go haywire! Instead, these
special individuals are funnels
through which ordinary
Australians have access to the
ASX - and these special
individuals (e.g. your broker) are
said to be your "sponsors" on
the ASX.
The second important point
relates to how transactions
really occur. Clearly, to be able
to sell a share you must first
own it (this isn't strictly true but
let's ignore some more high level
financial wizardry). But how do
we know that a particular
investor owns a specific share?
This is where ID numbers come
into play, and just to add to the
confusion, the ASX uses two
systems. For the ordinary
investor purchasing shares
through a broker (i.e. "broker
sponsored"), we have what is
known as a Holder
Identification Number (HIN).
This is essentially like a bank
account number and multiple

shareholdings (e.g. in BHP, ANZ
and RIO) can be linked to a
single HIN - simple, smooth,
easy.
But maybe your life is not
interesting enough and you
instead choose to directly
communicate with the company
you are buying shares in, e.g. in
an IPO situation where you do
not have a broker. Under these
scenarios, the company you
buys shares in (the "issuer" of
the shares) is said to be your
sponsor - you are then issuer
sponsored. Under this scenario,
you are issued a Shareholder
Registration Number which
unlike a HIN, is different for
each holding. For example, if an
investor owns issuer-sponsored
shares in BHP, RIO and ANZ
they would have 3 different
SRNs for each shareholding.
SRNs are confusing and are
rarely encountered by the
average broker sponsored
investor (i.e. you) - so don't
worry!
One last point regarding how
the ASX works is something
called a clearing house. Because
trades occur so fast on the ASX,
it is impracticable for there to be
a manual transfer of ownership
concerning the shares - there
has to be a system that does this
electronically. Another concern
is that the person on the other
side of the trade (i.e. the person
buying from you or selling to
you) doesn't honour their
bargain. This is known as
counterparty risk and the
solution is for a third party to
handle everything. This third
party is called the Clearing
House Electronic Subregister
System, or CHESS for short. In
terms of a simplified overview,
the buyer deposits money with
CHESS (through a broker) and
the seller registers their shares
on CHESS - and CHESS handles
the rest.
How to Open Your First Share
Trading Account
Right, now onto the fun part!
As mentioned earlier, opening
your first account with an
Australian share broker is often
very easy and you will typically
need only the following things:
x Some sort of ID
(passport or driver's
licence)
x Bank Account to link to
share account
x A few days for all the
paperwork to go
through
In terms of how a trading
account works, it is very similar
to a bank - you transfer money
in, you then use that money to
buy or sell shares and ultimately
you can transfer the money back
into your bank account. The
interfaces for most trading
accounts are also highly
intuitive - simple search the
ticker code of the share and
press buy or go to your portfolio
and press sell.
Some Examples of Brokers
You might be wondering how
brokers make money - well, they
7
ISSUE 1 | 28th February 2011
typically charge a fee for every
share transaction. This might
range anywhere from $10 to $40
or more, depending on the
broker.
Some brokers include:
x Bell Direct
x CMC Markets
x Minc Financial Services
x Amscot Discount
Broking
x Morrison Securities
While there are many high
quality platforms to choose
from, we would like to point out
that Bell Direct, one of UNIT’s
sponsors, has offered to provide
special deals to our members if
they sign up with the
promotional code UNIT. Bell
Direct is also one of the most
inexpensive brokers currently
operating in Australia, offering a
fast trading platform and great
research. Many other brokers
are often linked to large
financial institutions -
Commsec, Australia's most
popular broker, is an offshoot of
Commonwealth Bank. Other
brokers that offer full service
including advice include Bell
Potter, Macquarie, any of the big
4 banks and many of the
investment banks.
Many students often choose to
start with a broker with low
brokerage fees simply because
they don't have enough money
to execute large trades that
justify high brokerage anyway.
Before signing up to any broker,
we encourage you to compare

prices and fully read all product
disclosure statements (PDSs).
Special thanks go to Murphy Xue
for his initial draft and Ajay
Balachandran for his observant
edits.
How much is that Dollar in the Window?
An Introduction to Value Investing
Benjamin Atkinson answers the questions of what value investing is and how to do it.
Imagine there existed a peculiar
shop that sold only one thing –
Aussie dollar coins. What is
most unusual about this ‘Dollar
Shop’ is that every day, the price
of this product changes as
customers rush in to buy or sell
their coins. Their motives are as
varied as they are irrational;
buying because they hear dollar
coins are “the next big thing”, or
selling simply “because
everybody else is”. You, an
enterprising individual, notice
how much the price of the coin
varies, and more importantly,
realise its true value, $1. Rather
than listen to the greedy buyers
or the fearful sellers, you simply
wait until the shop sells its coins
for 80c and you buy, and when
the price moves above $1 you are
happy to sell your overpriced
coins for a nice profit.
Believe it or not, the share
market presents us with such
opportunities, and for those
with a patient disposition and a
willingness to put in the effort,
This article is only intended to
provide general information.
UNIT does not represent or
warrant that it is complete or
accurate. The information is for
education purposes only and any
financial advice should be sought
value investing may prove to be
a very effective approach to
creating wealth. Whilst it won’t
always be as obvious as buying a
dollar for 80 cents, value
investing uses a simple
approach: to purchase assets
(such as shares) at prices less
than their true value. By doing
so, the investor is effectively
gaining ownership of something
that is worth more than what
they paid for it.
Value investing has been
popularised by legendary
investor Warren Buffett and his
mentor, Benjamin Graham,
author of The Intelligent
Investor, a book that is still
referred to as the ‘bible of
investing’. Graham pioneered
the ‘margin of safety’ approach,
where buying shares for less
than they are worth positions
the investor to gain from the
market’s eventual recognition of
value in the form of increased
share prices. In extreme cases,
think Buffett, entire
8
ISSUE 1 | 28th February 2011
from a professional adviser. If
you are seeking advice (including
a recommendation or opinion)
about a financial product you
should consult an Australian
financial services licensee.
undervalued businesses can be
bought to benefit from the
direct delivery of future
earnings.
In finance there is a theory
known as the Efficient Market
Hypothesis which suggests that
the presence of rational
investors, with equal access to
information and no transaction
costs, causes the markets to
rapidly react to new information
such that the price of an asset at
any given time reflects the best
estimate of its value.
Furthermore, the Capital Asset
Pricing Model (CAPM) uses
this efficient world to determine
the expected return of a
particular share by comparing
it’s relative riskiness to that of
the overall market. Risk in this
sense is a measure of how much
the actual return has historically
deviated from the average
return. The model suggests that
investors should be
compensated for bearing more
risk by expecting a higher

return. But if risk is a measure of
the likelihood that returns may
deviate from the average, it is
merely measuring the past
tendency of the share price to
vary a certain magnitude both
negatively and positively.
Graham felt that investors
should not be rewarded for risk,
but for the effort put into
researching and discovering
underpriced stocks. In the value-
investing framework, risk is
instead defined as the possibility
of a permanent loss of capital.
The margin of safety is a way of
ensuring we invest only in safe
opportunities, as, if we are
confident that the value of a
particular share is much higher
than its purchase price, it is far
more likely that the price will
move upwards towards its value,
minimising the risk of losses and
maximising the chance of
substantial returns.
So how do you determine the
value of a share? Whilst there is
no perfect formula, estimating
the present value of all future
cash flows is generally regarded
to be a good start. Often this is
referred to as intrinsic value
and there are many approaches
to predicting future cash flows
within a business. What this
method lacks in certainty, it
gains in relevancy; by looking
forward the investor can
determine where opportunities
lie to make substantial gains,
whereas a historic price chart
may have little bearing on future
returns.
This is where the opinions of
technical analysts and value
investors diverge. Chartists
believe price patterns
continually repeat themselves,
and money can be made by
buying and selling when price
patterns indicate a trend.
However, “If past history was all
there was to the game, the
richest people would be
librarians” – Warren Buffett.
Graham labels these traders as
‘speculators’, adherents to the
‘Greater Fool Theory’; the belief
that it does not matter what you
pay for something, as long as
you can find somebody more
foolish who will buy from you at
a higher price. In contrast,
investors are those who instead
buy and hold their securities for
the long-term, placing value on
the ownership rights to great
businesses. They believe that a
share is more than just a
number ticking up or down; it is
a slice of a real business, and its
value is accordingly determined
by the performance of that
business. High long-term
returns within a business can
validate the presence of
consistent innovation and
capable management, but the
performance of financial
statements can often deviate
from the performance of the
share price. Herein lies the
opportunity; if a superior
business is trading below its
value, it may be an excellent
chance to buy a slice of a great
company at a bargain price.
9
ISSUE 1 | 28th February 2011
Financial ratios are often used to
screen the investment universe
for high quality shares. Roger
Montgomery, an Australian
investor and author of the book
Value.able, emphasizes the
importance of selecting only the
top quality businesses, indicated
by high return on equity and
low debt. Once the investor has
a short list of the best business,
they may apply valuation
techniques to further screen for
those shares that are trading at
discounts to intrinsic value. It is
a good idea to also consider
some qualitative factors in
determining the potential of a
company. Philip Fisher, in his
famous book Common Stocks
and Uncommon Profits, outlines
fifteen criteria to look for when
seeking out companies with
outstanding growth prospects.
Similarly, Buffett frequently
emphasizes the importance of a
‘business moat’; those
competitive advantages that
make a company superior. Coca-
cola is recognized worldwide,
Apple has loyal customers
willing to pay a premium for the
brand and JB Hi-Fi has set up a
low cost chain that shuts out
many competitors. All are
unique advantages that
perpetuate profitability.
Value Investing is a long-term
approach that seeks out
undervalued shares. This buy-
and-hold strategy, when applied
only to the highest quality
businesses, can provide
 ISSUE 1 | 28th February 2011

significant returns whilst capital loss. Similarly, by

avoiding the stress and high purchasing at a price that is Ben Atkinson is a 4th year
transaction costs that below value, the investor stands Commerce student studying
accompany high frequency to make substantial profits. under the Co-op scholarship
trading and daily market timing. program at the University of New
By refraining from paying Remember: South Wales. Aside from
inflated prices for shares, the “Price is what you pay, value is investing, his interests include
investor limits the possibility of what you get” – Warren Buffett footy and tennis.

Ethical Investing in Australia

Nhi-Y Pham explores an alternative way to look at investing.

Ethical investing refers to
investing in stocks or other
securities which are issued by
companies which are socially
responsible. Eco-investing, a
subset of ethical investing, refers
to investing in stocks or funds
with an environmental focus.
Ethical investments have gained
popularity over the last decade
and in the aftermath of events
such as the BP oil spill, it is not
surprising that investors are
broadening their decision-
making framework to
encompass social and
environmental criteria. The aim
is to identify stocks which will
not only provide profitable
returns but to choose stocks that
can help to achieve desirable
social and environmental
outcomes.
On the ASX, there is an
Australian Cleantech Index
which is an index of ASX-listed
stocks from the clean
technology sector. It includes
over 75 companies which
operate in the renewable energy,
alternative fuels, waste and
recycling, energy efficiency and
1 values.
carbon sectors.
Beyond the stocks in the
Cleantech Index, investors who
may wish to expand their
definition of ‘ethical investing’
may conduct ‘negative
screening’, whereby they avoid
investing in stocks which are
considered ‘sinful’ or not ethical
due to their practices or lack of
standards. Investors in Australia
can also invest in managed
funds which focus on investing
in socially responsible stocks.
Alternatively, investors can
invest in the ASX-listed fund
manager, Australian Ethical
Investment Limited (AEF).
Given that the definition of
ethics varies person-by-person,
if you are considering investing
in a socially responsible fund,
1
ASX (2010), Clean Technology
Sector, accessed 29/09/2010,
<http://www.asx.com.au/research/pdf/cl
ean_technology_sector_factsheet.pdf>
10
you should ensure that their
stock choices and standards of
ethics agree with your personal
One issue that ethical investors
may face is diversification if
their screening is too stringent.
For example, only about 5% of
ASX companies pass the
2
screening of Eco Investor,
which identifies positive
investments on the premises of
environmental activity,
environmental focus and
environmental
3
commitment. Furthermore, the
majority of these companies are
micro-cap stocks which are
highly speculative. That said,
depending on the fund, there
2
Bivell, V (2010), 12 Shares Pass
Green Screen, ASX, accessed
29/09/2010,
<http://www.asx.com.au/resources/new
sletters/investor_update/20100309_12_
shares_pass_green_screen.htm>
3
Eco Investor (2010), What Eco
Investor Does, accessed
28/09/2010,http://www.ecoinvestor.com.
au/html/Eco_Investor.htm

remain plenty of opportunities
from which to select: for
example, the Perpetual
Wholesale Ethical SRI Fund
screens out stocks in the
alcohol, gambling and tobacco
4 more
sectors.
A question often asked about
socially responsible investing is
whether its returns are as
comparable as choosing
investments based on traditional
criteria. Overall the Cleantech
Index increased by 43% (more
than the Small Ordinaries) in
2006/07 and outperformed the
ASX 200 in 2007/08 falling only
5 report
16%. However, in the aftermath
of the GFC, it is fair to say that
strong recovery has not been
achieved by the large clean
technology companies, with the
index falling 39% in 2008/09,
more than the ASX 200
6 truly came into being when the
benchmark. However, some of
the clean technology companies
are more for the long-term
investor than a short-term
investor.
Ultimately, even if ethical
investing is not as profitable as
other investment methods, the
advantage of ethical investing is
4
Potts, D (2010), ‘A World of
Opportunities’, Sydney Morning Herald,
accessed 28/09/2010,
<http://www.smh.com.au/money/investi
ng/a-world-of-opportunities-20100906-
14wrn.html>
5
O’Brien, J (2010), Understanding Eco-
Investing, ASX, accessed 29/09/2010,
<http://www.asx.com.au/resources/new
sletters/investor_update/20100209_und
erstanding_eco-investing.htm>
6
Ibid.
ISSUE 1 | 28th February 2011
that you can at least rest assured alternative to online savings
that your investment choice was accounts and term deposits
based on something more than since the minimum amount to
greed. invest is only $5000. Given the
success of retail bond issuance
Successes in the so far, you should expect to see
opportunities to
Australian retail bond
participate arise in the future.
markets
Nhi-Y Pham is in her 4th year of
In ‘Developments in the Commerce/Law undertaking
Australian Bond Market’ (Issue Honours in Finance at the
4, 2010), I discussed the desire of University of Sydney. She has an
the government to build the interest in equities, market
Australian retail bond market microstructure and accessible
and followed it up in Issue 5 methods of investing for young
with news of Primary’s intention people.
to issue retail bonds. I can now
that Primary was
successful at raising $152.3m in
retail bonds, more than the
7
initial issue size of $125m.
Some say though that the retail
bond market in Australia only
Commonwealth Bank issued
$500m in five-year retail bonds
8
towards the end of 2010. The
bonds will pay 1.05% above the
90-day bank bill rate.
Young investors in particular,
should start to consider a retail
bond investment as a serious
7
Lefort, Cecile, ‘Primary Health raises
A$152.3mln in retail bonds’
(27/09/2010), Reuters, accessed
6th December 2010
<http://www.reuters.com/article/idUSSG
E68R04220100928>
8
Collett, John, ‘CBA unlocks market for
retail bonds’ (26/11/2010), Sydney
Morning Herald, accessed
6th December 2010
<http://www.smh.com.au/business/cba-
unlocks-market-for-retail-bonds-
20101126-18akz.html>
11
 O WEEK EDITION | 21st February 2011

DISCLAIMER
The material in this report is produced as general information only and is not intended to be advice. Readers should not act on
the basis of this information and must seek specific advice from a professional adviser before taking any action. No warranty or
guarantee is given regarding the accuracy or reliability of this report. The authors expressly disclaim all and any liability to any
person for any loss or damage arising as a result of this publication, whether whole or part of the contents of this publication. For
permission to use this report, you must accept full responsibility for any action that you take. Note also that past results are not a
reliable guide to future results. Future outcomes are unknown and investing can result in financial loss.

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Contact the editor, attaching your CV: publications@unitaustralia.com

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