Hybrids - wolves in sheeps' clothing?

throughawindshield.wordpress.com

In ancient times, the mythological hybrid was a creature combining the body parts of two or more species. Now the financial product bearing this name is also a beast of varied parts. Some important hybrid instruments are preference shares, convertible/exchangeable debentures/bonds and debt with attached warrants.

From an issuer perspective, hybrid securities may allow the issuer to raise capital while achieving a particular accounting, tax, credit rating or regulatory capital outcome. Following reduced activity during and immediately after the GFC, hybrid securities have recently been used for significant capital raising by both banks and well-known corporate entities.

Did you know there has been more than $18 billion of hybrids issued by banks and companies in Australia since November 2011?  There were approximately 75,000 investors in hybrid securities last year, two thirds of whom were self-managed superannuation funds (SMSFs).  

Hybrid securities often promise ‘high yields’ and are issued by well-known companies with trusted brands, but investors need to very carefully consider the features and risks before investing. Some hybrid securities make investors take on 'equity-like' risks but only give them at best, 'bond-like' returns. Some also have terms and conditions that allow the issuer to exit the deal or suspend interest payments when they choose. Some are very long-term investments (for example, more than 20 years).

ASIC is concerned about the marketing and promotion of these products. It released a report on 20 August 2013 dealing with this issue.  Why?

The issues are:

• inappropriate labelling of hybrids and unwarranted comparison of hybrids to different, less risky products eg covered bonds or senior debt
• advisers spruiking potential higher returns and using the brand name or reputation of the issuer without identifying the higher risks attached to that specific product
• investor education - do you know what a hybrid is and how it works?  Can you assess its risk profile?

Terms and conditions of each hybrid issue vary and in some cases they include features that mean they rank closer to equity than debt. Many involve heightened risks for retail investors, such as risks deriving from long maturities and more complex features such as interest deferral or potential conversion into ordinary shares. 

The overall complexity of hybrid securities makes clear, concise and effective disclosure to investors in a prospectus more difficult. 

All investors including SMSF trustees have a duty to understand their investments and ASIC has said it expects issuers, brokers and advisers to take particular care to promote clear communication to investors about the nature of an investment in these securities.  

You can download the ASIC report here: REP 365 or read more about hybrids on ASIC's moneysmart website here.  Call Sage Advisers if you have any questions about hybrids.

Superannuation - campaign convergence

abc.net.au

We have been keeping you abreast of political announcements on the superannuation front since February this year: see Super Update and Super Election.

With 10 days to go before the Federal Election to be held on 7 September, it's timely to revisit the major parties' policies.

1. The 5 April 2013 statement by then treasurer Swan and superannuation minister Shorten put an end to much speculation that the tax breaks on super would be cut. Superannuation as a short term revenue fix was largely off the agenda.
2. Treasurer Chris Bowen announced on 6 August 2013 that the ALP government would not make any "major changes to superannuation tax policy" for five years.
3. The Coalition Liberal/National Opposition has met this with a pledge not to implement any "detrimental changes" to superannuation.

This means:-

1. The increase in Superannuation Guarantee to 12% will continue (the first increase began 1 July 2013) under the ALP but would be frozen at 9.25% for two years by the Coalition if elected, then the increase to 12% would be delayed by two years.
2. The Liberals have said they will wind back the Low Income Super Contribution (LISC) which refunded the 15% contributions tax for Australians who earn less than $37,000 a year. At the time this was introduced in 2012 by the ALP government, it was to be funded by the mining tax revenues, which, as we now know, have not eventuated.
3. The higher concessional caps will remain in place under the ALP and are likely to remain under the Coalition (as yet silent on the issue).
4. If the ALP is re-elected, legislation to establish its proposed Super Council will be brought forward so any future changes to legislation are consistent with an agreed Charter of Superannuation Adequacy and Sustainability. We don't know the attitude of the Coalition to the enabling legislation for the Super Council.

The Coalition intends to conduct a tax review in its first term but details are not yet available.

Super Update

www.smh.com.au

Friday 5 April 2013 brought the much-vaunted announcement by Financial Services and Superannuation Minister Shorten and Treasurer Swan in relation to superannuation.  We have discussed the issues at length here at Super Election and SMSFs - Less Change the Better.

Liz Westover, at the Institute of Chartered Accountants in Australia observed:

...there were no real wholesale changes announced. In fact, the government was quite deliberate about where the reforms were targeted. The announcements today are not guaranteed to pass through to legislation prior to the September election, so we may still have a period of uncertainty. However, at least now we know the government’s policies on super leading up to the election.

Council of Superannuation Custodians

• Establishment of a council of superannuation which will be responsible for ensuring future policy changes regarding superannuation are in line with a new superannuation charter outlining the core values and principles for superannuation policy in Australia.
• This council will aim to ensure that superannuation policy is not driven by the annual political budget cycle but instead focuses on the longevity of superannuation to ensure certainty in the superannuation system for all generations of Australians.

The express desire to remove the politics from policy in this area is admirable and bipartisan support together with broad participation from the superannuation industry should ensure this council's success.  The media release on this aspect is here.

15% Tax on Earnings over $100,000

This is the aspect which has attracted most attention by commentators. It comprises:

• a restriction on the tax concessions available in pension phase.  From 1 July 2014, future earnings (such as dividends and interest) on assets supporting pensions will be tax free up to $100,000 a year for each individual. Earnings above $100,000 will be taxed at the same concessional rate of 15% that applies to earnings in the accumulation phase.
• the $100,000 threshold will be indexed annually with CPI and will increase in $10,000 increments.
• the Government announcement states that this reform is expected to affect only around 16,000 Australians who have balances around or above $2,000,000 (assuming a 5% return).

Special provisions will apply to capital gains incurred on assets purchased prior to 1 July 2014.:

• For assets purchased prior to 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2014;
• For assets purchased between 5 April 2013 and 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
• For assets purchased from 1 July 2014, the reform will apply to the entire capital gain.

Individuals therefore have some time to determine how they will restructure their superannuation assets to account for the new reforms.

The reforms will not affect the taxation of superannuation withdrawals, these continue to be tax free after attaining the age of 60.

The new reform will apply to defined benefit funds (e g government employees' pension schemes).  This will be achieved by calculating the notional earnings each year for defined benefit members who receive a concessionally-taxed pension. The calculation will be based on an actuarial calculation. Where a person’s notional yearly earnings as calculated by an actuary exceed the $100,000 threshold, the amount in excess of $100,000 will be subject to tax at a rate of 15 per cent.

The media release regarding these reforms can be found here.

Other Superannuation Reforms

The government also announced a number of other superannuation reforms including:

• Simplification of the design and administration of the higher concessional contributions cap;
• Changes to the treatment of concessional contributions in excess of the annual cap;
• Extension of the normal deeming rules to superannuation account-based income streams;
• Extend concessional tax treatment to deferred lifetime annuities; and
• Further reform to the arrangements for lost superannuation.

Of particular relevance to SMSFs, some points mentioned by Minister Bill Shorten at the media conference include:

• the government announced an increase to the concessional contributions cap for those aged over 60 at 1 July 2013 to $35,000 with this increase extended to those persons aged over 50 at 1 July 2014.
• excess concessional contributions will be able to be withdrawn from the fund by the member and will be taxed at the individual’s marginal tax rate (plus an interest charge) not the top marginal tax rate.

The media release regarding all these changes can be found here.

What do people think about the proposals?

1.Political compromise - it won't balance the budget and it may not see the light of day

The total amount to be gained by the government is estimated to save around $900 million over the forward estimates period.  This is not going to be the "magic bullet" to balance the May budget. Bloomberg reports the total shortfall is A$26.8 billion for the first seven months of the financial year, according to Treasury figures released March 15, 2013.  

Overall, most industry participants seem to say that the reforms are reasonable but they are still "tinkering" with the system.

Some have questioned whether feared industry and media backlash led the government to back down on some of the reforms: see John Brogden on 7.30, interviewed by Leigh Sales on 3 April (video link).  Similarly, in the wake of the March failed ALP leadership spill the senior resignations of Ministers such as Simon Crean, Martin Ferguson and Kim Carr called for the end to the "Class War" rhetoric and policy and the implication is that government proposals regarding superannuation formed part of that "war".  Some others still see the current proposals as "the latest in a long line of failures to properly consult, co-operate with stakeholders, persuade the public and maintain a decent political position" see here. Others have noted the proposals' implementation date (from July 2014) and wonder whether they will be implemented given the election to take place between now and then.

2. Long term impact on government liability for aged pensions

In terms of the possible implications of the legislative changes, Mercer released a report on 8 April 2013 which concludes that increasing the taxation of superannuation would reduce future superannuation benefits and thereby increase future age pension payments. This adds another voice to the opposition to "continuous tinkering" which has been heard by many involved in the superannuation debate. Mercer argues this will "drive Australians to seek alternative tax-effective vehicles for voluntary super contributions".

3. Impact on long-term growth assets inside super

Anna Carrabs, Chair of the Institute of Chartered Accountants Superannuation Committee and Director, Associations of SMSF Members Australia noted on Lateline (video link) on 5 April 2013 that the proposed changes may have unintended consequences by encouraging people not to have long term investment goals (such as buying property inside superannuation) and instead going for "short sharp bursts to keep them inside the $100,000".  In this interview she explains how the purchase of property with a significant long term capital gain may trigger tax consequences on realisation of that asset down the track.  Carrabs also notes that the primary residence exemption from CGT and land tax means wealthy Australians can still access aged pensions if their affairs are structured well.  Her point is that taxes on superannuation earnings need to be considered together with other taxes, both Commonwealth and State, in order to have a fair and equitable system which provides the best tax base.

4.  Impact on eligibility or extent of aged pensions

Aged pension recipients may be negatively affected by changes to the deeming provisions in these amendments - but we will need to wait and see the detail before commenting on this.

5.  Impact on recipients of disability/compensation payouts

The Australian Lawyers Alliance noted on 9 April 2013 that recipients of accident compensation payments and their carers would be unfairly treated by the current proposals to tax income of more than $100,000 as those people have their payments made to a defined benefit pension account in the year of the court ordered award or settlement.  In the same year as the government has legislated for the NDIS scheme, this unforeseen consequence would be highly ironic, but presumably can be dealt with as an exemption to the proposed legislation. Again, we need to see more of the detail.

Comments specific to the SMSF superannuation sector can be found on the SMSF Professionals' Association of Australia website.

Onward to the budget on 14 May!

"Powers of Attorney" - financial controls & family affairs

Enduring Powers of Attorney

An "Enduring Power of Attorney" is often drawn up by a person seeking to take control of their affairs in anticipation of an overseas trip or before a medical procedure.  It is a legal document which enables a person to act as if they were another in legal or financial matters. They are called "enduring" as the appointment of the attorney continues beyond the legal incapacity of the donor.  Since 2004 in Victoria we have Powers of Attorney with specific areas of operation.  The main arenas are financial and medical.  Do you know what's involved as a donor? What are your duties if you have been appointed as an attorney? 

As we age, legal, financial, medical, ethical and emotional issues can converge.  Family members, advisers and caregivers can sometimes be in conflict over "what is best" and it is a useful control mechanism for  specific powers of attorney to be drawn to deal with practical matters after a person has lost their legal capacity.  We don't  have to be "old" to suffer a brain injury from a car accident.

Parents are living longer. The 85-and-over age group is the fastest growing in Australia, and more have dementia. They are staying at home longer, dependent on family care for extended periods. There are more children from those big, post-war families to wrangle over decisions: who is the primary carer, who has financial control, who is mismanaging Mum’s money, who isn’t pulling their weight ...And a parent’s death doesn’t end the fighting; the value of the parental home has increased so dramatically over the decades that more siblings consider it worthwhile going to court over the estate, destroying whatever skerrick of good will may have survived.  Read more here.

Adele Horin's article published on 3 March 2013 in the Global Mail (link above) deals with the increasing frequency of inter-familial disputes in circumstances where aged parents have dementia.  Adele has commenced a blog called "The Coming of Age" which you can read here.

Did you know:-

1. If you have appointed an attorney for financial purposes alone then that attorney cannot act on your behalf in relation to medical treatment and vice versa;
2. An appointment of an enduring power of attorney made prior to 2004 remains valid if it was made in accordance with the laws of the day; and
3. The Office of the Public Advocate recommends all people over the age of 18 appoint someone to be their attorney for both medical and financial purposes regardless of their age or health. Just as you should have a will, so should you have someone who can made decisions on your behalf if you are ever unable to do so yourself.

Leaving the details of medical powers of attorney alone, there are a number of important matters of which any adult should be aware in relation to Enduring Powers of Attorney (Financial).

1. Rules apply to the documentation associated with the appointment of the attorney - you should check that all the formalities have been complied with including witnesses and acceptance of the appointment.  There are three ways the appointment can commence - either from the date of the acceptance by the attorney to appointment, or on a specified date, or on a certain occasion such as when the donor loses capacity.  Medical proof may be required to trigger the appointment in the third instance.
2. Even though a financial attorney has no power over medical consent, s/he should arrange for the donor to give a consent form to the attorney (at the time of the appointment) that enables access to medical records and information about the donor's capacity.
3. It may be desirable for the attorney to know the details of the donor's will - for example where there is a disabled child requiring the preservation of a particular asset such as real property.  It's best to deal with this before the donor loses capacity because an attorney does not have a legal right to see the donor's will.  Also note that once a donor has lost legal capacity, the donor's will cannot be changed unless an order is made by the Supreme Court.
4. An attorney must  have or be able to find out information that will enable him/her to act in the donor's best interests.  It's a significant administrative role requiring knowledge about:-

• bank account details
• real estate details (titles, mortgages)
• shares and investment details
• safe deposit boxes
• motor vehicle details
• names of all professionals:- lawyer, accountant, doctor
• location of financial and legal records
• how to access records on a computer (logins, passwords, backup, security)
• insurance details
• income details and records
• special entitlements and government allowances
• any limitations, conditions or instructions the donor has specified in the power of attorney
• the donor's specific wishes regarding financial and legal affairs and lifestyle wishes with financial implications
• if there is to be more than one attorney - how the attorneys are to work together
• contact details of any enduring guardian or attorney (medical treatment)
• details of donor's will if relevant

Specific duties arise for attorneys which may not be avoided, such as the duty to act in the best interests of the donor and to keep accurate records and accounts of transactions and dealings.  Attorneys must keep their property separate from a donor's and must not overreach their powers according to the appointment.  Attorneys must not have a conflict of interest with the interests of the donor and when executing a document as an attorney, s/he must make a note that it is being executed as Name of donor, by his/her duly appointed attorney, Name of Attorney.  There are other broad duties of an attorney which are imposed by law such as to recognise the donor's right to participate in decisions as much as possible and to respect the donor's worth, dignity and human rights.

It is also relevant to know that some powers of a donor can't be exercised by an attorney, such as the right to vote, as these powers are personal.  Also, if the donor has been appointed by a third party to exercise a power, then that cannot be delegated to the donor's attorney.  For example, if a donor is an executor under someone's will, then this power cannot be exercised by the donor's attorney.

VCAT (Victorian Civil and Administrative Tribunal) has responsibility for powers of attorney, managed by its Guardianship List. It has powers to make determinations in relation to such powers.  This includes powers to require an audit of accounts or seek an investigation into the exercise of the power.  VCAT can also supervise, give advice, vary the effect of a power, declare what the powers are, revoke or suspend the enduring power of attorney.  It can also give permission for an attorney to resign.  Further  information can be found at www.publicadvocate.vic.gov.au

If you don't have an Enduring Power of Attorney (Financial) or Medical then you need to give these matters some thought and seek legal advice.  If you have been appointed as an attorney then you should be mindful of all your obligations and duties arising from this appointment.

Add these arrangements to conducting transparent conversations among family members about expectations surrounding aged care,  parent-to-child loans and lifetime gifts of cash and we suggest that far more families will operate harmoniously in the challenging circumstances of incapacity and death and the living relationships which endure.

Aussie Super - too generous?

Mercer consulting released a report this week which concludes that:
...current tax concessions on superannuation in Australia are not generous when compared to retirement systems in eight other countries, considered to have the best pension systems in the world (Australia, Canada, Switzerland, Netherlands, Denmark,  Sweden, USA and UK).

The report may be downloaded here.

It shows:  

• after tax retirement benefits provided to Australians are lower than five of the eight countries for an individual on average earnings, with a 9% employer contribution over 40 years

• Australia is the only country that taxes employer and self-employed contributions, and it is also the only country where employees don't receive a tax deduction for contributions.  

• Australia is also one of only three countries that taxes income earned by pension and superannuation funds. The other two are Denmark and Sweden. Australia is, however, one of only two countries that does not tax retirement income.  You can read the Fairfax commentary on this here.   In Australia  contributions and earnings are reduced by taxes over a person's working life and  this has a direct impact on the final benefit received by retirees, and in many cases increases the likelihood of people receiving an age pension

• Recent changes to contribution caps leave Australia third last on this measure.

The main conclusion: whilst the Australian superannuation system benefits higher income earners the most, the design of the whole system is reliant upon all those people's taxes paid both during their working lives and on the income earned by their superannuation funds. Amendments to the system made in order to fill a budgetary hole may jeopardise the ability of the system to fund pension benefits into the future.

Super Election

Cartoon by Nicholson from "The Australian" newspaper: www.nicholsoncartoons.com.au

Be prepared for a lengthy debate about Superannuation in the lead up to September's federal election.  A government with falling revenues and big promises (Gonski education reforms, National Disability Insurance Scheme, an ever burgeoning health budget) needs to find the money to pay for the policies from somewhere. Already, we know the following:-

The ALP Government is considering proposals to make changes to the tax treatment of superannuation.

In Parliament on Monday 4 February 2013, Opposition Leader Tony Abbott called  on Prime Minister Julia Gillard to join him in ruling out any ''unexpected adverse changes'' to superannuation arrangements, ''now or in the next Parliament''.

Senator Nick Sherry (former Superannuation Minister from 2007-2009) was reported in the Australian Financial Review (6 February 2013) urging the government not to change the way it taxes super and consider other ways to raise revenue, including cuts to contributions to generous public service super.   He said the current tax treatment for super was “appropriate” though he did add that there were areas within the super system that require attention:

1. the current retirement access age for super of 60 should be raised to 67, which is what the pension access age will climb to over the next decade. (The retirement access age allows people to work part-time and draw down their super at the same time.) and
2. the government’s contribution to military super should be cut from about 28% and public sector super from 15.4% and said there was “no justification” for such a level of contribution “above the community standards”.

In response to that, Prime Minister Julia Gillard has said Labor would “never” introduce a new tax on super lump sums. Instead, the speculation now is that Cabinet's expenditure review committee is examining higher tax rates on super contributions and earnings instead, with a goal of identifying new revenue sources without targeting any one income class.  Unions have urged cabinet to target the top 10 per cent of income earners, arguing that those high earners receive one-third of the existing tax benefits. 

Commentary on the speculation abounds.  The Australian newspaper ran this editorial on 7 February:

The changes smacked of a tax grab on wealthy people motivated by the politics of envy, not considered amendments to shore up the system's long-term viability. The Henry review's recommendations on superannuation, at hand for more than three years, have been comprehensively ignored. Further curbs to superannuation tax concessions will not provide the torrents of revenue the government hopes. Savings from withdrawing tax concessions - routinely put at about $30 billion - are a mirage that assumes contributions continue even if the concessions are withdrawn. Discouraging further contributions to Australia's $1.4 trillion private savings pool will ultimately cost the government money - perhaps not the Gillard government but future governments and ultimately future taxpayers. Superannuation helps defray the long-term cost of the age pension, which at about $35bn a year is by far the largest burden on Australia's taxpayers.

On Friday 8 February the Association of Superannuation Funds of Australia warned:

decreasing incentives for individuals to put super at the forefront of their retirement planning risks creating bubbles in other sectors if investors turn to, for instance, property investments.

And further, Robert Gottliebsen wrote on Friday 8 February that the Treasury has made errors in their calculations of the actual subsidy represented in superannuation concessions which together with inflated projections of returns on investment (7%) have led the Commonwealth government to "muck up the sums", revealed by the Self Managed Superannuation Fund Owners Alliance.  Gottliebsen contends that the real concessions lie in property: "and they can't be touched".  Read it here.

What to do?

We don't yet know the specific policy nor its timing.  There is a question over whether any proposals could be legislated prior to the coming election.  

Investment managers will tell you that "governments in desperate need of revenue will always fiddle with superannuation tax concessions, irrespective of sensible calls by the industry for certainty and confidence" see the view from the Institute of Chartered Accountants.  See also our October 2012 blog post SMSFs - the less change the better.

For retirees - it's irrelevant.  For those nearing retirement it's an uncertainty.  For those aged 40 and younger it's a disincentive to participate in voluntary contributions into superannuation as participants can't have confidence in the system, its longevity and its relevance to the participant over the longer term.  However, we also know that the under 40s are not really the major contributors to superannuation because of the other life expenses such as houses, school fees and other children's expenses .  

We shall observe closely and provide updates as appropriate particularly with a view to SMSFs.

Bringing it home

Industry is coming back to the USA.  Some call it “insourcing” or "onshoring".

Yesterday Apple CEO Tim Cook announced a $100 million investment returning the manufacture of Mac computers to the USA in 2013: “We’ve been working for years on doing more and more in the United States.” He added that he hoped it would spur on more U.S. manufacturing. “The consumer electronics world was really never here. It’s a matter of starting it here.”  Whether this is the start of something bigger or an attempt at good PR in Washington, the Apple announcement comes on the heels of GE’s recent reintroduction of its appliance manufacturing assembly lines to its Louisville Kentucky “Appliance Park” which had been languishing since the 1980s decision to shift manufacturing to China.  The GE initiative is costing $800 million and CEO Jeffrey Immelt said, “I do that because I think we can do it here and make more money.”  The Atlantic Magazine December 2012 contains a fascinating article on the topic entitled “The Insourcing Boom”.

Global economic factors are now in play:-

·         Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.

·         The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory in the USA. (Natural gas now costs four times as much in Asia as it does in the U.S.)

·         In US dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.

·         American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.

·         U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods.

The compressed and ever shortening product cycle, coupled with the adaptation of "mature" products such as dishwashers and water heaters to include computer software to improve efficiency and functionality also drives changes to factory processes.  Factories take a while to settle into a new product, a new design. They face a learning curve. But models that have a run of only a couple years become outdated just as the assembly line starts to hum. That, too, makes using faraway factories challenging, even if they are cheap.

GE is rediscovering that how you run the factory is a technology in and of itself. The R&D that can happen there, if you pay attention, is worth a lot more to the bottom line than the cost savings of cheap labor in someone else’s factory. GE’s appliance unit does $5 billion in business—and today, 55 percent of that revenue comes from products made in the United States. By the end of 2014, GE expects 75 percent of the appliance business’s revenue to come from American-made products like dishwashers, water heaters, and refrigerators, and the company expects that its sales numbers will be larger, as the housing market revives.

What’s happening in factories across the U.S. is not simply a reversal of decades of outsourcing. If there was once a rush to push factories of nearly every kind offshore, their return is more careful; many things are never coming back. Levi Strauss used to have more than 60 domestic blue-jeans plants; today it contracts out work to 16 and owns none, and it’s hard to imagine mass-market clothing factories ever coming back in significant numbers—the work is too basic.

Appliance Park once used its thousands of workers to make almost every part of every appliance; today, every component GE decides to make in Louisville returns home only after a careful calculation that balances quality, cost, skills, and speed. Appliance Park wants to make its own dishwasher racks, because it can, and because the rack is an important part of the dishwasher experience for customers. But Appliance Park will likely never again make its own compressors or motors, nor is it going to build a microchip-etching facility.

Manufacturing employment will never again be as central to the U.S. economy as it was in the 1960s and ’70s—improvements in worker productivity alone ensure that. Back in the ’60s, Appliance Park was turning out 250,000 appliances a month. The assembly lines there today are turning out almost as many—with at most one-third of the workers.

All that said, big factories have a way of creating larger economies around them—they have a “multiplier effect,” in economic parlance. Revere Plastics Systems, one of GE’s suppliers, has opened a new factory just 20 minutes north of Appliance Park, across the Ohio River in Indiana, and has 195 people there working in three shifts around the clock. The manufacturing renaissance now under way won’t solve the jobs crisis by itself, but it could broaden the US economy, and help reclaim opportunities—and skills—that have been lost across the past decade or more.

Many offshoring decisions were based on a single preoccupation—cheap labor. The labor was so cheap, in fact, that it covered a multitude of sins in other areas. The approach to bringing jobs back has been much more thoughtful.  

It bodes well for the US economy and we consider it’s a trend for Australian investors to watch closely.