Question of the Week

Questions of the Week – Switzer Dividend Growth Fund plus Invocare and Tassal

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Question: We are over 60 and have our SMSF. We invest in companies that pay dividends and are fully franked or nearly fully franked. Our portfolio just about mirrors Paul’s model income portfolio averaging 5% plus.

I read and viewed the video on the launch of the Switzer Dividend Growth Fund information.
The objectives of Paul’s model and of the proposed Switzer Dividend Fund appear similar.
Do you expect or should I expect a significant increase in % returns with the Switzer Dividend Fund as compared to Paul’s model? (Given the cost for one is a subscription $397 and the other is 0.89% based? A $1m fund would amount to $8900.00)?

Answer (by Paul Rickard): While the investment objectives of the model portfolio and the Switzer Dividend Growth Fund (SDGF) are similar, operationally they are quite different:

a) firstly, it’s a model designed for investors who want to manage their own stocks with a number of fixed assumptions such as maximum sector divergence, number of stocks etc.;
b) the Switzer Dividend Growth Fund (SDGF) is actively managed;
c) the SDFG will invest in a broader array of stocks, and number of stocks.

In the longer term, we hope that with the professional investment team on board, the SDGF might do a little better than the model income portfolio. That said, we clearly can’t make any commitment about this.

Question: I ask your opinion on two stocks which I have held for quite some time, namely IVC and TGR I had purchased hoping for a reasonable dividend and some capital growth. Your thoughts on retention or sale and investing elsewhere.

Answer (by Paul Rickard): Both Invocare (IVC) and Tassal (TGR) are well run companies that have delivered strong returns to shareholders.

I don’t have any strong view to say that either is a sell, but on metrics, you could perhaps make a case that divestment of Invocare might be higher up the agenda.

According to FN Arena, the brokers are neutral to marginally negative on Invocare. The target consensus price of $12.88 is below the current market price of $13.49. It is trading on a forecast multiple of 27.3 times FY17 earnings, forecast yield of 3.0%.

Tassal is trading on a multiple of just 13.7 times FY17 earnings, and a forecast yield of 4.1%. The brokers are in the main positive, with the target price of $4.41 compared to the last closing price of $4.15.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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