Question 1: What will be the cost base for the Endeavour (EDV) shares I get from the Woolworths (WOW) demerger?
Answer: If you elect to apply demerger tax relief, you will apportion your existing cost base between your current Woolworths shares and the Endeavour Group shares. This ratio will be determined by the ATO and advised by Woolworths in the coming weeks.
For example, suppose you purchased your original Woolworths shares for $30.00 each. The Company, following confirmation from the ATO, advises that the approved apportionment is 80% for Woolworths and 20% for Endeavour. This means that your cost base for Woolworths now becomes $24.00 (80% of $30.00), and your cost base for your Endeavour shares is $6.00 each (20% of $30.00).
You will be deemed to have purchased your Endeavour shares on the same date that you acquired your original Woolworths shares.
Question 2: I have been following CGF (Challenger) for a number of years. I was lucky enough to buy it a number of years ago around $7.00.and rode the price increase. I hung onto it to my dismay. It has been on a downward trend for years. Do you see any worth in the stock? CommSec has it on a dividend of 3.4% fully franked.
Answer: I find Challenger an extraordinarily difficult company to get a handle on, and as a result, tend to steer away from it. Its dominant market position in annuities is challenged when interest rates are so low, and it appears to have ongoing capital needs.
Tailwinds include the possibility of higher bond yields, inflation and a pick-up in the demand for annuities.
At an investor briefing last week, it downgraded its FY21 NPBT to the lower end of guidance ($390m to $440m), and posted guidance for FY22 of a NPBT of $430m to $480m. It also reduced its target ROE (return on equity) to the RBA cash rate plus 12%.
The brokers are neutral on the stock – 1 buy recommendation, 6 neutral recommendations, with a consensus target price of $5.96, about 10% higher than the last price of $5.38. The range is tight…from a low of $5.30 from Macquarie to a high of $6.50 from Morgan Stanley. The forecast dividend yield is 3.8%, which should be fully franked.
I think there are “easier” stocks to invest in.
Question 3: In the last 12 months through my super, I have done very well through a High Growth Index Fund (underlying fund manager Blackrock), better than I have actually done through share picking. Generally speaking, do you think index funds are less likely to perform as well as they have these past 12 months, given many markets are now back to pre-Covid levels?
Answer: I think you will find that the ‘Blackrock High Growth Multi-Index Fund’ does not just have Aussie shares but a diverse asset mix of Australian shares, international shares, international property, emerging market equities, gold, Australian and international fixed interest etc. It has a weighting of 85% to growth assets and 15% to defensive assets.
Your comparison with a portfolio of Australian shares is really not valid. Over the long term, you would expect a fund with an 85%/15% weighting to outperform a fund with (say) a 70%/30% split. But there will be more volatility, and more years of negative returns.
As for styles, with an index fund, you are guaranteed to get the index return, less the management fee. Nothing more, nothing less. Actively managed funds aim to outperform the index.
While I recognise that index funds can be useful for “core” market exposure (including sectors), I prefer actively managed funds and individual shares. I do not think Covid will have much to do with relative performance.
Question 4: Is it too late to do anything for my super this financial year?
Answer: No, it is not too late, but you need to act quickly. Contributions must be banked and receipted by the fund on or before 30 June. This means that for an industry or corporate fund, you will need to act by Monday (check with your Fund). For an SMSF, you may have an extra day – it depends on the efficiency of your bank. Have a look at this article on Switzer Daily that details the actions you can take https://switzer.com.au/the-experts/paul-rickard/5-last-minute-super-actions-to-take-before-the-end-of-the-financial-year-2/
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 regard to your circumstances.
