Question 1: Australian Foundation (AFI) and Argo (ARG) are trading at premiums to their NTA (net tangible asset value). Would you suggest it is a better time now to buy an ETF such as VAS or STW?
Answer: I am always surprised why some investors buy listed investment companies when they are trading at a premium to NTA (net tangible asset value) and sell others that are trading at a discount, more so when there are good alternatives available.
I have never understood why anyone would pay $110 for something worth $100.
Both AFI and Argo are trading at unsustainable premiums. As of 28 February, AFI was at a premium of 12.3% and Argo 10.9%. Both LICs have performed well over the last 12 months – but their long term investment track records are broadly satisfactory. Over 10 years to end January, AFI is exactly matching the S&P/ASX 200 index, while Argo over the 10 years to end February is below index (8.8% pa vs 9.6% pa).
The obvious trade is to sell AFI or Argo and buy VAS (Vanguard Share Index Fund) or IOZ (from Blackrock/iShares) or even STW. With these index funds, you are “guaranteed” a return of the index at less than 0.1% pa. And you will be able to invest an extra 10% because you will sell AFI at a premium!
Question 2: Australian resource companies have largely rallied following Russia’s invasion of Ukraine. If China invaded Taiwan, would it be the same story, or would Australian resource companies take a hit?
Answer: I hope (and think) that this is a ‘hypothetical’ we don’t have to deal with.
I think the reaction of our market would be very different – because our big resource companies who sell into China (such as BHP, Rio, Fortescue etc) would be severely impacted. Also, those companies who sell into Japan or South Korea (such as Woodside) could also be significantly impacted because trade routes may close.
The hit to most of our resource companies would be massive.
Question 3: What is happening with Inghams (ING) at the moment – why are they having a price correction? Would you see it at a buy at current levels or do they have headwinds to come?
Answer: I have owned shares in Inghams before – and I can’t say that I want to again. Food producers/agricultural stocks are tricky.
The market has marked Inghams down because they have warned of a weak second half (primarily related to Omicron costs) and higher input prices for wheat etc. Following the invasion of Ukraine, wheat prices have soared – which has placed further pressure on Inghams.
In the main, the brokers see value in Inghams. Consensus target price of $3.65; about 19.2% higher than the last ASX price of $3.06. According to FNArena, there are 2 buy recommendations and 3 neutrals.
A ‘pass’ from me. No interest.
Question 4: Why has Rio’s share price fallen almost $10.00 today?
Answer: The main reason is that it is trading today ‘ex-dividend’. The dividend payment of $6.63 per share, fully franked, is pretty big! If you bought Rio share’s yesterday, you would get the dividend payment. Buying today you won’t. The other reason is that commodity prices are lower – so all the major miners like BHP and Fortescue are down.
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