Question: Would chasing dividends by swapping shares around in any financial year increase returns, as opposed to holding a core portfolio without undue trading?
Answer (By Paul Rickard): There is no right or wrong answer to this question. It depends on just how good you are at “swapping” and what your timing is like.
Obviously, there are also transaction costs in swapping to be considered.
In my experience, most personal investors aren’t very good at trading because either they don’t have the commitment (time, willingness to undertake research etc.), patience or they become distracted by some other market event.
My advice is to hold a core portfolio – analyse it – and make changes when necessary (which includes cutting underperformers and reweighting).
Question 2: We have a bank term deposit maturing in a few days and would like to reinvest the funds into something other than shares. Our SMSF is over-weighted towards shares and would like your opinion on the bank hybrids. What are some with safe, reliable and decent returns?
Answer 2 (By Peter Switzer): There is very little to choose between the bank hybrids. They now have largely identical structures, and in a relatively efficient market, are trading on the ASX at around the same margin.
I would look at stocks where liquidity is strong – perhaps two more recent issues:
a) NABPC – issued at a spread of 3.5% over the 90-day bank bill, trading (with accrued interest) marginally below par; and/or
b) CBAPD (PERLS VII) – issued at a spread of 2.80% over 90-day bank bill, trading at a material discount at around $95.20.
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