Question: I have just established an SMSF and I’m looking to invest $900,000 over the next couple of months. I have reviewed your model portfolios and cannot find any recommendations/investments for either Australian or International ETFs. I have also reviewed your articles, which give great education value on ETFs.
Why are either Australian or International ETFs not in the model portfolio? I would have thought that a model portfolio would have mix of shares and ETFs? And is the advice in the articles on ETFs current, or will they be updated soon?
Answer (By Paul Rickard): In regards to your first question about our portfolios, the purpose of the portfolios is to demonstrate an approach to the construction of a portfolio of Australian direct shares.
The key take-outs around a top-down approach, sector biases, number of stocks for diversification etc wouldn’t be readily demonstrated if we included ETFs.
Further, Australian ETFs tend to be “market-based” rather than “sector-based”. While I can acquire an ETF that gives exposure to the broader market (e.g. STW and the S&P/ASX 200), or Small Ordinaries (through ISO, for example), there are not yet ETFs that cover each of the 11 GICS sectors.
In terms of more up-to-date commentary on international ETFs, perhaps you might find this article [1] useful. I wrote it about two weeks ago and it provides tips on how to invest in ETFs, and which ETFs to take a look at.
I also recently provided some more general feedback on ETFs in a subscriber Q&A posted last week, please find that article here [2].
Question 2: Are there any listed bond, floating-rate notes or hybrids you see as good value at present? Or do you prefer 100% equities?
Answer 2 (By Paul Rickard): Only in the most unusual circumstance would I ever recommend 100% equities. I think you need a balance across the asset classes (equities, bonds/fixed interest, cash, property and alternative assets).
That balance changes according to your risk profile, investment timeframe, need for income/capital/liquidity etc., and also as markets change and you use the opportunity to change your weightings.
In terms of hybrids and floating-rate notes, the market has got pretty pricey and spreads have narrowed. ANZ has announced a new jumbo issue (ANZ Capital Notes 2), which is expected to be priced at a margin of 3.25% to 3.40% over the 180-day bank bill rate. This offer is very much in line with secondary market spreads (pricing adjusts very rapidly), so this might be the best avenue to consider. The offer is due to open on 19 February.
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.
Also in the Switzer Super Report:
- Peter Switzer: Charlie Aitken on earnings season and the right kind of surprises [3]
- Geoff Wilson: Warren Buffett’s favourite book [4]
- Ron Bewley: High-yield sectors look attractive again [5]
- Louise Biti: My SMSF – hard work pays off [6]
- Staff Reporter: Buy, Sell, Hold – what the brokers say [7]
- Tony Negline: Is asset segregation in your SMSF right for you? [8]
- Brittany Ruppert: Do you know what a bitcoin is? [9]