Question 1: What are benefits and traps of NAB Capital Notes 5 and Westpac Capital Notes 7? Are they for the benefit of the banks, or investors?

Answer: Here are the benefits and traps for the different parties:

1. Investor benefits: include a gross distribution of about 3.45%, about 3% higher than a 90-day term deposit; floating rate investment, so if interest rates go up, so will the distribution rate (no re-investment rate risk) and as an ASX-listed security, easy to liquidate or exit.
2. Investor downsides: higher risk, so if the Bank gets into trouble or there’s a banking crisis in Australia, your investment will be worth less than $100 and you will suffer a capital loss; distributions are not guaranteed and in some circumstances won’t be paid; and as an ASX-listed security, the market price will move around. It could be less than the $100 you pay.
3. Issuer (banks) benefits: access to very cheap capital.
4. Bank downsides: None.

Question 2: I am interested in investing in renewable energy. What are some companies on the ASX that I should consider?

Answer: Here are 7 to consider:

1. Meridian Energy (MEZ)
2. Tilt Renewables (TLT)
3. New Energy Solar (NEW)
4. Genex Power  (GNX)
5. Hazer Group (HZR)
6. Carnegie Clean Energy (CCE)
7. Clearvue Technologies (CPV)

Question 3: What are your thoughts on ASX:ASIA, the Asian technology tigers ETF?  I’ve had a look at the underlying stocks that it holds and they have had a huge run with the growing middle class in China and the adoption of technology. Also, in terms of getting exposure to China, ASX:CNEW, the China New Economy ETF?

Answer: ASIA, which is the Asia Technology Tigers  ETF from Betashares, tracks the Solactive Asia ex Japan Technology and Internet Tigers index. It has done spectacularly well. Since inception, the index has averaged a return of almost 33% pa. I like both its sub-sectors (cloud, semi-conductors, media etc) and country mix – the latter about 57% from China, 22% Taiwan, 15% South Korea and 6% India. When something has done this well, there is always a cause for hesitation – but if you believe in the underlying macro themes, then I guess it is still worth investing in.

CNEW is from VanEck and gives investors access to a portfolio of the “most fundamentally sound companies in China having the best growth prospects in sectors making up the new economy”. It is a constructed index, where approximately 120 companies are selected on the basis of 24 fundamental indicators. Companies are targeted within the technology, health care, consumers staples and consumer discretionary sectors. Interestingly, food, beverage and tobacco companies have the largest representation at 24%. While I don’t particularly like constructed indices, the index that CNEW tracks has a 10 year performance record of 15.08% pa, so I guess it is worth considering.

Question 4: I was wondering if you have any thoughts on (PET) Phoslock Environmental Technologies? They have been in a trading halt since September due to accounting troubles and other issues in China. Moving forward, what should I do when they address their internal problems and come back on the ASX market?

Answer: PET issued a trading update on 12 November. That said, we still do not know the extent of the irregularities – so when the accounts are restated, the market will no doubt react. You would have to expect that the price will be slashed further. The company does have $35 million cash on hand at 30 September, so I guess that will provide somewhat of a floor under the share price.