Question 1: The Australian dollar is now flirting with 74 US cents. If it keeps going up, some of my ETFs like IVV will be impacted. Can I hedge the exposure or take any action to eliminate the currency risk?
Answer: You can’t hedge the exposure per se, but one action you can consider is to switch into currency hedged ETFs. IVV, from iShares, tracks the S&P 500. They also offer IHVV, which also tracks the S&P 500, but is hedged back into Australian dollars. It has a slightly higher management fee and is not always as liquid, but apart from the hedging, is the same as IVV. Similarly, Vanguard has VGS, its international shares index fund, and VGAD, its hedged international shares index fund.
Question 2: If Switzer were to launch now a new “Post Pandemic Vaccine led recovery Fund”. what would be the top 10 ASX holdings?
Answer: This is a nice hypothetical. My sense is that a lot of the “vaccine led recovery” is already priced in, so a “top 10” would look more like a traditional top 10 – those companies expected to grow in a strong domestic economy or who have “over-provided” for the impacts of Covid-19. Commodity prices should also remain firm. The four major banks, CSL, BHP and Rio, Macquarie, Wesfarmers, maybe Qantas, maybe Amcor, maybe Brambles. It would be underweight consumer staples, gold, property trusts (I think this sector will be challenged), utilities and some of the defensive names.
Question 3: I am a shareholder in IAG. They have a share purchase plan in operation where I can apply for up to $30,000 of new shares. Should I take them up?
Answer: If you have the cash and are comfortable in increasing your exposure to insurance, my answer would be yes. Firstly, the new shares are likely to be at a discount to the current market price. Secondly, the reason IAG is raising capital at a discounted price is a “one-off” relating to Covid-19 and business interruption insurance – fundamentally, it is still a good business.
Under the SPP, you will pay no higher than $5.05, or if the market falls, a 2% discount to the average ASX trading price over the 5 days up to and including 18 December (current price around $5.25). Applications close on Friday 18 December at 5.00pm. Applications may be subject to a scale back.
Question 4: Have you any thoughts on Macphersons MCP? Is the China brouhaha significant to this stock? They have had a recent earnings downgrade.
Answer: McPherson’s (MCP), who is involved in the health, wellness and beauty markets, provided a trading update on 1 December. Its joint venture partner in China, Access Brands Management, reported disappointing sales enquires at a recent event and as a result, McPherson’s downgraded 1H21 profit and withdrew full year FY21 guidance. I don’t think this is connected to the “China brouhaha”.
The only major broker who covers the stock is Ord Minnett. They have a “buy” recommendation and a target of $1.79, about 43.2% higher than the last price of $1.25. This is a precis of what they had to say:
“ McPherson’s issued a major revision to earnings following a slump in sales in Dr LeWinn’s within the Access Brand Management distribution channel in China. Ord Minnett reduces FY21 pre-tax profit forecasts by -24%. The broker suggests the magnitude of the contraction points to issues within the distribution channel and/or a lack of impact from recent Dr LeWinn’s product launches. Still, five out of the six core fully-owned brands are expected to trade positively during the first half, being well-established. Buy retained. Target is reduced to $1.79 from $3.00.”
A challenge with this stock is that because its record has been poor, it doesn’t take much “bad news” to absolutely shake investor confidence.
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