Question 1: What are your thoughts are on the new investment bond product from Platinum Asset Management
Answer (by Paul Rickard): I am a fan of the Platinum Investment Bond. It is a bit of a first – a partnership between a fund manager (Platinum) and a Friendly Society (Lifeplan, a subsidiary of Australian Unity) for an investment bond. These are tax paid investments, which can be particularly attractive to high rate taxpayers (as an alternative to superannuation) and as savings vehicles, particularly for kids. I am a big fan of investment bonds (also called insurance bonds) in the right circumstances.
The bond offers two investment options – Platinum’s flagship International Fund, and the Platinum Asia Fund. The latter has been a top performer, while its flagship fund has a sound long term performance record. Fees of 1.35% (plus an estimated 0.30% in transaction costs) are comparable to other leading fund managers.
A key point to remember with any investment bond is that you need to hold the investment for 10 years to derive the full tax benefit – so if your horizon is not long term, then don’t consider them.
Question 2: What is the outlook of Coles (COL) in the next 6-12 months, buy, hold or sell? I bought at $15.40 in May last year, now pretty much standing still after nearly a year. I am thinking of disposing it.
Answer (by Paul Rickard): I have been saying now for some months that I prefer Woolworths (WOW) to Coles (COL). It is just a better retailer – and that is why it is beating Coles in the sales war and improving share, earns a better margin, and ultimately, is doing better on the stockmarket. Coles has a lot of catching up to do – and the market is starting to realise that the investment drain (on new logistics and distribution centres, as well as in store) will be quite material.
This all said, I don’t think it is a sell (now) because on an implied price multiple of 21.0 times FY21 earnings and 20.2 times FY22 earnings, it is not that expensive and the outlook for the business/market is still sound. According to FN Arena, the brokers have a consensus target price of $18.43 (range $16.50 to $20.25), implying 16.9% upside from the current price of $15.77.
Hold.
Question 3: I think most of us know the issues with A2 Milk (A2M), given the border closures etc, but there seems to be a lot of negativity tied to this stock at the moment. Over the next couple of years, do you think it can get back to $10 or are the growth and high margin days behind this company? I am hoping I can recover my capital.
Answer (by Paul Rickard): A2 Milk continues to be under pressure for a couple of reasons. Firstly, Management has lost credibility with the market – 3 downgrades in a very short period – which says that either they were way too optimistic and didn’t understand what was really going on, or they didn’t want to tell the market the whole truth. So, how do you trust them now? The market fears a fourth downgrade. The other negative is that the data says that Chinese local brands are winning share – meaning that when A2M can access the daigou trade and some of the other restrictions are lifted, they may have to compete harder on price (or spend more on marketing), which implies a lower margin.
I like A2M for the long term. As the category leader, I think the company is worth quite a bit. I don’t think that a rise back to $10 in the next 12 months is off the cards – but you will need to be patient. I think it may be too early to call it “a bottom”. But, I know I can’t sustainably “buy at the bottom” or “sell at the top”.
Question 4: I am wanting to get some exposure to the battery storage / electric vehicle market. I have been following a few stocks in this space and am thinking that an ETF might be best way to go. I have found one ETF called ACDC which aims to track the performance of the Solactive Battery Value-Chain Index. What are your thoughts on this ETF or any other that you may be aware of?.
Answer (by Paul Rickard): ACDC, the exchange traded fund from ETF Securities, is currently the only practical way to gain diversified exposure to this sector. As you point out, it tracks an index from Solactive that comprises internationally listed companies that are providers of electro-chemical storage technology and mining companies that produce metals that are primarily used for manufacturing of lithium batteries. Currently, the index comprises 31 stocks, and is equally weighted (when rebalanced).
See Tony Featherstone’s review here. [1]
To invest in this, you need to have faith that the index is a good representation of the sector. I can’t readily suggest an alternative.
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