Question 1: I am aware of the rotation out of growth and understand that in time growth stocks will come back into favour, but as a holder of these stocks should I follow the herd and get out or continue to hold on? Appen (APX) is a case in point. Sitting on a relatively large loss, should I sell? Or is it better to sell and buy back in later when things improve?
Answer (by Paul Rickard): Taking a loss can be hugely clarifying, and you can always buy back in again. So, I would never dissuade someone from taking this course of action.
But if you are a long-term holder, I would be inclined to hang on. I think they are way oversold.
Peter commented on this on Monday (see https://switzerreport.com.au/should-you-buy-more-of-appen-altium-and-a2-milk/ [1] ). Yesterday, Appen re-affirmed guidance for FY21, said that it was changing its reporting currency to US dollars, announced an organisational change and foreshadowed operational savings of US$15m from FY22. It rallied around 17%.
I am not saying that Appen is out of the woods yet, but there are more positives than negatives and we may have seen the bottom. It now has to deliver on guidance and re-confirm to the market that it can sustainably grow revenue. With the brokers, the current consensus target price is $22.23 (about 68% higher than the ASX price), range is a low of $16.00 to a high of $30.90.
Question 2: Which bank do you prefer? Is Westpac (WBC) still your preferred choice?
Answer (by Paul Rickard): I think the banks divide neatly into two groups: CBA, and all the others. With the “others”, there is really very little to choose between ANZ, NAB and Westpac – so it comes down to price.
Until recently, I have been saying that Westpac represented the “best” value because the market rated it the “worst”. CBA is rated the “best”.
So my strategy is to play it with a combination of “the best” and “the worst”.
Because Westpac has performed better and is now more expensive, I think on a relative basis, NAB looks more attractive. So, CBA and NAB.
Now, there is no doubt that CBA is looking very pricey, but I am not a seller. I don’t know what to replace it with, except more NAB, and I am just not convinced that NAB is going to materially outperform CBA.
Question 3: Should I care where an exchange traded fund (ETF) is domiciled? Not for financial performance per-se but for admin difficulty, tax, anything else I don’t know? For example, some of my Vanguard ETFs require me to complete a form W-8BEN which is an admin pain and this alone will make me steer away from US domiciled ETFs. So, all things being equal if there’s an Aussie equivalent to a US domiciled ETF why wouldn’t I choose it?
Answer (by Paul Rickard): I don’t think you need to care about where an ETF is domiciled, but it is certainly a bit of an ‘admin hassle’ if it is domiciled in the USA. The W-8BEN can be a horrendous form to complete (particularly for a trust such as a SMSF).
With iShares from Blackrock, many of their ETFs were converted in 2018 to Australian domiciled ETFs. So try IVV or IHVV (which tracks the S&P 500, the latter currency hedged) as an alternative to Vanguard.
Question 4: I would appreciate your thoughts on participating in Pendal Group’s (PDL) Share Purchase Plan?
Answer (by Paul Rickard): Prima facie, it is a “no-brainer” to accept, with the new shares being issued at a maximum price of $6.80 and Pendal currently trading at $7.50. There is a maximum application of $30,000 (which could be scaled back). The offer closes on 7 June.
If you don’t want to own any further Pendal shares, one option is to sell some now on the ASX at circa $7.50 and replace those shares in the SPP at $6.80.
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