Question 1: I want to invest in US tech stocks (Microsoft, Alphabet etc). I know there is an exchange traded fund (ETF) on the Australian market called BetaShares Nasdaq 100 (NDQ). Is this the only one in Australia, and how good is the fund?
Answer (by Paul Rickard): NDQ from BetaShares is one way to do it and is a good fund, but the index it tracks, the NASDAQ 100, is a lot more than tech companies. Another and more substantive way to get exposure to leading tech companies is through an ETF from ETF Securities, FANG. It tracks the FANG+ index, an equally weighted index (when re-balanced) of 10 leading tech stocks. These are Nvidia, Alphabet, Facebook, Amazon, Apple, Netflix, Tesla, Alibaba, Twitter and Baidu. The ASX code is FANG.
Question 2: We are investors in Magellan’s flagship Global Fund. We hold both open class units (MGOC) and closed class units (MGF). Are these investments similar in terms of performance and returns? Which is better?
Answer (by Paul Rickard): Yes, identical in terms of performance and return – MGOC are open class units, MGF are closed class units (of the same underlying fund – the Magellan Global Fund)
MGF has moved to trading at a discount to NTA – 12.0% at 31 May – due to over-supply and relative underperformance by the fund. Although the discount might widen further, I think there is value in the closed class units (MGF). The trade is to sell the open class units (MGOC) and buy the closed class units (MGF).
Question 3: If I invest in dividend paying US shares, how do I receive the dividend payments? Are there any other ramifications or possible hiccups involved in holding dividend paying US shares?
Answer (by Paul Rickard): If the US company pays a dividend, it will be paid to you via the custodian of your shares (in most situations, your broker will have a custodian that holds the shares on your behalf). As a non-resident, withholding tax of up to 30% will be deducted.
You will be asked to complete a form from the US Dept of Treasury – a W-8BEN form – which you are legally required to provide. Once processed, this will reduce the withholding tax rate to 15%. Tax withheld by US authorities is effectively an offset to any tax you pay in Australia. US shares typically pay lower dividends than the case in Australia – the average dividend yield is around 1.5%.
Question 4: I have seen reports of a class action against A2 Milk. I bought shares during the period under investigation. Do I need to join this action or do I automatically qualify? Further, in these instances, what really happens? How will shareholders be compensated if the legal firm has a win?
Answer (by Paul Rickard): You usually need to apply to join a class action. If it proceeds, I am sure the lawyer running the action will advertise on how to join, and/or get access to the share register and send shareholders a letter. Compensation (if any) will depend on the settlement amount, how many shareholders participate, usually be pro-rated according to the number of shares, and after the lawyers take their share – typically about one third. Don’t bank it yet!
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 regard to your circumstances.