Question 1: I have an SMSF and would like to get some exposure to overseas investing . Can you recommend an exchange traded fund (ETF)? As a pensioner, I usually like to get distributions.
Answer: If you invest offshore, you need to accept that distributions will be much lower. Typically, shares in the USA yield around 1% compared to the 3.5% in Australia.
For low cost index tracking ETFs, try these:
- IHVV from iShares, which tracks the US S&P 500 (hedged) or
- VGAD from Vanguard, which tracks the MSCI International Index (hedged).
Active managers to consider:
- WCM through WQG
- Magellan via MHG
- Morningstar through MSTR.
All these funds are quoted on the ASX. In some cases, they pay higher distributions.
Question 2: How will the demerger of AGL impact on shareholders if it comes to fruition next year? Do you see an upside in either of the two proposed businesses?
Answer: The proposed demerger of AGL into Accel (the “dirty” baseload coal fired power station business) and AGL Australia (the energy retailing and “green” energy supply/storage business) is a net positive, barring huge implementation costs. It won’t happen for some time and is of course subject to shareholder approval.
Are there upsides? Yes, because AGL has been so badly beaten up. Further, the new AGL Australia will appeal because of its customer reach, and very keen interest from investors in “green assets’. The upside for Accel may take longer to show up, but eventually, private equity or other investors will step in and say that notwithstanding the ESG issues, it has unique assets and these can be very profitable.
Question 3: I’m Interested on your take on Magellan Financial Group (MFG). I can’t work out why it wobbles around as it does. Why is it volatile and what are the drivers?
Answer: Magellan Financial Group (MFG) is of course the fund manager, so you are investing in a team who generate revenue from managing money and distributing products. However, Magellan’s investment performance has underwhelmed recently, resulting in net outflows as financial planners recommend other managers in preference to Magellan. Performance fees are also under pressure. These outflows aren’t material yet…but they are a reversal of the position where Magellan was receiving net inflows.
As for the brokers, they are neutral on the stock – 1 buy recommendation, 5 neutral recommendations and 1 sell recommendation. Broker target price of $51.55, 2.2% higher than the last price of $50.46.
I think the jury is out on Magellan at the moment, and that’s why the price is a little wobbly. I’m not a buyer at these levels.
Question 4: I picked up Boral (BLD) at sub $3 in May 2020. If you were a holder, what action would you take in relation to the bid $7.40 , taking into account the Board’s “’REJECT” recommendation?
Answer: Accept. I don’t find the Board’s reasons particularly compelling, and I wouldn’t want to be a minority shareholder in a company controlled by Seven Group Holdings. Acceptances close at 7pm on 29 July — that’s today!
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.
