Question 1: I manage our SMSF and our funds are in pension phase. The fund up until recently had 41 stocks plus three managed funds. Even though I enjoy the research side of managing the fund, I realise that 41 stocks is too many. Can you advise what is the preferred number of holdings in a fund our size? Despite the paperwork, I believe managed funds will allow me to sleep better. Is that a reasonable assumption?
Answer: There is no right or wrong answer, but for an Australian equities portfolio, I think about 20 to 25 stocks is the right number of stocks. Over 30 stocks becomes very hard to keep track off, and while the research says that you can achieve quite a reasonable degree of diversification from as little as 8 stocks drawn from different sectors, you still have considerable individual company risk. For example, if a CEO does a really dumb thing and the stock price crashes, your portfolio return can be severely impacted.
Managed funds or individual securities? I think it is a matter of personal preference. Managed funds will certainly allow you to sleep better. For my international investments, I prefer managed funds because I can’t develop (or have the time to manage) a diversified portfolio of international stocks. Also, outperformance seems less of an issue. In Australia, I haven’t found the manager with consistent outperformance (maybe because our market is so concentrated), and the tax outcomes (which is much more important in Australia because of franking) are rarely optimised. So, I prefer individual securities.
Question 2: If or when the US stock market pulls back, what are your top 3 “blue chip” US stocks to buy for long-term value?
Answer: The stocks I would look at are: Microsoft (MSFT), Square (SQ) and Pfizer (PFE). But they have all gone up a lot in 2021 – Microsoft 37.1%, Square by 14.3% and Pfizer by 21.6% – so I would want to see a decent pullback. Another to throw in is Amazon (AZN) – but it is only up 6.7% in 2021.
Question 3: Magellan Financial Group (MFG) is approaching a bit of value but it’s not something I have tracked closely. However, I do recall you stating that there were a few listed Magellan funds on the market. What are their tickers?
Answer: MFG (Magellan Financial Group) is the fund manager itself. You are investing in its profitability as a manager. The share price has been falling because the recent investment performance has been underwhelming and there has been a small outflow of funds. The brokers still see some value – a consensus target price of $44.27 compared to an ASX price of $39.15 – although the range is wide (a low of $34.00 to a high of $48.50).
If you want to invest in their products, their major fund is Magellan Global Equities Fund. Units are quoted on the ASX under the ticker MGOC (open class), or MGF (closed class). There is also a currency hedged version available that trades under the code MHG. For more info, go to www.magellangroup.com.au
Question 4: I have been reading as much as I can to learn about lithium and electric vehicles. Could you please give me the names of the lithium miners on the ASX so that I can research them further?
Answer: The main ASX listed lithium producers are Orocobre (ORE), Mineral Resources (MIN), Pilbara Minerals (PLS) and IGO. The more speculative end includes names such as Piedmont Lithium (PLL) and Core Lithium (CXO). Here is a link to a story from James Dunn on the lithium/battery material producers: https://switzerreport.com.au/want-to-ride-an-important-trend-try-electric-vehicles/
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.
