Question 1: Platinum Asset Management (PTM) has a P/E (price to earnings) ratio of 9.5. I have a holding. Is it worth adding to at these levels?

Answer: With funds management companies, two important things to look at are funds flow and performance. Most of the analysts have sell recommendations on Platinum Asset Management (PTM) because the performance has been underwhelming and funds aren’t growing.

According to FNArena, Platinum is trading on a forecast PE of 11.3 times, not that different to Magellan (MFG) of 12.5 times or Pendal (PDL) of 10.9 times. The market’s current darling, Pinnacle (PNI), is trading on a multiple of 37.8 times forecast earnings.

While the analysts are bearish on Platinum, they do recognize it is “cheap” and the target price is $3.29 compared to the last ASX price of $2.70.

I can’t see an immediate catalyst to re-rate Platinum. If I wanted to invest in a fund manager, I think I would be inclined to invest in the market leader, Magellan.

Question 2: Would shares in any of the LICs (listed investment companies) be good long term to buy for my grandkids [10-year-old]? If so, which ones would you suggest?

Answer: The big broad based LICs would make an excellent long term investment for a 10-year-old child. You could look at Argo Investments (ARG) or Australian Foundation Investment Company (AFI).

One consideration is that they are trading at a premium to NTA (net tangible asset value). According to their last NTA, as at 30 November, a 1.7% premium for ARG and 9.3% for AFI. Over time, this premium will go – so on that basis, I would buy ARG.

As an alternative, you could look at one of the big index ETFs, such as VAS or IOZ, but the tax will be a little messier.

Here is a link to my article on investing for kids/grandkids.

Question 3: Is it worth bothering with the Westpac (WBC) off-market share buy back now that the shares have fallen so much?

Answer: The Westpac off-market share buyback is less attractive because the share price has fallen about 20% since it was announced. This is because the capital component is fixed, so the franked dividend component becomes smaller. A smaller franked dividend means fewer franking credits, which drive the tax effective nature of off-market share buybacks.

I expect that the tender discount will now be more like 8%.

For a 0% taxpayer (such as a SMSF in pension phase) and a Westpac market price of $21.00, if the discount is 8%, it is equivalent to selling Westpac shares at $22.74. If the discount is 9%, the equivalent selling price is $22.44, at 10% it is $22.14. The risk is that you will then need to replace the shares you sell by buying on market. You also won’t receive the value of the franking credits until you lodge your annual tax return.

Question 4: I am retired and keep about two years of my living cash requirements in my SMSF. The rest is invested in shares and property. Am I right in thinking that if I considered bank hybrid securities as a “cash equivalent”, I would reduce the need to keep real cash? I realise the risks with these securities, but when was the last time any invoked the Armageddon in the fine print? Can you comment on the suitability of this approach?

Answer: I consider bank hybrid securities from the major banks to be “cash like”. They are very liquid.

Because the major banks are very well capitalised with ratios in excess of APRA’s “unquestionably strong” benchmark, they are relatively low risk. They are not “riskless”, but they are low risk.

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 regards to your circumstances.