Question 1: Could you provide an opinion on how ANZ, WBC and NAB might perform in 2022? Although most commentators say that rising interest rates are usually favourable for bank shares, with the housing market unlikely to perform as in 2021, and increasing competition, could these banks actually become a “sell” at current prices?
Answer: I think banks (ANZ, CBA, NAB and WBC) will perform with the index in 2022 (modest gains). I don’t expect outperformance, so I am not over-weight.
Higher interest rates are a positive in the short term and will help their NIM (net interest margin), but as most Australian banks hedge out their exposures, the impact is not that large. Be very careful of “commentators” taking what happens in the US and assuming that it applies in Australia. In the US, where most mortgages are fixed rate or linked to the government bond rate, the adage of “borrow short, lend long” has more applicability.
In the long term, higher interest rates are “bad” for banks. Bad debts are more of an issue, and demand for credit (in particular housing) softens.
Question 2: I was told for an SMSF portfolio structure, it is best to have some exposure to overseas equities. I was wondering what Australian funds you recommend? What is your view about MGF closed and WQG?
Answer: I am biased in that the Switzer Group has an association with Contango Asset Management (the promoters of WCM Global Growth Ltd (WQG)) and I am also a Director of WQG. That all said, I am happy to recommend it – the Manager, WCM, has an outstanding track record.
With the Magellan Global Fund, the closed class units (MGF) are trading at about a 12% discount to the net asset value. If you don’t want to take on this risk, you could consider the open class units through MGOC. Another fund to consider is the Morningstar International Shares Active ETF, ASX Code MSTR.
I would never buy just one fund. They have very different styles and are quite concentrated, so I would diversify across funds and managers.
Question 3: I can’t get my head around this Westpac (WBC) buyback. I bought 1,000 shares in Westpac on 5/11/21 for $22.55 in my super fund (pension mode). Is it to my advantage to sell into the buyback?
Answer: Here is the link to my article on the topic. [1]
Think of it as a “tax transaction”. Assuming a Westpac market price of $20.00 and a 4% tender discount, selling into the buyback (for a 0% taxpayer like a SMSF in pension mode) is equivalent to selling at $22.57. If you can sell those shares at $22.57, and buy them back at $20.00, doesn’t that look like a good deal?
Of course, acceptance is voluntary. If you don’t want to take on a little bit of timing and pricing risk, then don’t do it.
Question 4: I’m researching Metrics Credit Partners (Metrics) ASX listed MOT and MXT and could use a second opinion. The primary reason for placing money in either or both is to have a revenue stream that is not correlated with equities volatility and is reasonably safe. I have read all the available material on these guys but do you have anything to say?
Answer: Metrics Credit Partners has proven to be a reliable manager. Both the funds are higher risk, with the Metrics Master Income Trust (MXT) targeting a return of the RBA cash rate plus 3.25%. It invests in a diversified portfolio of corporate loans, with approximately 55% from investment grade borrowers and 45% from non-investment grade borrowers.
The Metrics Income Opportunities Trust (MOT) is higher risk, with approximately 40% of its investments in equity/equity-like assets and subordinated loans. It targets a cash return of 7%.
As listed investments, liquidity depends on the interest of other investors. That said, liquidity and price stability for MXT has been reasonably strong. As part of a diversified portfolio (including diversification across asset class and managers), I would consider MXT.
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.