Question 1: I want to simplify my self-managed super portfolio of shares. Can you please recommend a good income-providing ETF?
Answer: The pick of the ‘income focussed’ share ETFs is probably Vanguard’s Australian Shares High Yield ETF (VHY). It tracks the FTSE Australian High Dividend Yield index which is based on companies that have higher forecast dividends relative to other ASX companies. It currently comprises 67 companies and includes names such as BHP, CBA, Wesfarmers, NAB and Telstra. It doesn’t include a company such as CSL or other high growth/low dividend companies. There is more ‘market risk’ on this ETF, but it will pay a higher income. There are also a number of “actively managed” ETFs such as the eInvest Income Generator Fund (EIGA) or the Switzer Dividend Growth Fund (SWTZ).
Question 2: I am interested in some diversification into international shares. I have heard you mention IHVV previously as a hedged fund investing in top North American companies. How does this fund work, and are there other alternatives?
Answer: IVV and IHVV are index funds that track the S&P 500, the major US stock market index. It is essentially an index of the 500 largest companies. The difference between IVV and IHVV is that the latter is “currency hedged” – in other words, you will just get the performance of the US index and no gain or loss from the movement in the Aussie dollar exchange rate.
Both these funds are passively managed – that is, they are on ‘autopilot’ – they will faithfully track the composition of the index. There is no one making investment decisions.
There are also many actively managed funds. Typically, the investment manager is trying to outperform the market and will invest in a more concentrated portfolio of stocks. You could consider MGF from Magellan, WQG from WCM or MSTR from Morningstar, to name but a few.
Question 3: How often are the major stock market indices rebalanced? When does the next come into effect, and do you know the changes?
Answer: S&P Dow Jones, which maintains the major stock market indices, rebalances them each calendar quarter. The next rebalance takes effect next Monday, 21 March.
The changes to the benchmark S&P/ASX 200 index are: removal of Mesoblast (MSB), Skycity Entertainment (SKC), Spark New Zealand (SPK) and Unibail-Rodamco-Westfield (URW); addition of AVZ Minerals (AVZ), City Chic Collective (CCX), De Grey Mining (DEG) and Home Consortium (HMC).
Question 4: Our SMSF is in pension mode. We own our home and we have zero debts. What percentage of cash would you recommend as a component of a portfolio of shares?
Answer: There is no “right” answer to this question. The percentage in cash will typically vary according to the risk profile. Defensive investors will have more in cash, perhaps 5%, aggressive investors will often have next to nothing to cash as they are fully invested, perhaps 1% or less. If you are in pension phase, another consideration will be having sufficient liquidity to provide for payment of the pension. You don’t necessarily want to be a ‘forced seller’ to cover your pension payments. Typically, you might have 6 to 12 months of pension payments on hand as cash. Of course, if you hold very liquid assets (i.e. readily traded shares), you potentially don’t need as much cash.
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.