Question 1: What is your view on Carslaes.com (CAR) entitlement issue? Should I take them up?
Answer: Prima facie, yes. CAR is trading on the ASX at $18.79, the entitlement price is $17.75 – so worst case, you could sell on the ASX and buy them back through the entitlement issue at $1.04 cheaper.
CAR is raising about $1.2bn to fund the purchase of the remaining 51% of Trader Interactive, a leading digital marketplace business. CAR currently owns 49%. The deal is said to be high single-digit EPS accretive and has been given the tick by the market.
The institutional offer was well supported, now retail investors can participate on the basis of a 1 for 4.16 entitlement at $17.75 per share. The price is 12% lower than the theoretical ex-rights price. Entitlements must be paid and accepted by Wednesday 13 July.
According to FNArena, brokers have a consensus target price for Carsales of $22.82, about 21.4% higher than the last ASX price of $18.79.
Question 2: Vanguard, and some other issues, offer the option of investing in an ETF (exchange traded fund) or investing in a managed fund (wholesale or retail). What are the pros and cons of investing in the ETF over the managed fund? Is it better to invest in the ETF?
Answer: Typically, the unlisted fund and the ASX-listed ETF invest in the same assets with the same management fee. There is one underlying fund, of which the unlisted fund and ETF are different classes.
ETFs have an advantage in that there is a transparent price and immediate liquidity. If you sell, you will get the money two business days after you transact – and you know at what price and when you transacted. With managed funds, you need to lodge a redemption request – just how fast, and when that is processed is in the hands of the manager.
Mangers such as Vanguard engage market makers to ensure that during the main trading hours, there is good liquidity for the ETFs on the ASX. In most cases, you can buy or sell several hundred thousand dollars at a very tight spread to the underlying Net Asset Value.
The only real disadvantage of the ASX-listed ETF is the transparent price. In times of high volatility, the bid/offer spread can widen – but trying to redeem/invest in the managed fund at these times can also be a bit tricky. Invest in the ETF.
Question 3: If I purchase Apple stock through nabtrade or CommSec, do I need to worry about tax consequences in the US when I sell my stock? Will I need to lodge a W-8BEN form?
Answer: When you sell, no, although any capital gain will potentially be subject to Australian capital gains tax (if you are a resident for Australian tax purposes).
You will be asked to provide a W-8BEN form (which is a declaration to the US Department of Inland Revenue). Without that, dividends (yes, Apple pays a dividend) will be subject to a 30% withholding tax. With that, the tax rate should only be 15% – and you will get an offset in Australia for the US tax you pay. Of course, any income will also be subject to Australian tax.
Question 4: What are the metrics that you would consider when investing in unlisted property trusts? Can you suggest 3 or 4 reputable funds?
Answer: If investing in unlisted property trusts, the metrics I would look at include measures relating to the properties themselves and measures relating to the trust.
In relation to the property(s), metrics such as WALE (weighted average lease expiry), occupancy rates, tenant quality and capitalisation rates are used to value the assets. On the trust, gearing levels, borrowings (and whether the interest rate is fixed and for how long), premium or discount to NTA (net tangible asset value) and when the assets were last valued, management fees etc.
Many unlisted property trusts tend to be single assets, so deciding whether to invest or not largely comes down to a view of the property and the manager’s strategy to improve the asset and/or realise value. I can’t recommend individual trusts, but consider Managers such as Charter Hall, Centuria, Cromwell etc.
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.
