Question 1: If interest rates are peaking, should I be buying long term government bonds? How can I do this?
Answer: Traditionally, the biggest factor that drives the bond market (and long term interest rates) are expectations about inflation. The trajectory of short term interest rates is important, but less so the longer the term of the bond.
My sense is that until the markets feel that Central Banks have done enough to stop the inflation bogey. It will be hard for long term interest rates to move substantially down. The trend, no matter how you look at it, is still up.
I say central banks because like equity markets, there is a strong correlation between different country bond markets. Australian bond markets (and long term interest rates) are highly correlated to the US bond market.
So, while I see some value in long term Australian bonds, I think you would want to be pretty confident about the inflation outlook before you took on an overweight position. To do so, an easy way is through some of the exchange traded funds – IAF from iShares or VAF from Vanguard. If you are bullish on long term interest rates, go with the fund that has the longest duration.
Question 2: The price of ABB continues on an alarming downward trend, despite all the positive reports and recommendations, their significant advertising, and from what I understand …. they offer a great product. Any idea what is happening here?
Answer: I don’t think Aussie Broadband (ABB) is that different to other high growth, low EBITDA companies that are heavily investing and not spinning off significant cash – they are out of favour with the market. There are few buyers.
In regard to ABB, the two major brokers who cover the stock have “buy” recommendations. Their target prices of $3.70 and $4.03 are materially higher than the last ASX price of $2.23. But both are worried about the impact of rising costs and ABB’s relatively low EBITDA margin of around 10%.
Question 3: Argo Global Listed Infrastructure (ALI) has announced a share purchase plan. Should I participate?
Answer: Listed infrastructure has been one of the better performing assets this year and the Argo fund (which is managed out of the USA) has been right up there. So much so that it has recently started to trade at a small premium to NTA (net tangible asset value).
The share purchase plan allows you to buy up to $30,000 of new shares, at a price which is the lower of $2.35 or the average ASX trading price over the period from 10 October to 14 October.
ALI closed yesterday at $2.36, so on a price basis , it is no “give me”. A line ball call – depends on whether you have the cash, and then want to increase your exposure to infrastructure.
Question 4: What are the super caps this year?
Answer: There have been no changes to the super caps this year. While they are indexed to movements in average weekly earnings (AWOTE), they only increase in fixed increments. The caps for FY23 are $27,500 for concessional contributions (the employer’s 10.5% plus any amount you salary sacrifice) and $110,000 for non-concessional (or personal) contributions.
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.