Question 1: Could super be hit in Tuesday’s Budget?
Answer: I wouldn’t rule it out, however, the changes, if any, are more likely to be targeting high-income earners.
Areas they could touch include putting a cap on the total amount of money you can have in the super system that is concessionally taxed. The figure of $5m has been rumoured. Not clear exactly how they would do that, and whether any change would be retrospective or prospective in nature.
A more obvious change would be to reduce the income threshold for Division 293 tax from $250,000 to $200,000 (or perhaps as low as $180,000). Division 293 tax makes the effective tax rate on concessional super contributions (such as salary sacrifice) 30%, rather than the standard 15%. Arguably, taxpayers who earn between $180,00 to $250,000 pa are the most tax advantaged from salary sacrifice.
A third change would be to kill-off catch-up concessional super contributions, which they opposed in opposition. Any change here is however really unlikely.
Question 2. I’m a shareholder in Magellan Financial Group (MFG)? Should I be concerned about the ratings downgrade from Zenith?
Answer: Zenith hasn’t downgraded Magellan, but has put the fund manager on ‘ratings watch’. Two other research houses, Lonsec and Morningstar, have also acted this way. Financial Planners use these ratings to guide them when recommending managed funds to retail clients. Typically, most planners require a ‘recommend’ or ‘investment grade’ rating from a research hose (such as Zenith) before they will recommend the fund to their clients.
By placing it on ‘ratings watch’, Zenith is signalling to Magellan and its financial planning clients that it is concerned about what is happening at Magellan. The ‘watch’ follows an announcement by Magellan that CEO David George will also be the CIO (Chief Investment Officer) and that Chris Mackay, a founder of the business, was stepping back. Potentially, a ‘watch’ status might lead to a downgrade. Yes, you should be concerned. That’s why the share price fell by 3% today to $10.82. The ‘watch’ is a warning…any real action will come if there is a downgrade.
Question 3: Is Wesfarmers (WES) a buy?
Answer: Wesfarmers is doing it tough because discretionary retailers are out of favour in the market due to higher interest rates and the Reserve Bank trying to slow the economy. With more than 60% of its earnings coming from Bunnings, Wesfarmers is arguably quite exposed to sentiment around housing and interest rates. Supply chain concerns, and inflation, are other negatives.
That said, I think there is some value in Wesfarmers because consumer spending is still remarkably strong. Some of the major brokers agree, with a consensus target price of $47.95, 7.3% above Wednesday’s closing price of $44.68. Sentiment is however mixed, with 2 ‘buy’ recommendations, 1 ‘neutral’ recommendation and 3 ‘sell’ recommendations.
Question 4: How can I invest in the property trust sector?
Answer: Very easy to buy three to five of the major property trusts and create a reasonably diversified portfolio. Alternatively, you can buy an ETF (exchange traded fund), the Vanguard Australian Property Securities Index ETF. This trades on the ASX under the code VAP, and tracks the S&P/ASX 300 A-REIT index (Australian Real Estate Investment Trust index, or property trust index).
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