Question 1: I am looking for an exchange traded fund (ETF) like AUDS from BetaShares to hedge our US stocks. Have I missed the boat on capturing an AUD/USD rise?
Answer: It is quite difficult to hedge against an appreciating Aussie dollar. The exchange traded fund from BetaShares, the Strong Australian Dollar Fund or AUDS, is a less than a perfect way to do it. Over the short term, for a 1% rise in the Australian Dollar relative to the US Dollar, it will generate a return of between 2% to 2.75%. The management fee is a high 1.38% pa.
I am not aware of any other easy ways to hedge. Some funds offer currency hedged versions of their products. For example, if you want to invest/track the US S&P 500, iShares has IVV (which is not currency hedged), or IHVV (which is currency hedged).
Will the Aussie dollar keep rising? In the medium term, yes (in my opinion) because it is below fair value and the US dollar is too strong. In the short term, it depends on US interest rates. If the market expects the Fed Reserve to keep tightening and the Australian RBA to be a “slow follower”, the AUD will soften and head back down.
Question 2: We currently have QBE and Suncorp shares in our SMSF and have been thinking of divesting QBE now they have come up in price. However, I’d like to know which of these do you consider the best value for future growth and income to retain in our portfolio?
Answer: For growth, I would probably go with QBE. Three reasons: firstly, Suncorp is divesting its bank assets, which means that it could be a little tied down with this in the short term; secondly, QBE is international which arguably means it is a little more growth focused and possibly less exposed to some of the climate change pressures impacting general insurance in Australia; and thirdly, the brokers clearly think that there is more upside potential with QBE.
According to FN Arena, of the 7 major brokers that follow QBE, all (seven out of seven) have ‘buy’ recommendations. The consensus target price is $15.65, about 31.2% higher than the last ASX price of $11.93. With QBE, of the 7 brokers that follow it, there are 5 ‘buys’, 1 ‘neutral’ and 1 ‘no-rating’. The consensus target price is $13.48, about 15.1% higher than the last ASX price of $11.71.
Question 3: Do the brokers prefer Rio or BHP? Which has the better dividend yield?
Answer: I would never buy a mining company on the basis of forecast dividend yield. Ultimately, they have very limited control over the revenue they receive. They are price takers, dependent on the ruling commodity price.
In terms of which stock they prefer, it is pretty line-ball. They feel both stocks are overpriced. Using the consensus target price as a guide, they see BHP as 5.8% overvalued (consensus target price of $41.95 compared to last ASX price of $44.45), Rio 3.2% overvalued with a target price of $104.57 compared to a last ASX price of $108.07. On forecast yield, BHP is marginally higher at 7.0% for FY23.
Question 4: With all the discussion and argument about super balances, why not make the aged pension universal and then make all super pensions taxable? Would this be revenue positive or negative for the Government?
Answer: I think it is an interesting idea. But my guess it that unless the tax rate on super pensions was high, it would probably be revenue negative for the Government and hence won’t see the light of day. Also, the politics of paying the aged pension to a very wealthy person who doesn’t need it just wouldn’t look right.
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