Question 1: Could you please provide a run down on the proposed super tax on a 2 member SMSF with individual accounts having balances of a $3.5m and $2m, where the fund has equal value of assets comprised of commercial land, farming land and equities?
Answer: Firstly, the tax only applies to members with balances of more than $3m. So it will have no impact on the member with a balance of $2m.
Secondly, unless the assets are segregated, the composition of the assets is irrelevant. In very simple terms, if the SMSF has a total balance of $5.5m with 2 members, individual balances of $2m and $3.5m respectively, ten elevenths (10/11) of the investment earnings will be taxed at 15%, and one eleventh (1/11) will be taxed at 30%. The higher tax rate will only impact the second member, and then only to the extent of the excess over $3m.
Investment earnings will be calculated by measuring the change in the total superannuation balance over the 12 months, plus withdrawals and less contributions. Because it is based on the superannuation balance, investment earnings will include unrealised gains.
The new tax (if passed) won’t start until the 25/26 financial year.
Question 2: I have been lucky enough to do well out of Mineral Resources (MIN). I am thinking of taking some profits and revesting the money in BHP. What do you think?
Answer: Mineral Resources (MIM) is arguably today a “lithium stock” rather than an iron ore stock. Although iron ore, mining services and energy are important to the company, mining and processing of lithium generated about 70% of earnings last year (on about 35% of revenue).
I wouldn’t argue with taking some profit of MIN, and although I am a huge fan of BHP and it is more diversified, I don’t think it is a ‘like for like’ comparison. Despite the run up in MIN’s share price, the analysts are more positive on MIN than they are on BHP. According to FN Arena, the consensus target price for MIN is $95.61, about 10% higher than the last ASX price of $86.69. For BHP, the consensus target price is $43.90, about 8.1% lower than the last ASX price of $47.75.
By all means take a profit on MIN, but it really is a view on lithium rather than steel making commodities.
Question 3: What is the significance of the inverted yield curve? Why do they say it is a predictor of recession?
Answer: We are talking about the USA, rather than Australia (in Australia, the yield curve is still marginally positive). In the USA, the two year government bond yield is touching 5.0%, whereas the 10 year government bond yield is very close to 4.0%. Normally, interest rates increase as the term increases – so an inverted curve (where longer term rates are lower than short term rates) is somewhat unusual.
Historically, inverted curves have been good predictors of a recession. The curve is saying that in the medium term, the US Federal Reserve will ease interest rates. The most likely reason is that the economy will slow, and the Fed will ease rates to try to drive economic growth.
Question 4: Is James Hardie (JHX) dropping out of the ASX 20 index? Will this have any negative impact on its share price?
Answer: S&P manages the key market indices and every quarter, makes changes. In the March quarterly rebalance, which takes effect on Monday 20 March, James Hardie (JHX) is being replaced by South32 (S32) in the ASX 20..
There aren’t many fund managers who manage to a “top 20” mandate but there are some index funds. The latter will need to adjust their portfolios. Overall, it is marginally negative for JHX and marginally positive for S32.