Question 1: How can I invest in small caps?
Answer: Obviously, you can invest in the individual shares, but it is hard to ensure that you end up with a diversified portfolio.
Alternatively, you can invest through a fund manager. These funds can be actively or passively managed.
A passively managed ETF is ISO from Blackrock/iShares. This ETF tracks the performance of the S&P/ASX Small Ordinaries Index, an index that is based on shares ranked 101st to 300th in market capitalisation on the ASX. Betashares also has an ETF, SMLL, which uses active management techniques as it attempts to outperform the Small Ordinaries index.
There are also listed investment companies such as WAM Capital Ltd (WAM) or Mirrabooka Investments Ltd (MIR). Actively managed, both have strong investment track records. The trick with these listed investment companies (LICs) is to consider whether they are trading at a premium to NTA (net tangible asset value).
Finally, there are several actively managed funds that specialise in this section
A fund to consider is the Eley Griffiths Group Small Companies Fund.
Question 2: What do you think of Elanor Commercial Property Fund (ECF)? It is yielding over 12%. Is this unsustainable?
Answer: I don’t think Elanor Commercial Property Fund (ECF) is a “value trap”. At least not in the short term. They have guided to a distribution of 8.5c per unit, down marginally on the previous year, which based on a share price of $0.73, puts them on a prospective yield of 11.6%. This is, of course, unfranked.
Looking ahead, the challenge the property trust might have is maintaining that distribution as it is fairly concentrated, and the weighted average lease expiry (WALE) is only 3.3 years. They are also reasonably leveraged.
On the plus side, they claim an occupancy rate of 97%, good success in renegotiating leases and a capitalisation rate (used for valuation purposes) above the market average.
I can only find one broker that covers the stock, that is Ord Minnett. They have a “hold” recommendation and a target price of 75c (currently trading on the ASX at 73c).
I guess I am moderately tempted. Because it is a reasonably small trust (only $550m and comprises just 9 buildings in markets from Brisbane and Ipswich to Perth), I would encourage you to do as much due diligence on the individual buildings.
Question 3: What did you think of Pilbara Minerals (PLS) report? Do you think they are a buy at the current share price?
Answer: Pilbara Minerals’ financial report was generally considered a “miss” by most analysts. Higher production and corporate costs meant that the underlying profit of $273m for the half year was about 15% shy of consensus. Revenue and production were broadly in line.
The analysts liked the focus on capex, with capex less than expected and no dividend paid (to help preserve cash).
Pilbara Minerals is the purest way (and my preferred way) to play the lithium market. It is a tier 1 producer with robust expansion plans and an opportunity to participate in mid-stream and down-stream processes. At the moment, the share price totally comes down to the underlying price for the commodity, spodumene concentrate.
I liked PLS at around $3.60 as a reasonable “punt” on the lithium story (given the huge, short position and collapse in the commodity price). It has rallied around 6% today to be over $4.00, so I guess I am a little wary. That said, I am still inclined to be a buyer.
Question 4: If I buy shares in Woodside (WDS), will I get the next dividend?
Answer: Woodside (WDS) trades ex dividend on 7 March. That means that if you buy Woodside shares before or on 6 March, you will also receive the next dividend.
This dividend is 60 US cents, approximately 91.6c AUD cents. It is fully franked. It will be paid on 4 April.