Question 1: I’ve gradually moved most of my SMSF portfolio into passive Exchange Traded Funds (ETFs). With Australian equity ETFs, I use VAS (Vanguard Aust Shares), VHY (Vanguard Aust Shares High Yield) and MVW (VanEck Australia Equal Weight). While it would reduce income, I’m increasingly inclined to move funds out of VAS and VHY into MVW because the traditional market cap weightings that VAS and VHY use mean large amounts are invested in CBA, the other large banks and Wesfarmers, all of which are at very high values. What do you think?
Answer: I was really surprised to go back and look at the performance of the VanEck Australian Equal Weight ETF (MVW). This is an ETF that takes a position in roughly 50 to 70 stocks and “equally weights” each stock. It tracks an index compiled by MarketVector. For example, CBA and Lynas (LYN) are both weighted at approximately 1.4% in MVW, whereas in an ETF that tracks the SP/ASX 200 index such as IOZ or STW, or the S&P/ASX 300 for VAS, the respective weights would be around 8% and 0.2% respectively.
I compared calendar year total returns as follows:
Over the 10 periods, the equal weighted index has outperformed the S&P/AASX 200 in 7 years and underperformed in 3 years (including calendar year 2024). Over the whole 10 years (and 5 years and 7 years), the equal weighted index has outperformed.
The disadvantages of the MVW ETF (compared to IOZ, STW or VAS) are a higher management fee (0.35% compared to typically around 0.10% for the others), and lower income/dividend returns. The franking component is also likely to be lower (due to the “underweight” position in the big banks and miners).
Looking ahead and thinking that the banks are expensive relative to the overall market, I can see your logic in reweighting out of VHY (and VAS to a lesser extent) towards MVW. Longer term, I am probably a little more wary, so I am not sure that I would go more than 50%. I do find the performance results quite surprising.
Question 2: Do the broker analysts prefer Woolworths (WOW) or Coles (COL)?
Answer: There is not much in it. Morgan Stanley now prefers Woolworths, Citi prefers Coles. On target prices, they see marginally more upside in Coles. Consensus is $17.80, about 4.5% higher than the last ASX price of $17.03. According to FN Arena, there are 4 “buy” recommendations for Coles, 1 “neutral” recommendation and 1 “sell” recommendation. For Woolworths, consensus is $33.67, about 0.7% higher than the last ASX price of $33.42. According to FN Arena, there are 3 “buy” recommendations, 2 “neutral” recommendations and 1 “sell” recommendation. Traditionally, as the market leader, Woolworths has traded on a higher multiple than Coles. It has come in a bit recently, and now sits around 23x for Woolworths and 20x for Coles.
Question 3: Why can’t I trade in Boral (BLD) shares?
Answer: Kerry Stokes and his associates (via the Seven Group) have issued a notice of compulsory acquisition. They now own more than 90% of Boral and are moving to acquire all the remaining shares. Boral will be delisted and will not trade again on the ASX.
Question 4: Is there any change to the transfer balance cap this year?
Answer: No, it is the same as last year at $1,900,000. The transfer balance cap governs the amount of monies you can have in the pension phase of super. As the cap is indexed, there is a god chance that it will increase to $2,000,000 next financial year (FY25).
