Question 1: We are considering buying some Blackmores (BKL) shares for our SMSF.
The current price near $91 appears a bit overpriced and we would look to get in around $88-$89 if they retreat further. Your thoughts on the quality and long term prospects for BKL would be appreciated.
Answer (by Paul Rickard): I can’t quite see the hurry to invest in Blackmores (BKL). It is still trading on a multiple of 25.5x FY19 earnings and 22.9x FY20 earnings. At a recent update in late May, the company confirmed “modest year on year revenue growth” and “second half NPAT weaker than the first half”. It is still without a CEO, and another key member of the Executive team resigned recently.
After being a “star” with the brokers and the market, it is now on the outer. According to FN Arena, of the 6 major houses that cover the stock, there are 5 neutral recommendations and 1 sell recommendation. The consensus target price is $86.02 – about 3.5% lower than the last price. Range is a low of $82.50 up to a high of $95.00.
Question 2: Do you think fixed income investment funds are a safer option than equity investing? Also what is your view of ETFs? Is liquidity an issue?
Answer (by Paul Rickard): Fixed interest investment (such as bonds) are generally lower risk than equity investments – and that is why they pay a lower return. They are not riskless, however.
On a “mark to market” basis, if interest rates rise, prices of fixed interest securities fall. If interest rates fall, prices increase. That is why if you have been an investor in a fixed interest fund over the last six month, you have seen the value of the investment go up because interest rates have come down.
If you hold your bond till maturity, you should get the face value of the bond ($100) back. However, not all borrowers are capable of repaying and some default. This is known as credit risk. Bonds issued by governments, state governments and banks are typically very “safe”, and that is why the interest rate they pay is so low. Bonds issued by investment grade corporations are relatively safe, while others are less safe and hence pay a higher interest rate.
One way of investing in fixed interest securities is through an exchange traded fund (ETF). There is no issue with liquidity. Vanguard’s VAF or iShares IAF may be worth considering.
Question 3. My husband and I retired this financial year. He retired in Aug 2018 and I retired end on Feb 2019. Pensions were created in our SMSF on these dates. Is tax still payable on income and capital gains proportionately up to the dates of retirements or is all income exempt for 2019?
Answer (by Graeme Colley, Executive Manager, SMSF Technical and Private Wealth at Super Concepts): As you and your husband were in accumulation and pension phase at various times during the year you can expect that a proportion of the fund will be in accumulation phase and pension phase during the 2019 financial year. The proportion of the fund’s income that the fund’s actuary considers to be in accumulation phase will be taxed at 15% which will be offset by any franking credits on dividends received.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
