Question: I am holding a parcel of Tabcorp (TAH) with a gain. Do you think it is time to take the profits off the table?
Answer (By Paul Rickard): The performance of Tabcorp has really surprised me this year. I included it in our Income Portfolio at the start of the year on the basis it provided a reasonable yield and relatively low risk. It was $4.84 at the time. As the Tatts/Tabcorp merger meandered along, it got smashed, falling to under $4.00. When the merger was approved (which was always going to happen), it has rallied strongly to around $5.17.
In terms of the brokers, they see Tabcorp as pretty fully priced. According to FN Arena, the current target broker price is $4.84 (range $4.10 to $5.25).
The Tabcorp/Tatts merger has been thoroughly planned, and while the lotteries business is pretty sound, the wagering business faces ongoing competition from the online bookmakers. Given the rally in price, I would be tempted to lock in some profits.
Question: Can you explain what a synthetic ETF is and how it’s different from an ETF tracking, say, the ASX 200?
Answer (By Paul Rickard): Most Exchange Traded Funds (ETFs) invest in the underlying stocks that make up an index, or the underlying commodity. A synthetic ETF invests in a derivative of the index or commodity. For example, for an ETF that tracks the gold price – some ETFs will actually own the physical gold, while a synthetic ETF may own gold futures.
Most ETFs listed on the ASX are investing in real assets.
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