1. I’ve just been reading about TraCRs available on the CHI-X exchange. I hadn’t heard of them before. A google search brought up an article predicting they would be a game-changer for SMSFs. Any thoughts on them compared to direct investment in US shares? How does Deutsche benefit from these products?
TraCRs (or transferrable custody receipts) allow you to buy US shares in Australian dollars in Australia. They trade on Chi-X (which is an alternative exchange to the ASX). This is seamless to most investors – you just place your order through your broker’s online investing platform. They settle on CHESS. There are around 30 companies quoted.
For example, you can buy a share in Amazon under the code TCXAMZ. It will be quoted and settled in Australian dollars. While you aren’t technically a shareholder in Amazon, you will have the same entitlement to dividends and other corporate actions, and upon payment of a small fee, you can convert the TraCR to an underlying share.
Deutsche is a market maker, whose job it is to make sure that the TraCRs trade on Chi-X close to the underlying share value. So for example, if Amazon shares rise by 2% on Wall Street, the TraCR here should also go up by around 2% (assuming the Aussie dollar doesn’t move).
What do I think? You are right, it does make it really easy to invest offshore, and for SMSFs, they don’t need to open up a separate international share trading account or purchase foreign currency. The main issue locally is going to be liquidity – and when I looked today at the spread between the bid and offer, it was around 1.25% to 1.5%. Also, while CommSec and CMC clients can access Chi-X, not all brokers offer this service. Early days.
2. I’m interested in investing in cyber security. What is your opinion onBetashares global cybersecurity ETF (HACK)? Any other suggestions?
I like the idea of HACK. However, it is a passively tracking index ETF (it tracks the NASDAQ Consumer Technology Association Cybersecurity Index). While its performance on paper looks ok (1 year to 30 April 5.78%, 3 years 15.9% pa), it has quite badly underperformed compared to the NASDAQ 100 index (25.27% and 23.48% pa for 3 years) so I don’t know what this says about cybersecurity or the stocks that make up the index.
No locally listed direct alternatives. There are other technology ETFs, such as ROBO and ACDC from ETF Securities.
3. Is it a good time to invest in gold stocks? Evolution Mining (EVN) has been referenced a few times by Julia Lee in your interviews. What is your view and preference?
I am no gold bull but a lot of people are, and it is definitely in an uptrend (in US dollars). They argue that 0% interest rates, Central Banks printing money and USA/China tensions will see gold maintain its “safe-haven” status and generate ongoing demand.
My advice to gold bulls is just to buy the GOLD ETF (the ASX code is GOLD). Only two risks – gold price and the Aussie dollar. If you want to leverage and take 4 risks (gold price, Aussie dollar and cost/volume of production), buy gold shares. Evolution Mining is a good mid-tier miner. Analysts, however, think it is over-priced with a consensus target price of $4.88 compared with a last market price of $5.85.
4. What do you think of Sydney Airport (SYD) and Transurban (TCL) to buy now?
I think both stocks are a touch stretched, and while I like them at the right price, I don’t think either represents great value at the moment.
The broker analysts largely agree. On Transurban (TCL), they have a valuation of $13.25 compared to the current price of $14.95, so potentially 11.4% overvalued. On recommendations, there are 2 buys, 3 neutrals, and 2 sells. The forecast distribution yield is just 3% for FY20 and 3% for FY21 (largely unfranked).
With Sydney Airport (SYD), they are a little more positive, with 3 buys, 2 neutrals and 2 sells. The consensus target price is $6.40, 4.5% higher than the current market price of $6.12. The forecast distribution yield is 0.3% for FY20 and 3.7% for FY21.
One of the things that concerns me is the competition risk for Sydney Airport from the new Western Sydney Airport. I seem to be the only one talking about it – but I reckon at some time in the next couple of years, the market will latch on to this.
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