Question: A financial advisor has suggested that I invest a sizeable amount into Dexus (DXS). I’d appreciate your views.
Answer (by Paul Rickard): I wrote about Dexus the other day. Here is the link.
I think property trusts focussed on commercial property in Sydney/Melbourne offer reasonable value (reliable income without too much risk). As for “sizeable”, that is something you should discuss with your advisor and confirm it is consistent with any diversification objectives.
Question: With the likely election of a Labor federal government next year, I believe we are heading for a disaster for self-managed superannuation funds. Labor will destroy franking credits, and individuals signing petitions will only open the floodgates for tax audits. Looking at the Switzer business, a Labor win will not be a good result. The party will also change negative-gearing policies, which will hurt many property investors. In relation to the above, what does the Switzer Report recommend for investments? I back a total pull-out of all banking shares and Telstra and investing overseas, especially as the Australian dollar will be US60c by Christmas 2019.
Answer (by Paul Rickard): Thanks for the comments and question. We don’t share your view about a looming “disaster”, although Labor’s proposed changes to dividend imputation and negative gearing/capital gains tax discounts are negatives. Importantly, the abolition of the refunding of excess imputation credits only impacts some shareholders – super funds in pension mode, potentially some super funds in accumulation mode, and other low or zero rate taxpayers.
It has no impact on foreign investors, no impact on personal investors paying tax at a rate of 30% or more, and no impact on most institutional (non-pension) funds. For SMSFs in pension mode, their bank shares will still be yielding (on current prices) about 6% to 6.5%. This is arguably still somewhat attractive to a term deposit paying 2.5%, or a property trust yielding 5%.
As Peter outlined in the Switzer Report this week, we don’t see the current market as a “crash” or an imminent economic recession. Depending on your risk profile, we recommend a marginally overweight position in Australian equities.
Question: Having inherited BHP shares in my own name (not in an SMSF) with an original purchase price of $12, is subscribing for the buyback effective if my tax rate is very low?
Answer (by Paul Rickard): Thanks for the question. If your “very low” marginal tax rate is less than 30%, then it will generally make sense to accept (the lower the rate, the more attractive it becomes). If you accept, you will then need to decide what to do with your cash, which may include buying the BHP shares back. I will write about this in next Monday’s Switzer Report.
Question: What is the future of the banks in your eyes? ANZ and NAB seem to be sold off again, even though they maintain their dividends. Is this mainly computer trading adding to the volatility? I just bought a few more the other day thinking they were a good buy.
Answer (by Paul Rickard): Up today (Monday) in a down market, down last Friday in an otherwise up market. As we have reported, we remain positive on the banks and in dips, are buyers. But market sentiment is negative, and until the Royal Commission is over and Labor leader Bill Shorten’s threat about dividend imputation has been resolved, gains will be tempered.
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.
