Question: I am considering selling some of my big four bank and five other big-cap high yield shares and buying into top 20 and high yielding Australian ETFs. I am thinking I will get more diversity for capital growth for the same dividend return. Is this strategy a worthwhile option? Also, I already have exposure to mid-cap shares through a LIC.I cannot find a LIC that just covers top 20 shares – do you know of any?
Answer (by Paul Rickard): It is certainly one way you can play the market. I think if you want broad based exposure, you should consider the majors Listed Investment Companies (LICs) such as Argo, AFIC, and Milton. While they invest in more than just top 20 stocks, they are pretty heavily weighted to the top part of the market and put quite a high weighting on owning major cap shares paying fully franked dividends. Argo and AFIC are trading at horrendous premiums to NTA (particularly Argo) – so I would look at Milton Corporation, which is trading very close to its NTA.
Question: Currently I have a SMSF with two individual trustees. I want to replace the two individuals as trustees with a corporate trustee (same two individuals as directors of the trustee company, and same two members). My SMSF investments consist of only shares, bank accounts and term deposits. In order to transfer my trusteeship from individuals to a corporate trustee is it just a matter of minuting the change and writing to the banks and the shareholding companies advising of the transfer of trusteeship? As such, do the bank account numbers, share reference numbers and holder identification numbers remain the same?
Answer (by Tony Negline): The banks and share registries will want to see a trustee minute showing that the trusteeship has changed. Therefore:
- The ATO must be informed;
- The share registries will charge a fee to make the change; and
- Before proceeding, check with each bank and share registry what each of their specific requirements are, as they can all be slightly different, especially with term deposits (I’ve heard of some very strange demands such as having to terminate one term deposit with penalties and then having to start another with a market lower rate!)
Question: Do you have an opinion on whether IFM is still a good medium to long term growth stock, and whether at current levels one should be adding more? Knowing that the Montgomery Fund is a substantial shareholder does give me confidence.
Answer (by Paul Rickard): Thanks for your question on Infomedia (IFM). Whenever a company goes through a period of friction between the CEO/Board/Shareholders, the share price drops – and that is what you have been seeing at IFM. It sounds like this is now largely over, although the stock remains relatively friendless. At around $0.76, it is trading on a reasonable multiple of 16.2 times FY16 earnings. Not bad value, however, not outstanding value.
My caution on this little micro-cap, with almost no analyst coverage is – what is going to be the catalyst to take the share price higher? It will need an institution to step in and drive it up. Perhaps the Montgomery Fund might step in.
Question: I am considering this investment for my SMSF- new issue, Australian Unity Bonds – Series B. Would appreciate your views on it. Also I am new to this sort of investment and wondering if at the end of the term you just get your capital back?
Answer (by Paul Rickard): These are effectively floating rate notes that mature in 5 years’ time and will pay interest at a margin of 2.8% over the 90 day bank bill. They are not subordinated – but they are also unsecured debt obligations.
There is, however, no higher ranking securities and also a negative pledge not to issue any higher ranking securities. Will you get your capital back? Australian Ratings has assigned Australian Unity a BBB+ rating, which means: a Credit Rating of BBB+ represents a moderate degree of creditworthiness with adequate credit attributes.
A BBB+ rating represents a good capacity to meet financial obligations in a timely manner. No one has a crystal ball, however I would say that you should have a reasonable degree of confidence that you will get your money back. As always, diversification is the name of the game to minimize specific risk.
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 regards to your circumstances.