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Questions of the Week

Question 1: Macquarie Group (MQG) is doing a fund raising for further investment. I purchased shares at $64 and thought maybe it was now getting a little expensive. Your thoughts as to further investment in Macquarie.

Answer (by Peter Switzer): Through a share purchase plan, max $15,000, price capped at $120.00. Yes, I would participate.

Question 2: There has been much talk about the US inverted yield curve and the demand for 10 year US treasury bills but what impact does that have on Australian government bonds and/or investment grade corporate bonds?

Answer (by Paul Rickard). A very big impact, and a key reason why Australian Government Bond yields are below 1%. The 10yr Australian Government Treasury Bond is currently yielding 0.91%. While the RBA’s cut to the cash rate has been an important factor, there is no doubt that our bond market closely follows the trajectory of the US market.

Corporate and investment grade bond yields have also tumbled.

Question 3:  What’s your thought about Alumina (AWC)? Is it a good time to buy? What do you think about entry price?

Answer (by Paul Rickard). I am struggling to get too excited about Alumina (AWC). The outlook for alumina/bauxite prices is mixed, at best.

The brokers are also a bit mixed on the stock. According to FN Arena, there are 2 buy recommendations, 3 neutral recommendations, and 1 sell recommendation. The consensus target price is $2.375, about 10% higher than the last price of $2.16. Individual brokers range from a low of $1.80 to a high of $2.95. The brokers expect the dividend to fall to around 12.8c (Aust dollars) in FY19, rising back to 17.0c in FY20. This compares to the circa 31.3c paid for FY18.

Question 4: I loved the Graeme Colley article the other week. With the Transfer Balance Cap (TBC) – can it only be reduced to $0, or can it go negative? For example, if I transfer $1 million from accumulation into pension stage, so TBC = $1 million, and pension payment of 4% is made (age under 65), but balance increases to $1.1m due to investment earnings, then full balance gets returned to accumulation stage (or withdrawn as a lump sum). What is the TBC at that point? Is it -$100K or $0?

Answer (by Graeme Colley, Super Concepts): Yes, it is possible for a person’s TBC (transfer balance cap) to go negative. In the example, after returning the pension to accumulation phase or withdrawn from the fund, the TBC will then be – $100,000.

Question 5: Should I accept AP Eagers (APE) offer to purchase my shares in Automotive Holdings Group (AHG)?

Answer (by Paul Rickard): Since AP Eagers has already gained control with more than 73% of acceptances, I can’t think why you would want to remain a minority shareholder in Automotive Holdings Group. The only other option is to sell the shares in AHG on market, which (on paper) will be at a slightly less attractive consideration.

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.