Question of the Week

Questions of the Week

Co-founder of the Switzer Report
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1. With the Australian dollar above 71cents, does that mean the performance of my overseas investments has been impacted? 

If you are not hedged, yes. Compare the performance of the benchmark exchange traded fund IVV, which tracks the US S&P 500 index. It is unhedged. There is also a currency hedged version, which trades under the ASX code of IHVV. 

Since 23 March, the bottom of the market meltdown and also roughly the time the Aussie dollar hit 57c, IVV has risen from $388.49 to $456.87, a gain of 17.6%. IHVV has risen from $265.73 to $389.41, a gain of 46.5%. This massive difference is due to currency. 

2. Do you think that infrastructure stocks would have any potential over the next few years? Which ones might benefit? Is there an infrastructure ETF that you might recommend?

I don’t see infrastructure as a standout local sector on the ASX. 

I would be more inclined to invest globally in regard to infrastructure – two diversified funds to consider are MICH from Magellan and ALI (Argo Global Listed Infrastructure). The latter closed on the 17th July at an 8.7% discount to NTA (net tangible assets). 

3. What does Origin Energy (ORG) mean when it says,recognise non-cash charges in FY 2020 of $1.2bn?

Under Australian Accounting Standards, companies are required to “test” and “confirm” the carrying value of assets on their balance sheet. 

Because the wholesale price of oil has fallen (and as a flow on, the price of LNG), Origin is impairing its assets by around $1.2bn. Essentially, it is writing down the value of its assets because it thinks what it will generate from them in the future is lower than when it purchased those assets. They are not worth as much! 

As the write down is a ‘book’ entry, there is no impact on cash. It will however report a statutory loss because the offsetting accounting entry is a charge to profits. 

4. Whats your opinion on Class (CL1)?It is struggling to get ahead, 1 step up, 2 steps back and far from its all-time high. 

Software provider Class (CL1), which is involved in software for SMSFs, super and platforms, has gone off the market’s radar. A bit of disquiet from shareholders and Directors. One step forward, two steps back 

The only recent analyst cover I can find is Ord Minnett with a “buy” and target of $1.50 (current price $1.37). 

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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. 

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