Australian Investing Thread

[Juan Ponce de Leσn]

property trust stocks have done very well the past few years due to falling interest rates. They will get slaughtered when rates start to rise.

When will that be?  Australia is mortgaged to the hilt, house prices are through the roof since the last cycle of rate rises.  The second rates even think about rising people will be foreclosing/forced selling and putting a brake on the economy quick smart = no more rate rises.  Just look at the rest of the world.  Even the thought of a rate rise in the US sends shockwaves through global markets.

[englyn]

I had a look at AFI's holdings, and they're pretty much the same as VAS.
(http://www.afi.com.au/List-of-Investments.aspx)
(https://au.finance.yahoo.com/q/hl?s=VAS.AX)

So I'm leaning more towards VAS, because it seems more transparent and sticks closer to the market, while LIC's operate more like shares in a company.
The investments in AFI look pretty concentrated too, so not much benefit there.

portfolio v3:

30% VTS
30% VEU
30% VAS or AFI or ARG or what-have-you (still leaning towards VAS unless convinced otherwise)
10% VAP

Any thoughts?

When I researched ARG before starting to buy it, it did seem to weight the holdings slightly away from the top few, so the diversification's a bit better. I suppose it's a natural follow on from that, that it's done worse than the index recently, while the miners and banks have been doing particularly well. I have about twice as much VAS as I have ARG, and I'm fairly pleased with that ratio.

[marty998]

property trust stocks have done very well the past few years due to falling interest rates. They will get slaughtered when rates start to rise.

When will that be?  Australia is mortgaged to the hilt, house prices are through the roof since the last cycle of rate rises.  The second rates even think about rising people will be foreclosing/forced selling and putting a brake on the economy quick smart = no more rate rises.  Just look at the rest of the world.  Even the thought of a rate rise in the US sends shockwaves through global markets.

Just because markets get spooked is no reason not to raise rates if necessary. You can't have the tail wagging the dog, and the longer rates are left low, the worse the inevitable crash will be.

If inflation picks up in Australia it's a near certainty that the RBA will raise rates. Yes there will be pain. That is the point. To stop further "irrational exuberance" as the former governor put it.

[FFA]

i've added some ARG recently since it came back to NTA flat, and also have some BKI (another traditional style LIC). But I still have the core in VAS, as well as some MVW for a better diversified ETF.
For info - EX20 by betashares has just came out and might also be a good diversifier to consider for those interested in reducing concentration to the top20.

[terrier56]

If inflation picks up in Australia it's a near certainty that the RBA will raise rates. Yes there will be pain. That is the point. To stop further "irrational exuberance" as the former governor put it.

Very true and I am guessing a recovery in oil price will almost certainly lead to pressure on inflation since the costs are passed on to every good and service.

[Daniel S]

I'm wondering if any Aussie investors would consider build their portfolio on entirely NYSE US listed ETFs, using a local broker like CommSec international or similar (I think there are plenty of options)?

Some possible advantages:
- Get away from the top heavy and finance/mining heavy weightings in the ASX200
- Much wider choice of ETFs
- Most commentary and analysis is US-centric. How well will these same strategies work outside of US? A non-issue if you just do it exactly like they do.

Some disadvantages:
- Introduced currency risk (could be a potential benefit)
- Broker exchange rates could be poor
- No franking credits
- Possibility of increased counter-party risks

I'm throwing this out there because I've been looking at some of the more diverse portfolios on portfoliocharts.com and wondering how some of these could be implemented from Australia.

How about attempting to emulate the more diversified portfolios using funds, and/or ASX listed ETFs (or LICs)? Anyone doing this to implement an Aus-based portfolio like Coffeehouse, Permanent Portfolio, Golden Butterfly, Merriman etc? How is it working out?

[PDM]

I'm wondering if any Aussie investors would consider build their portfolio on entirely NYSE US listed ETFs, using a local broker like CommSec international or similar (I think there are plenty of options)?

Some possible advantages:
- Get away from the top heavy and finance/mining heavy weightings in the ASX200
- Much wider choice of ETFs
- Most commentary and analysis is US-centric. How well will these same strategies work outside of US? A non-issue if you just do it exactly like they do.

Some disadvantages:
- Introduced currency risk (could be a potential benefit)
- Broker exchange rates could be poor
- No franking credits
- Possibility of increased counter-party risks

I'm throwing this out there because I've been looking at some of the more diverse portfolios on portfoliocharts.com and wondering how some of these could be implemented from Australia.

How about attempting to emulate the more diversified portfolios using funds, and/or ASX listed ETFs (or LICs)? Anyone doing this to implement an Aus-based portfolio like Coffeehouse, Permanent Portfolio, Golden Butterfly, Merriman etc? How is it working out?

Agree with the thinking on avoiding too much exposure to the ASX200. Here is a some lazy analysis of the top 20 companies in the ASX from a post I made in a similar topic elsewhere:

"Here are the top 20 companies (by market cap in the ASX50):

Commonwealth Bank – Bank
Westpac Banking Corp – Bank
ANZ Banking Group Ltd – Bank
National Aust. Bank – Bank
BHP Billiton Ltd – Mining
Telstra Corporation – Telco
Wesfarmers Ltd – Retail + Industrial (mining exposure)
CSL Ltd – Biotech
Woolworths Ltd – Retail
Macquarie Group Ltd - Investment Bank
Scentre Group Stapled Securities – Westfields Australia – Retail
Woodside Petroleum – Oil and Gas
Transurban Group Ordinary Shares/Units FP Triple Stapled – Infrastructure/Toll Roads
RIO Tinto Ltd - Mining
Westfield Corp Stapled Securities – Westfields Rest of world – Retail
Brambles Ltd -Transport/Logistics
Amcor Ltd – Manufacturing
Newcrest Mining - Mining
Suncorp Group Ltd – Bank
Ramsay Health Care – Health

Hows that sweet sweet diversity? No risks here...banks, mining and retail... "

I already work in a mining exposed industry and think the current housing boom will end in tears for the banks. We have limited our ASX exposure by buying VGS (international shares ex Australia) and VGE (emerging markets) so far.

[FFA]

For info - EX20 by betashares has just came out and might also be a good diversifier to consider for those interested in reducing concentration to the top20.

As per my earlier post, this might be a product to consider to supplement VAS and improve diversification if you're worried about top20 concentration. MVW is another I've posted about in the past which also addresses the same. I hold MVW but not EX20. Still by far my core holding is VAS.

[Grogounet]

I'm wondering if any Aussie investors would consider build their portfolio on entirely NYSE US listed ETFs, using a local broker like CommSec international or similar (I think there are plenty of options)?

Some possible advantages:
- Get away from the top heavy and finance/mining heavy weightings in the ASX200
- Much wider choice of ETFs
- Most commentary and analysis is US-centric. How well will these same strategies work outside of US? A non-issue if you just do it exactly like they do.

Some disadvantages:
- Introduced currency risk (could be a potential benefit)
- Broker exchange rates could be poor
- No franking credits
- Possibility of increased counter-party risks

I'm throwing this out there because I've been looking at some of the more diverse portfolios on portfoliocharts.com and wondering how some of these could be implemented from Australia.

How about attempting to emulate the more diversified portfolios using funds, and/or ASX listed ETFs (or LICs)? Anyone doing this to implement an Aus-based portfolio like Coffeehouse, Permanent Portfolio, Golden Butterfly, Merriman etc? How is it working out?

Just doing this ATM with Interactive Brokers
I leave all my Australian investments with LICs that will capture value
The rest is done via IB directly using Paul Meriman's recommendations, which are not available in Australia EFT

So yes, completely possible

[Wadiman]

Thinking about the EX20 ETF since raised here.

As this is a very new ETF with limited liquidity wondering if anyone had thoughts on the pros/cons in buying into it early?

Also - called up Betashares and asked them about likely franking credit % - they indicated about 50%

[marty998]

Liquidity doesn't really matter - units get created and removed as people buy in and out via market makers.

The problem is tax and distribution related. If you have a signifiant investor redeem out, then it will cause CGT problems for everyone else. Alternatively if you get very large investors come in mid quarter, it may dilute that quarter's dividend significantly.

[FFA]

hi marty998, those are hidden issues in all managed funds. I thought the CGT issue would be limited as the fund is brand new. So cost base is basically same as current market. More an issue for older funds where there could be substantial embedded gains.
Regarding the distribution case, I could see that more likely as the fund is growing from scratch. But even still I don't think you really get penalized. In that scenario if a large inflow occurs after many stocks in the portfolio already went ex div, yes your distribution will be reduced maybe it will be 7c instead of 10c. But the unit price will only go down by 7c instead of 10c on the ex div date. If you consider capital plus dividend, I'm not sure it's that much of an issue for most people to worry about, unless I'm missing something?

[FFA]

hi wadiman, I haven't rushed into EX20 as yet but I probably will at some point. Liquidity doesn't seem an issue I've been watching it now and then, the markets seem very tight. My concern is more valuation as the mid and small caps are well above historical norms, and large caps are cheaper than usual. There are some valid reasons for this (especially the challenges for many of the top20), but I always expect some reversion to the mean. The large caps are doing better recently and if that continues and the smaller stocks gravitate down a little I would be more inclined to add EX20. Also bearing in mind I've already been shifting my portfolio in this direction since January, with MVW and some LIC's.

[Daniel S]

Just doing this ATM with Interactive Brokers
I leave all my Australian investments with LICs that will capture value
The rest is done via IB directly using Paul Meriman's recommendations, which are not available in Australia EFT

So yes, completely possible

Thanks for the reply. Are you happy with IB? How do they compare to say NabTrade which charge 0.11% brokerage and a 0.50% custody fee if no trades in a year? How are the spreads?

[FFA]

You may want to check on the US estate tax issue. It comes up sometimes as a reason people might choose Oz domiciled ETF's instead of US based (i.e. VGS instead of VTS/VEU). maybe a non-issue, but worth understanding before you start a long term plan to accumulate assets.

[englyn]

Can anyone provide any more info on this estate tax? I don't even know where to start looking, and I'm afraid if I google it I will get a billion unhelpful results

[bigchrisb]

The best guide I have found to different countries tax systems is:

http://www.ey.com/Publication/vwLUAssets/2013-international-estate-and-inheritance-tax-guide/$FILE/2013-international-estate-and-inheritance-tax-guide.pdf

Its long and complex, refer page 334 for the US parts.

My reading is (do your own research):
- The US has an estate tax of 40% at death.
- For US citizens there is a $5m exemption (so you would only be taxed estate tax on the value above this)
- For non resident aliens (the rest of us), this limit is only $60k.  You are taxed 40% of the value of the balance at death.   This is a big deal.

I don't know how effective the cross border audit is of these.   I suspect (but haven't tested) that holding these in a trust will get around this issue (ownership doesn't change on death).

[FFA]

Hi englyn, here is a relevant thread -

http://forums.whirlpool.net.au/archive/2531401

I haven't seen any 100% clear answers online. The only way to be confident would be to take professional tax advice. But from what I deduced it seems reasonably safe provided you remain an Australian resident and the tax treaty with the US remains in place. As I understand, Australian residents should be exempt from US estate taxes up to an asset threshold of US$5 million or thereabouts. However there are some other online posters who state quite authoritatively that the estate tax would apply for any assets beyond $60k. I don't think they are correct but those opinions have blurred the situation. And in any case there is risk that tax regulations/treaties will change. So buying an Australian domiciled ETF seems safer.

I decided mostly for other reasons to gradually switch my VTS/VEU over to VGS. I'm in no hurry to do so but feel it will be simpler this way, and have already started.

[JuicyCrab]

Hey guys,

Got a DRP question. I have a small portfolio of IOZ (ASX200 index with ishares), a recent dividend payout of $220.41 paid on 17/10/16. This resulted in an allocated +9 of shares reinvested into IOZ, this would mean a price of $24.49 ($220.41/9) . On the 17/10/16 it has a high price of $22.25, so how on earth did I only receive 9 shares at $24.49 per share? :S

Sorry, I am just dumbfounded by this and it appears that DRP is not a cost effective way of receiving dividends. I understand there would be a 'spread' cost for reinvestment without brokerage costs but surely not this high.

Thoughts?

[FFA]

Just crossed with your post bigchrisb. As I understand, the tax treaty affords Australian residents the same exemption as US citizens. I think superannuationfreak has shared the save view which gave me confidence.

However as I said if you really want to be sure, take professional advice [and tell us the answer here :) ] , or avoid buying US based assets.

[FFA]

Hi juicycrab, the DRP price is usually fixed earlier, around the time of the dividend announcement. The market has fallen a bit in the past few weeks. Also might be some rounding as you can only have a round number of shares. Usually if there is a balance it is carried forward to the next dividend. This would inflate your effective DRP purchase price if you are not accounting for the balance carried forward.

[JuicyCrab]

Hi juicycrab, the DRP price is usually fixed earlier, around the time of the dividend announcement. The market has fallen a bit in the past few weeks. Also might be some rounding as you can only have a round number of shares. Usually if there is a balance it is carried forward to the next dividend. This would inflate your effective DRP purchase price if you are not accounting for the balance carried forward.

Ah yes that makes sense. Sorry I was told you could own decimals of shares, so a carry over balance on partial amounts makes sense :).

[englyn]

Thank you very much.

Hey, Juicycrab, have you found the Perth meetup thread yet? It's usually very active :)

[Daniel S]

Thanks for the discussion on estate tax. If it is not exempt above $60k, then the strategy is not worthwhile. I might put the question to NabTrade and see if they can answer.

[FFA]

Glad to help, better to be aware of these things at the start. Once you're set up change-over costs can be a hassle. Would be interested to hear what NABtrade say, my bet is "we don't give personal tax advice ... " Please let us know if it's anything more insightful.

[Juan Ponce de Leσn]

So, If you think you're about to die, best jump onto your phone and sell your VTS and VEU.  You can even do it one-handed as you hang from the cliff by the other hand.

[chasingthegoodlife]

Anyone else having issues with the Commsec app (iPhone)?

It's telling me I need to upgrade to the latest version but when I go to the app store it looks like I already have it?

Perhaps this is the price I must pay for having a 6 year old phone :)

[dndln]

List of Estate and Gift Tax Treaties:
https://www.irs.gov/businesses/small-businesses-self-employed/estate-gift-tax-treaties-international

This link says: Status of [1953] ATS 4 Treaty == In Force
http://www.treasury.gov.au/Policy-Topics/Taxation/Tax-Treaties/HTML/Estate-Gift-Tax-Treaties

This link says: Status of Treaty [1953] ATS 4 == No Longer In Force
http://www.info.dfat.gov.au/Info/Treaties/Treaties.nsf/AllDocIDs/8C0E2D8FA544A50FCA256B6D00042524

But they're the same treaty??

Says the treaty has been "Terminated by [1983] ATS 16, which entered into force on 31/10/1983."

Link to the actual text of the [1983] ATS 16 treaty:
http://www.austlii.edu.au/au/other/dfat/treaties/1983/16.html

I think I'm going to ask a tax accountant about this...

[goldenmoustache]

I am a bit confused.

I was discussing family trust structures with my accountant and he told me that to clarify the outcome of the “Bamford Case” the Government enacted legislation to enable the streaming of capital gains and franked distributions (including any attached franking credits) of a trust to beneficiaries. His position is that all other income (interests, unfranked dividends...) could not be streamed but apportioned to named beneficiaries.

a) is this in line with your view?
b) assuming it is correct, what is the impact on the types of ETFs that should be held in a trust as not all will have franked distributions and therefore (according to the above) could not be streamed.

Your views (with standard caveat) appreciated

[TJEH]

I'm holding a fair bit of cash in GBP, which I have slowly been converting to AUD and then investing in ASX listed equities. Then I got brexited! With the exchange rate way down, I'm looking to other long term solutions.

I posted to in another thread (http://forum.mrmoneymustache.com/investor-alley/gbp-fx-uk-investment-for-non-resident) and discovred I can open an account with IB, fund the account in GBP, and then trade in equitites listed on the UK market.

My target AA is:
- AUS, 50% (VAS, and others)
- USA, 25% (VTS)
- World, Ex-US, 25% (VEU)

So I am thinking of loading up with a VEU equivalent with IB via the UK market (haven't researched what exactly yet). Is anyone doing something similar? There are bound to be some downsides I'm sure. Specifically, I'm wondering what the tax implications are.

At some point, when I sell the equities, I'll be left with GBP that I will redeem to AUD. I can wait many years for this. In the meantime, I hope to do better than my current return in a UK high interest account (ha!), and for the GBP>AUD FX to improve.

Thoughts.....?

[goldenmoustache]

I am a bit confused.

I was discussing family trust structures with my accountant and he told me that to clarify the outcome of the “Bamford Case” the Government enacted legislation to enable the streaming of capital gains and franked distributions (including any attached franking credits) of a trust to beneficiaries. His position is that all other income (interests, unfranked dividends...) could not be streamed but apportioned to named beneficiaries.

a) is this in line with your view?
b) assuming it is correct, what is the impact on the types of ETFs that should be held in a trust as not all will have franked distributions and therefore (according to the above) could not be streamed.

Your views (with standard caveat) appreciated

From ATO site: https://www.ato.gov.au/General/Trusts/In-detail/Trust-tax-time-toolkit/Resolutions-checklist/

Are you seeking to ‘stream’ other types of income?

The tax attributes of other types of income cannot be separately streamed to different beneficiaries in the way that capital gains and franked distributions may be streamed. Under the general trust-assessing provisions in tax law, each beneficiary is taxed on a proportionate share of each component of the trust's net (taxable) income and cannot be treated as having a share of net income that consists of one category of income (for example, foreign income).

----

Hence my question:

what is your view on the types of ETFs that should be held in a trust as not all will have franked distributions and therefore (according to the above) could not be streamed.

[potm]

I'm holding a fair bit of cash in GBP, which I have slowly been converting to AUD and then investing in ASX listed equities. Then I got brexited! With the exchange rate way down, I'm looking to other long term solutions.

I posted to in another thread (http://forum.mrmoneymustache.com/investor-alley/gbp-fx-uk-investment-for-non-resident) and discovred I can open an account with IB, fund the account in GBP, and then trade in equitites listed on the UK market.

My target AA is:
- AUS, 50% (VAS, and others)
- USA, 25% (VTS)
- World, Ex-US, 25% (VEU)

So I am thinking of loading up with a VEU equivalent with IB via the UK market (haven't researched what exactly yet). Is anyone doing something similar? There are bound to be some downsides I'm sure. Specifically, I'm wondering what the tax implications are.

At some point, when I sell the equities, I'll be left with GBP that I will redeem to AUD. I can wait many years for this. In the meantime, I hope to do better than my current return in a UK high interest account (ha!), and for the GBP>AUD FX to improve.

Thoughts.....?

If you are buying the same underlying assets, it doesn't matter if they are denominated in GBP or AUD. If anything having Australian domiciled ETFs would have some tax benefits. Plus what's stopping the GBP to fall further against the Aussie.

[marty998]

Pound is still falling against the AUD. Already at 0.62/0.63.

Currency speculation is a sure fire way to go broke IMO. Very very hard to do it right because often it just doesn't follow fundamentals.

[FFA]

I agree, very difficult to call FX. I don't try much except maybe for very extreme long-term points e.g. if the AUD/USD > 1 or back down to 0.5. Even then I probably wouldn't bet everything just skew my allocation a bit towards a mean reversion.

On the family trust I don't use them so not that knowledgeable, but I'd be surprised. Certainly I have seen rental net income being split differently to beneficiaries. AFAIK, there just needs to be a meeting held on or before 30 June of the taxation year declaring the intended split. I don't think it can be done retrospectively when you fill out your tax return. Maybe someone with more intimate knowledge will comment further, bigchrisb and others who use a family trust ?

[bigchrisb]

For my trust, I scrawl down an intended distribution prior to end of financial year, then implement it at lodgement time.  Its OK to specify intent without having the numbers finalised.

My understanding is that you can only stream income classifications.  I basically have three buckets, capital gains, tax deferred income and other income that I stream. 

My understanding of the streaming rules is that its largely to stop gaming and splitting up different parts of income - for example you can't split up the franking credits from a dividend, otherwise you could game these tax credits.

[TJEH]

Thanks for the input on GBP\AUD FX. It's interesting, as I didn't initally see it clearly as FX speculation, as I just had my focus on the nuts and bolts of the "solution". On reflection, FX speculation is clearly what it is.

I am struggling a bit with converting back at the current rate, as the difference (compared to pre-brexit) would work out to be AUD ~70k (yes, could get worse....). I have no debt to pay down, which would make my choice easier to transfer it back. Ultimately the funds are earmarked for long term investment, so I have a pretty big timeframe available. I won't make any rash decisions just yet but I am leaning towards tipping in some % of the funds into the UK market via IB, but I will ponder this a little more.

[FFA]

https://cuffelinks.com.au/location-etf-australian-domiciled/

for info again re: US estate tax issue and other potential risks of non-Australia domiciled ETF's or CDI's. Unfortunately it identifies the risks without going the extra step of providing many answers. I think most of betashare ETF's are Australia domiciled so it probably serves their interest to highlight the potential concerns !

[Daniel S]

re: US estate tax issue

We must abide by the rules...

... the unavailable and/or contradictory rules

[Stashcashordie]

Does anyone know of an Australian equivalent to the Personal Capital website?

Or does the Commsec interface present info in a similar way?

[FFA]

re: US estate tax issue

We must abide by the rules...

... the unavailable and/or contradictory rules

let's hope dndln does indeed ask an accountant and share the learnings here :)

[Grogounet]

Does anyone know of an Australian equivalent to the Personal Capital website?

Or does the Commsec interface present info in a similar way?

I use Pocket book, not as complete as personal capital but efficient enough and entirely free

[Grogounet]

re: US estate tax issue

We must abide by the rules...

... the unavailable and/or contradictory rules

let's hope dndln does indeed ask an accountant and share the learnings here :)

There is a tax treaty between most countries and Australia.
In this case, this is the exact reason why I have chosen to invest through IB on the US stock market and then be applied the withdrawal tax instead of the income tax.

I have asked many accountants and none could give a clear answer. I have had some asking for ridiculous amount of money to investigate.

[marty998]

Who's game to throw some cash at Ardent Leisure shares?


(Too soon?)

[potm]

Was thinking about it when they opened in the 1.80s a couple days ago. Two minutes later they had already risen a lot. Shares had fallen more than the full worth of dream world. That's assuming it was priced correctly to begin with. I had some concerns with negative same store sales for their Main Event business. That and the complicated trust structure. Just give me normal fully franked dividends please.

[mustachepungoeshere]

Why not just throw your hat in the ring to be CEO? She's the only one making money this week.

Funny, it's almost like 10 years editing The Australian Women's Weekly didn't prepare her for this.

[marty998]

The executives don't look like they're used to being in the media spotlight.

Days like this you really earn your money as a top level manager. Sorts out who is worth the big pay packets and who is not.

[marty998]

I couldn't help but roll my eyes at the NAB results that came in.

Cash profit $6.48 billion
Statutory profit just a tiny $352 million, on the back of all the write downs associated with Clydesdale Bank sale/IPO and the sale of 80% of the Life insurance business of MLC.

It pretty much destroys whatever capital they raised in the rights issue last year, and puts them even further behind CBA, WBC and ANZ. No doubt the executive bonuses will be calculated on the cash profit figure, which tends to be "earnings before all the bad stuff".

Again, nobody is really held accountable for continuing to blow up billions of shareholder value, repeatedly. Every couple of years they invent a new way to lose money. I wish VAS could exclude this stock :)

Speaking of which, VAS briefly went under 68 on Friday. I topped up at 67.32 a few weeks back and looks like my usual entry points of 65-67 will be back around again soon.

[limeandpepper]

Speaking of which, VAS briefly went under 68 on Friday. I topped up at 67.32 a few weeks back and looks like my usual entry points of 65-67 will be back around again soon.

That reminds me, this would be a good time to add a small chunk of money to my super soon, as I haven't yet this financial year, and my income is low enough to qualify for the government co-contribution.

[englyn]

re: US estate tax issue

We must abide by the rules...

... the unavailable and/or contradictory rules

let's hope dndln does indeed ask an accountant and share the learnings here :)

There is a tax treaty between most countries and Australia.
In this case, this is the exact reason why I have chosen to invest through IB on the US stock market and then be applied the withdrawal tax instead of the income tax.

I have asked many accountants and none could give a clear answer. I have had some asking for ridiculous amount of money to investigate.

Ooookay, VGS it is from now on. And plan to dump existing holdings of vts/veu at some point before I kick the bucket.

[FFA]

Yeah that's the approach I took about 9 months ago. I now have approx. 25% VGS and still 75% in VTS/VEU. Sometimes I take the chance to switch some over especially when prices dip as they are currently (limits any capital gains being realized).