Eureka Correspondence

A warning for sophisticated investors, Tracking ETFs’ performance, Behind ToxFree’s results, and Investing in the UK.

A warning for sophisticated investors

A good warning by Bruce Brammall in Watch out: You’re now a sophisticated SMSF, but years too late. I got screwed over badly in the GFC by being classified as "sophisticated". It is a licence to sell you very risky assets from which the salesman (advisor) gets a large margin, and you remain suckered by flattery. The term is meaningless and should be abandoned.

Name withheld

Tracking ETFs’ performance

In relation to the article ETFs: The Ultimate Guide, I would like to request the following. Exchange-traded funds seem to enjoy increasing popularity, but I see very little critical assessment of them. It has been suggested to me by somebody who should know that recently many ETFs are lagging the performance of the indexes they are supposed to hug (beyond funds expenses). Could you provide some analysis if this is true and why this might be so?

TG

Editor’s response: Thanks for your question. Over the past year, the S&P/ASX 200 index has made a total return of 9.85%, while the SPDR S&P/ASX 200 Fund has made a total return of 9.34%. The difference between these two figures is known as the fund’s tracking error. Most of the time this error is small – as we see here  – but factors can widen this gap, such as timing differences in the execution of trades.

Behind ToxFree’s results

I have just completed reading the Annual Report of Tox Free Holdings (TOX).The report was ,to an amateur, very positive with revenue and net profit increasing. There was an associated increase in the dividend. Long-term contracts were renewed and the company was successful in gaining new contracts. With all this positive information the price of the shares fell dramatically. What could I have missed in reading the financial statements? Or is it the vagaries of the market?

Des Bieler

Editor’s response: Thanks for your question. While revenue and net profit increased, they missed the market’s expectations. Simon Dumaresq has explored why this is the case in a recent article (see here).

Investing in the UK

I have come back in July from an extended holiday in the UK (which I enjoyed). We are seeing negative comments about Europe generally, but what I saw in the UK was a generally prosperous country, lots of new cars, fields full of crops, people busy at work, tourists and a seemingly general optimistic view about the future. How do you invest in UK companies or the UK economy through funds or exchange-traded products on the ASX?

David Brunt

Editor’s response: Thanks for your letter. As shown in our table in ETFs: The Ultimate Guide, the iShares Europe ETF (IEU) measures the performance of stocks in continental Europe and the UK. Fund managers which offer international exposure – including the UK – are Platinum Asset Management and Magellan Financial Group.

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