Letters: In defence of letters, Telstra's strength and bond ETFs

Readers’ letters

Last week we only had two "Letters of the week", with no link to further letters.

For me and no doubt many other subscribers the readers’ letters are an important and interesting part of the report. Can we have more of them, and also please clarify when they are published – it seems like only once a week?

After all, the views of readers might well be the ultimate random and unbiased view of public sentiment.

RDM

Editor’s response: We publish as many of the letters that we receive from Eureka Report members as possible each week, as they certainly offer a wide range of interesting views. The ‘Letters of the Week’ are published with the edition each Wednesday evening, and a secondary letters page is usually published on the same day and linked to within. We can’t publish everything, and we can’t always answer readers’ questions, but we do our best to find useful resources, and any views of public sentiment are always appreciated – so please keep writing in!

Telstra’s strength

Roger Montgomery lumped Telstra along with some companies who have added little or no intrinsic value for many years. The truth of the matter is that Telstra provided me with the weight of money, consistent with Benjamin Graham's assertion that in the long run the market is a weighing machine.

Since the 25/11/97 Telstra grossed-up dividends have by far outweighed my capex and continue to provide double digit income. Also, thanks to the current Labor government there's blue skies ahead for the investment.

V Massonic

Negative gearing assumptions

A terrific article on SMSFs, however I question one aspect of that report. It is widely stated and I may be completely wrong here but I just don’t get the argument that the investor will gain bigger tax deductions from negative gearing upfront or as you would expect in the early years of investment the negative gearing benefits of having a property outside of super give it a considerable advantage.

I believe the only time that would apply is for an extremely cash flow rich investor who is able to afford the commitments of a property in addition to the maximum concessional contributions to super.

For most there is only so much money to go around, indeed your example of a 55 year old earning $100,000 per annum is extremely unlikely to be able to afford both the loan repayments and the maximum deductible contributions to super. Statistics across Australia would support.

Therefore if your man does salary sacrifice $25000 per annum he will be able to gain exactly the same level of tax deduction on the expenses as he would be able to do outside super. (full tax deduction less 15% then the fund claims 15% for the expenses)Then in addition he would gain an 85% deduction for the loan repayments. So with partly pre-tax money he pays the loan off ( a simple spreadsheet shows the years saved) and has all of the other benefits you describe. Basically I believe that whatever period the loan is paid off in the principal of the loan payments are 85% tax deductible.

If the wife has a job (as she should) even better.

P Ferguson

Future Fund and AIX

I would love to see comments on the Future Fund's proposed acquisition of AIX. Specifically what are the pros and cons for a non-tax paying SMSF of selling now (at around $3.05-$3.10) as opposed to waiting until a sale is finalised next year (if it does go through!)

P Foxton

Editor’s response: Tom Elliott did write a short note directly following the proposed takeover announcement outlining the expected value (up to about $3.25) and the time frame involved. He wrote that a discount of roughly 5% was warranted given a five-month time frame, which would naturally diminish the closer the deal gets to completion. Also note the capital gains tax he mentions applies to AIX and the unusual structure of the deal, so the tax status of shareholders should be the same as in normal consideration.

Bond ETFs

Would Percy Allen like to expand with more detail and comment on his very interesting article in the recent Eureka Report  - Picking a safe route - Specifically, his comment that "he is invested in investment grade bonds which can be obtained through exchange  traded funds". For example, what are the sort of bonds and or the types of ETFs that may be appropriate?

J Owens

Editor’s response: You may be interested to read Elizabeth Moran’s article on the currently available bond ETFs in Australia (there are a limited number, but generally provide good exposure). It provides a good overview of the different benchmark bonds they reference, structure, performance and price or fee information. ETFs are available covering investment-grade corporate, government, semi-government and inflation-linked bonds.