Letters of the Week

Capital safety success, the Woolies property float, and bonds protection.

Some capital safety success

I am retired and have been running my own SMSF for around 15 years. Prior to the GFC I was 100% equities. After the GFC I sold all my equities and remained in cash until 12 months ago. Even though I dropped over $150,000 on my pre-GFC share values, when converting to cash, I had made so much capital gain and dividends in the previous years that I was still a long way in front of term deposits. My reason for getting back into equities was concern for inflation and long-term low interest rates. The exchange rate for Australia is a big problem and I can only see interest rates going lower. What is interesting though is not my decision to get back in, but the analysis of how I have gone over the past 12 months. I purchased 26 different equities and have at present an average capital gain of 11.3%. I chose the usual old favourites like the banks and Telstra to protect against low interest rates, however, I also chose 14 of the 26 from recommendations by Roger Montgomery and Alan Kohler. Their capital gain has been an average of 21%. I did not invest as heavily in their recommendations hence my lower overall capital gain. Many of us have spent a long time in business, making tough decisions and following our gut instincts. In retirement, I have found the need for gut instincts and tough decisions persists. There is no capital safety if you find yourself spending it because of inflation and low interest rates. Eureka Report has proven to be an honest sounding board for me, in this time, helping protect my real, ever changing capital.

MU

Woolworths property concerns

On Friday November 23, the Eureka Report edition included a piece by John Abernethy Shopping for yield in Woolies’ property float. This float opened on October 15 and closed before John's article was released on Friday.

I found the tenor of the article was that readers ought to seriously consider the offer as an investment. I assume from this belated inclusion your organisation is onforwarding material published elsewhere by contributors.

For me, the article was derisory as the offer was closed before it was published in Eureka Report. I therefore question the veracity of other contributions if they are 'dated'.

B Moon

Managing Editor, James Kirby’s response: Thanks for your letter. You are right that the float was closed when we published. However, I commissioned this piece from John (it is certainly not a reprinted or forwarded article) because I know many people are chasing yield right now and wanted to know what Woolworths were up to.

The listing was not an IPO in the conventional sense (there was a small offer heavily taken up by existing Woolies shareholders as well as an in specie transfer) – and it was not written as a piece that assessed whether you should join the IPO. Rather it was a piece assessing whether general retail investors should consider this stock once it was listed.

On that basis the fact that the offer was closed when we published did not negatively affect the wider reading public. Having said that, we should have of course mentioned the various dates and Eureka Report apologises for that.

Bonds and custodial collapse

I am giving consideration a portfolio of bonds. Currently all the assets of the fund are either equities or fixed deposits and I have just sold quite a large holding of hybrids because I am concerned how they will perform in the market in the future and did not want to lose any capital.

I am looking at using a broker such as FIIG to purchase the bonds and will listen to their advice. When the bonds are purchased they will be placed into an account in the name of my super fund; I gather they use JP Morgan. I am assured this account belongs to my fund and would remain the property of my fund even if FIIG collapsed. What really would happen in the event of such a collapse and what the procedure would be for my fund to access the assets of the bond holding?

S Jarvie

FIIG's Elizabeth Moran’s response: I can only comment on FIIG’s processes in regards to its DirectBonds service and custodial accounts.

When purchasing bonds from a fixed income broker, your super fund is buying the bonds and they will be held in a custodial account in the name of your super fund. Your bonds are your assets and are not held on the balance sheet of the broker or the custodian and, as a result, if anything should happen to the broker or the custodian your bonds remain your assets at all times. 

It is important to check whether or not the broker and custodian are licensed by ASIC to provide custodial services and have been audited to be GS007 compliant. Both FIIG and JP Morgan are licensed by ASIC to provide custodial services and are independently audited by PriceWaterhouseCoopers (PwC) that they are GS007 compliant.

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