How we are Investing During the Corona Crisis | SWTZ webinar

Peter Switzer hosted a live webinar with Shawn Burns and Paul Rickard to discuss how the investment team are positioning the Switzer Dividend Growth Fund (ASX:SWTZ) amid heightened volatility, and their outlook for SWTZ in the months ahead.

If investors have any questions please don’t hesitate to contact the team on 1300 001 750 or invest@contango.com.au.

Peter Switzer (PS): Hello and welcome to this very special webinar for investors in the Switzer Dividend Growth Fund. Of course, you know who I am, I’m Peter Switzer and joining me is Paul Rickard.

Paul Rickard (PR): I’m here.

PS: Now Paul is actually 1.5 meters away, so the Prime Minister will be very happy about that we are actually doing as we’re told and a long way away via technology is our Portfolio Manager, Shawn Burns. Shawn thanks for joining us.

Shawn Burns (SB): Pleasure Peter.

PS: Okay, before we start looking at how we’re investing in particular, you Shawn in the coronavirus crisis. Let’s just look at the last couple of days. Now Paul, you and I have been watching Australians and if they’re getting any sleep. What we’re seeing is actually a lot better than we expected.

PR: Yeah, we’re seeing, I think in an Australian context, three things, but also remember, probably we should talk about what’s in the global context. In Australian context, we’ve seen the government throw the kitchen sink, literally at the problem. That first stimulus…

PS: They’re expensive kitchens.

PR: … of $130 billion. Put that into context. The first one of just two and a half weeks ago was $16.9 billion the second one was $66 billion, and the third one is $130 billion, so it shows you an escalation, almost geometric progression. And the market has got excited about it because what that means, and what we’re going to see Peter, is a lot of employers are going to rehire people they’ve laid off, right?

Not only will people keep staff, but a lot of the companies, are going to rehire people for two reasons. One is they get more money with the $1,500 per fortnight, under this package than they get from the job. So, bigger payments with the all new start payment, even with the coronavirus allowance. And secondly, employers want to stay in touch with their employees because I know they’re going to have to rehire at some stage so if you can give an employee more plus, you can stay in touch – why wouldn’t you do it?

So that’s where the people are going go. That’s going to be good for the economy. It’s going to be good for a lot of our cyclical economies, companies that rely on domestic spending. So that’s number one.

Number two, we’ve started to see, I think, maybe some more encouraging statistics about the spread of the virus, particularly in Europe. I think New York — Australia as well, but I think in global market sense it’s really about what’s going on in the U.S.
I think it’s too early to call the stats better than the U.S. but maybe just people taking a bit more seriously with a bit of encouragement from elsewhere.

PS: I remember Donald Trump thinks that the numbers will peak in mid-April. He’s extended social distancing and all that sorts of measures until the end of April. You know, we don’t want to exaggerate, but it’s a big gamble for him, isn’t it? If he gets this wrong, they will remember–

PR: I won’t say his political history will be written off, a lot of people will recall that, but it is a big gamble.

I think the third thing, I think last night’s announcement from Johnson & Johnson about them ready to potentially does some sort of, effectively a trial… a state street testing in September. That’s a clinical trial involving people with the virus. I think that’s a big announcement because all the talk about a vaccine of being sort of 12 to 18 months away, this possibly puts a vaccine sort of out there about 12 months away. This trial in the works, I think that’s pretty big for markets everywhere.

PS: exactly, and when a company of that size is saying, it comes out with a statement like that – this is not a two-bob sort of pharmaceutical company saying “we’ve discovered the answer”. This is arguably the biggest health company in the world saying it’s ready and is already to start doing the trial.

So in a sense, this is what the people must understand and everyone was thrown by the fact the market fell so viciously. But when it did fall so viciously, it was because the magnitude of the problems in China and then in Italy was the assumed to be a threat to all economies. And the market then had to sell off because they didn’t know what central banks were going to do to help the money markets and all other stock market. They didn’t know what governments are going do in terms of stimulus packages. And the responses so far have been so good.

I think it’s put a safety in it underneath the market and that’s why we’ve seen our market has crept back about 15%. I think SWTZ itself has crept back about 21% of it’s low. And that’s because there is more certainty offsetting the uncertain. There’s still uncertainty out there and the virus numbers are going to be critically important, but at least we’re moving in the right direction. And for those people who have stuck by their portfolios, I think it’s actually going to improve a bit Anything else Paul?

PR: don’t think we’re seeing the bear market open…

PS: No.

PR: But I do think we may have seen a fall. As you said, and markets have certainly been bullied by those things happening. So you know, a long time to go and then we’re now talking about the V-shape or U-shape style recovery, but the fact the markets are talking about that is one of the reasons why it’s up.

PS: Shawn what’s your take on what was seen over the past week or so?

SB: I suppose the area I’ve been focusing most on, Peter is the high yield credit markets and why that is, is because that’s basically the Canary in the coal mine. That’s the area where sort of riskier companies: can they borrow? can they get money? can they get liquidity? can they pay their creditors? and keep the liquidity flowing through the system? It looked pretty diabolical up until probably about a week ago and then, there was a big turn, and that coincided with the central banks. Then governments coming out and throwing everything they could at it and it’s important that that works, that keeps that market and liquidity flowing at that pointy end of the economy. So that’s the most encouraging sign I’ve seen for quite a while.

PS: I must tell everybody out there that it was a rare moment because Shawn was so excited and he actually sent me an email saying, “I’m excited.” And if you ever think that Shawn Burns is anything like big Kev, he’s not, not one little bit. That was interesting point in both their lives.

All right, let’s see these talking points. Shawn, how do you position the portfolio amid all this volatility?

SB: SWTZ is a dividend fund. We want to try and buy those companies and hold those companies that pay dividends. We also hold what we think are the best companies in Australia. You know a selection of blue chip companies, across the board, a diverse range of companies and we’re also fully invested long only fund.

So, at the moment we hold 3-4% cash and the reason we are holding that cash is that we just want to hold a bit of reserve because we think there may be some companies that need financing over the next, between now and the end of the year. There are capital risings and we want to be prepared to not be diluted and be able to participate in those where we think they’re very attractive. But I think that we hold quality companies, a quality portfolio, and we think that those are best placed to ride out whatever strain it is.

PR: I think it’s important Shawn just to reiterate that point. About SWTZ being a long-only fund. There are funds that they actively manage the allocation to different assets, in other words, they own shares one day and they get bearish and they go to order cash… But that’s not what SWTZ is designed to do.

It’s designed to provide access to shares with great long-term income and that’s why it’s essentially the cash allocation is always going to be riskful, that’s laid out deliberately in its design. So I know there’s been a couple of questions about that Peter and that’s why I just wanted to reiterate that point is pretty much the design of the fund itself.

PS: This is a tough question, but you have to answer it Shawn. What’s your outlook for SWTZ in the months ahead.

SB: I will split that into two buckets Peter. The first one is where we are now. As I say, I sort of went positive on the markets probably about a week ago because of those credit markets. I think that we’re seeing like a bottoming in a major long-term bottoming. How long that goes? How many ups and downs we get between now and the final rally, no one really knows.

I mean, there’s still plenty of bad news to circumvent that, but I think from a capital point of view, capital share prices, And depending on your timeframe of investing, I mean, some of these people were talking, have a very short timeframe at one day, but if you have a timeframe of years, now is a good time to be buying blue chip shares. The part that concerns me, I think is what is happening with dividends over, between now and the end of the year. We’re seeing a lot of companies under stress in terms of their revenues are drying up.

And they still running, their businesses have cut costs, but they’re slowly accumulating debt. The banks look like they’re basically on board and all those companies will run debt up during this process. Under that scenario, it’s hard to see a lot of companies going out of the way to pay big dividends. So, I am a little bit… I’m cautious on what we will see over the immediate period. I think boards will err to conservativeness and pay out something. But probably, you’re not going to get many positive prizes on dividends over the next results season I suspect.

PS: Maybe Woolworths can afford to because They’re doing very well–

SB: I think Coles, Woolworths, the banks, Telstra, they will pay out something. Some of the others may kick the can down the road a bit.

PS: Paul, you’ve actually written a piece on dividends. What’s your view on dividends?

PR: I always said, Peter that dividends were going to be a lot lower this year. That was before the virus and–

PS: Yes, you did.

PR: And it’s just worth reiterating a couple of things. That last year was exceptional. I won’t get political, but a lot of it was due to the Government election in May last year.

PS: Yeah, Bill Shorten scared a lot people with his franking credits policy

PR: And this has resulted in a couple things. One is that a lot of the companies pay special dividends to use up franking credits. Secondly, a lot of companies had off-market share buybacks, which our fund actively participates in because you get a huge franking credit, which is very effective, tax efficient for low-rate taxpayers. And thirdly, a lot of companies brought forward the payment of dividends to the financial year of 18-19.

So, the last year was an exceptionally year, you would never going to get that repeated. That’s the first point. Secondly the market, we now in a situation where we’ve had a virus, which is, you know, for many companies is going to reduce revenue and reduce earnings. And I think Shawn’s right, companies are going to err on the conservative side, so some have cancelled that dividend only a handful cancelled that dividend, but a few have cancelled their dividend that was going to be paid in early March, late March and early April.

We’re now sort of through that, the next dividend season will see the major banks in May. But I think we’re going to see conservatism amongst some of the smaller cap companies, those with high gearing levels. I think the big companies will largely be alright, but if you’re a director of a company, and the revenue situation is still a bit uncertain you’re going to err on the conservative side. So we’re going to see in this financial year, dividends are going to be lower than they were last year simply because A) it was an exceptionally last year, but B), we’ve now got the impact of the virus as Shawn set out. We’re certainly not going see any off-market buy backs this year Peter. All those sorts of things have gone and so just as interest rates have come down, we’re going to have to get used to lower dividend yields.

PS: We always make the point that if you look at the stock market, it tends to go up around 10% per annum. Over a decade and half of that is five is dividends, it’s 5% and we had such a great year last year. Probably when you add this poor year coming up, we’re still probably averaging around 5% What do you reckon Shawn?

SB: Yeah, I think so. I think that it looks like an air pocket coming up here in dividends and yeah, it’s a very abnormal situation. When that normalizes, I think the dividends will come back. But we have to get through that between now and the end of the year, probably.

PS: Thank God no one’s changing the franking credits rule All right, so how are the stocks in the portfolio actually performing Shawn? I guess some people will be wondering, do you have any stocks that are really badly exposed, to the travel industry?

SB: Travel? Probably second order effects, things like the Star City Casino is… obviously that casino shutdown and Sydney Airport. We’re in a strange, strange world where some of these fortress type assets and top-quality shopping centres, airports, casinos, toll, even toll roads, are getting traffic cut down. Those that you’d ordinarily think would go through a recession reasonably well. Then yeah, by government directed, they’ve been closed down.

Those will be under pressure. I could probably count, might be at this stage, maybe three or four who would need capital out of over 40 companies in the fund. As I said, we are skewed towards quality, then that’s why we keep that 4% in case they do need that. That we are there and will participate we think is attractive, Peter.

PS: Okay, Paul is there any question you’d like to ask Shawn that’s why you’ve been listening?

PR: Essentially we shouldn’t always focus on the ones that have been impacted. There have been a couple of winning stocks though too. And stocks that have done pretty well in the pullback. Shawn do you want to just comment on the ones in the portfolio that have done, on a relative basis, pretty well.

SB: Obviously supermarkets have… It’s just played into the fact that they are essential services. Everyone can see that their turnover is high. We’ve got about 5% of the portfolio in, Woolies, and Coles combined. And we also have a very small position in Wesfarmers as well. I suspect those will be stocks that pay dividends.

Also Telstra, we hold a position in Telstra. Everyone’s staying at home using their computers, using the network, et cetera. We had a call with Telstra last week. When you look at their receivables, it’s spread out. They’ve got a bit of small business, but mainly it’s a lot of retail guys who will be paying to keep their phones and then the networks going. That will probably be one thing they will keep going.

Also, iron ore prices through all of this have been remarkably strong. We hold a good big position in BHP and we also own Fortescue and we expect those to both pay dividends coming up in when we get to August. So, it’s not all bad news, that’s the reason we hold a diversified portfolio. Some stocks are actually traveling through this relatively well.

PR: And it does actually really highlight that message about diversification because if you’ve said to me, you’re going to go to this type of collapse, whole economies are going to shut down globally though, you would’ve thought that iron ore would be smashed. Right?

But iron ore has held up remarkably well above $80. Some of the other commodities have done, like oil, but even has copper done pretty badly. But iron ore has done really well. So in a relative sense the BHPs and Fortescue’s, are only down a little bit and it’s not always what you expect.

PS: I’ll make a point to anyone who’s out there these are loyal investors that I actually created this after listening to Graham Richardson on my TV show because Graham was actually saying that he was doing very well. I asked him about his self-managed superfund and he actually said, “I’m doing really well, I’ve got the four banks and Telstra.” I said to him, that’s good now, but that’s a really risky allocation and I said, you should be more diversified.

And that’s when I realized a lot of people were doing exactly what Graham was doing. For a while, before this crash, it wasn’t bad. The banks have paid pretty good dividends and whatever, but I’d like to compare us against the four banks and Telstra when it comes to dividends, I think we do pretty well Shawn, don’t you?

SB: Oh, I think so. Yeah, I think that’s correct. Peter, I think the diversifying across several sectors and companies, et cetera is, well, that’s what this diversification is about. You don’t diversify to buy bad companies, you buy to diversify, to buy good companies in different areas. So, if something of a scene happens like this, you have an offset.

PS: Okay, let’s go to some of the investor questions, we got here already. First one Shawn, pressures on you. Why is the dividend just announced so low?

SB: We had a bit of a look at that. It basically comes down to – so this is before Corona – the last dividend announced. And two reasons for that is, is the BHP buyback was in last year. That was huge. Now that is obviously not this year. Also just a timing difference in terms of when dividends are being received, so they’re in different quarters.
I think the underlying dividend was down at 3% year-on-year and that’s not much. I think what someone would have paid may differ from last year et cetera, but the underlying dividends are sound and stable up until March. They probably landing different quarters, so you’re getting a bit of volatility there. And also that BHP special was huge.

PR: Just to add a bit of colour to that. The BHP, the off-market buyback of course is the payment you actually get is most of that is dividend payment. So, that’s why you get that in one quarter, which happened in 2019 and it’s not repeated in 2020. That makes a huge difference. And one of the designs of the SWTZ fund was to make it as effective as we could for low rate taxpayers. We actually go out of our way to accept those off-market buybacks because they are particularly tax effective. And give you a much bigger franking credit, that we can distribute. One quarter you get one and in one quarter you don’t, that can have huge impact on the actual dividend number.

SB: And I will guess this is a final on that BHP. When you participate in those, you sell them below market because you’re getting a fully franked dividend. We actually covered that BHP back at those prices now. So we had to wait a while, but we’ve managed to buy those BHP at the same price as what we sold them in the buyback, so it’s a good outcome.

PS: I guess some people will get what we’re saying, but last year’s dividend was big. Shawn how big was last year’s dividend, adding in franking credits the whole bit.

SB: I thought it was grossed up 11%. I think that’s a number that’s in in my mind Peter. It is moving around. I’m mean the past dividend doesn’t move around but… I think it was around 11% grossed up. The share price moves around so what base you use is a little bit… it was huge. It was a huge dividend.

PS: It was and… For sure I should send Bill Shorten a Christmas card. But the bottom line also is that this year, what do you think it is… Given the all the curve balls that have been thrown at us what do you reckon grossed up it might be this year? And be 100% accurate too Shawn, it’s a very easy thing to do…

SB: I mean, it’s really the… I mean that share price or you just mentioned earlier that the SWTZ’s share price has gone from $1.66. I remember that number to… what it was around $2.66 at the start of the year. I mean that’s enormous volatility there and what number do you use as a base? And this year, I think will be okay. As we mentioned early on, I’m a bit nervous about what’s going to happen and in August, but we like to get 6% grossed up. I think we’ll hit that number this year on a share price, which is higher than what it is now.

PS: Okay, so that’s reasonable and that’s basically what we’ve always tried to do. All right: are future dividends likely return to earlier levels and if so when?

PR: So, I guess the bottom line is, earlier levels wasn’t last year’s levels kind of around what we’re predicting is around – and I certainly won’t return to last financial year, right forget it, that was one off – But I think 6% grossed up, which is about just over 4% in cash terms is about probably achievable. I mean, the question with dividend yields of course it’s right relative to the share price.

PS: Yeah what you bought it at.

PR: Yeah, when the market’s down, you actually get the same dividend, but you actually get a high yield with the market is up higher and you get the same dividend, it’s a low yield. So, you’re going to be a little bit careful here and mathematics helps in a way, but that’s my opinion.
I think why Shawn’s a bit more concerned about next year is with the dividends this year the impact of the virus will be high essentially. Let’s take the banks for example, right? The three major banks or three other banks are Westpac, National Australia Bank. And ANZ, their financial, their half year ends today.
That will be good, they’re going to be OK still because, the impact of the virus is going be very little on the last six months. Let’s say a little bit of expenditures this month and there’ll be probably a little bit nervous about provisions, but they’ve only got really five or six weeks of the virus, impacting things. And that dividend is will be announced in May paid in June or July.

But you roll it over six months, when they’ve got a whole six months of the virus that dividend is possibly going to be affected. So, I think that’s why Shawn says it’s probably less impact this year than next financial year. Do you want to comment on it Shawn.

SB: Yes exactly right Paul, exactly what you said. I think that this happened so quickly that the companies ahead have several months of good performance in there. But, when we start to get the full period it will be well basically from now until when? Till September? So next six months from then dividends will be the ones impacted I suspect, and then hopefully back to normal levels.

PS: I guess in the most optimistic world, we got a really tough economy in the June and September quarters and the December quarter could be the rollback one because you’ve got basically all that stimulation, in the pipeline. If the virus numbers improved faster than was expected a couple of weeks ago, well that could be a very good thing for the last quarter of the year. So, we’ll keep our fingers crossed on that and of course we’ll be monitoring that and that could actually reduce the amount of dividend reduction if that last quarter is better than expected.
Why are the last three of these dividends of such low levels, Shawn?

SB: Hopefully they’re not of low levels We’re aiming at 4% net in your pocket before franking. I think they are running at those levels. When dividends count, we pay quarterly and we pay everything we get in goes straight out. Yeah well, it’s targeting 4% after fees, pre franking so 6%, basically after franking. On our numbers that’s where it’s running.

PR: Also what that question is about is what looks best, we should recall, the Bill Shorten impact ended essentially in on the 30th of June last year. Because it was all about companies bringing forward the payment of, particularly getting franking credits in the hands of shareholders, prior of the 30 June. That ended on the 13th of May or 19th of May, whatever the date was. So, we had exceptional payments of dividends in the March and June quarters and even the December quarter of 2019.

PS: December quarter ’18, March quarter, and June quarter ’19 then that all stopped.

PR: then come September, December and March

PS: Which is the last three

PR: Would be disappointing, well I won’t say disappointing, but lower that they were on a corresponding basis.

PS: Well according to this question they’re disappointing

PR: Well, we’ll use the question terminology

PS: No, that is a good explanation Well, whilst accepting it is primarily a dividend producing fund, in times like this, do you buy and sell deliberately, using your expertise to produce income – that’s you Shawn

SB: We’re not a trading fund, we’re a investing fund. I think that where we do usually like to try and get profits for the year out of realized profits. What’s happened with the 30, 30 or 40% fall in the market. This year is that’s going to be a bit of a challenge. I suspect – I haven’t looked at the numbers. Certainly, they were looking good up until March. I’m not sure how will go in the next three months. But, I’ll just have to let one go to the keeper Peter just how much we’ll get in realized profits this year. The market is down a lot. We do participate in what we see as attractive issues and I think there’s going to be some coming up over in the next several months. And where we can get in and buy these shares at a cheap prices. We’ll definitely do that for the fund.

PS: Okay. So we’re just quite happy to have any other questions sent to us. We’re just checking right now to see if there are some questions.
Shawn, going forward, is it likely that you will sell some companies because even though this company might have a reasonable outlook, other ones might have a much better outlook. Or if you’ve got the fear that maybe the dividend would be cut too much, you might vacate them and camp into different stocks that are more likely to pay better dividends.

SB: that’s a really interesting question, Peter how to play this longer-term recovery. Well, I think that the market and the first move is I suppose it’s still people going to cash now, you know it’s the next first move will be from cash into shares. That’s not really our decision is really shares into other shares, but yeah, when people buy those shares in their first instance, I suspect they go for the they go for Woolies, Cole,s Telstra, BHP maybe Commonwealth bank, et cetera, et cetera And then, as the rally and the economy starts to improve, you start to move out towards the more risky companies.

So you move towards those and I suspect that’s where it’s going to play out, so we’re not buying those companies where we think they’re going to struggle to the pay their dividend between now and the financial at the end of the year. The last stocks we bought for the fund were BHP, CSL, and Evolution Mining and gold company. So fairly defensive. You play this as we improve, you start to open your shoulders up a bit more and move out there, but we’re not moving out on the risky area of the stocks at this point. We’ll stay fairly close to conservative companies that we don’t think will need financing and also can pay a dividend.

PS: Okay, here is a question from Bob. How will the process and the eventual repayment of the huge government debt impact on the share market? Well Bob, let me take that as an economist the bottom line is the budget deficit will get big, the debt will be big, that will pay it back over time. The bottom line is the interest rates are so low now in the first few years it’s going to be very easy to pay that back. I don’t think there will be a negative implication for the stock market. But I guess over time if, because of all the stimulus in the end we actually see inflation coming back and interest rates rising there could actually be a problem.

But if interest rates are going to rise, that could be a trigger for the stock market to fall again. But my personal feeling is the stock market is going to lap up the fact that this is going to create growth that wasn’t expected. So I wouldn’t be worrying about the stock market, having problems with this debt payment for some time. Paul, do you’re agree?

PR: Thanks Peter, I think so Peter this is an issue for the market years down the track. They eventually will worry about it, but I don’t think that’s anyone’s mind today.

PS: Okay, I’ll say that question is answered and Paul and I are absolutely right on this one.
How will the government attack SMSFs to help pay off the government debt? Well I bet you one thing they won’t do is attack franking credits because they know that really was bad for the Labor party.

PR: I’m not feeling that there will be any more attacks on SMSFs. Look all governments, I guess over time they are making Super tighter because mainly because the lobby groups from acost and others sort of makes it like a concession and it is a concession, but because it’s designed to actually make you want to save as opposed to spend.

I don’t think there’s further attacks coming, but I keep saying to our clients, here at Switzer, the most likely attack, if there is to be one is to look at account balances. I keep suggesting people have long-term strategies and if you have a spouse to do what you can to make sure the account balances are roughly the same with your spouse, I think that’s probably the best defensive strategy. I don’t think we’re going to see it attacked from this government in the next couple of years.

PS: So you’re saying that but maybe the 1.63 could be brought down to one point–

PR: I don’t think they’re going to bring it down, Peter but I think that that’s one reason why you want to have even out balances and if they are to do anything, tax it differently, it’ll be more on account balance. So there’s more reason as a defence strategy is just to make sure those balances are even if they are out of kilter.

PS: And you do trust your partner?

PR: Of course you do! That’s what the issue is about.

PS: Shawn this is for you. Where can we see what various company stocks that make up our SWTZ shares?

SB: I think we publish, I think it’s quarterly. Each listed ETF has to list their companies. I’m just trying to think whether this an ASX announcement or not. I think if you dig through the website it’ll be there. It’s is done in arrears as in it’s done quarterly. And we publish the top 10 every month, so you can see that there.

As I said, it’s a list of what we think are the best, strongest companies in Australia. And we think that they will come through whatever happens. If the corporate Australia survives, these companies are going to survive.

PR: So if he goes to Switzer Asset Management or just Google Switzer Dividend Growth Fund, you can see on the website the top 10. And I think the full list is published quarterly.

PS: Okay, switzerassetmanagement.com.au each quarter. Okay good.

PR: It’s certainly an ASX announcement. I just don’t know whether it’s right there at the moment.

PS: Next question is, how is a share price verses NTA tracking? Shawn?

SB: Well, I think that the volatility, I suspect that question is about the day-to-day share price and the NTA. The volatility moves around a bit, but basically the market making has performed extremely well over this period and the bid-ask spread are basically tracking the NTA up and down. I mean sometimes the volatility is, like at the end of the day yesterday, we saw a massive increase, and we saw that come through in the NTA and the share price today. So I think it’s actually done well. There’s no discount on NTA to SWTZ.

PS: Yeah what you said before the presentation today was we were up 2%, but the portfolio’s value was actually up 6%, but it’s caught up today.

SB: That’s right. So sometimes you get that day or a couple of hours or maybe overnight then it’s back in line again. It just accounting thing I think, but it’s, there’s no discount to NTA for listed. There shouldn’t be for listed ETF and there certainly isn’t one for SWTZ because it’s liquid.

PS: Thought people might be interested Paul, who is our market maker?

PR: Well our market making agent is Macquarie.

PS: Yeah. So it’s not a plonker organization.

PR: No, not plonker.

PS: It’s what you might call a pretty good organization. And I guess it’s important if your market maker is strong and that’s going to be an important issue that people should be aware of.

Another question. Hi guys, thanks for a good presentation – this is very nice person – being a current shareholder of the fund, will the fund complete an internal capital rising for a shareholders to increase the cash position in the fund and participate in sound investment opportunities? Tony from Adelaide.

PB: Maybe I can answer that, Shawn. Because it’s actually a unit trust, it can’t actually do a capital rating per se. And there aren’t shares, you actually own units. So, there’s some structural issues as to what the ASX will allow us to do and not do. I think the manager’s looking at other ways that this can be done. Shawn, is that your understanding?

SB: Yeah, this is an open-ended ETF. Every day we see the inflows and outflows, that go directly into the funds bank accounts. So, if someone wants to put $100,000 in the fund, as soon as that clears it is seen in the fund’s bank account, and we see it come in. The same as outflows. So, the cash balance moves around with those inflows and outflows and we also manage that cash balance. As I said it’s about three or 4% at the moment.

So, we can see, you know how people have reacted to this downturn and they’ve actually held pretty well. There was hardly any panic selling at all in the SWTZ investors, so that’s good to see. I think that’s a great mark to them and a positive mark to them.

PB: I think the historic of SWTZ investors is paying when the market falls we get more inflows into SWTZ, and when the market goes up, people take a little bit of profit taking. So, I think we all right. It’s just surprising, people are very rational. Retail investors are known as sometimes being quite disparaging by the press, but all the behaviour every year, it’s institutions who are the ones who panic. Every time, retail seem to be a lot more sophisticated in the way they approach these situations.

PS: I know I think smart, dividend investors realize that when the market gets really scared, ridiculously scared, there’s a good buying opportunity.

PS: This is an interesting question, and maybe this is a question for you Shawn, could you give your opinion on MQG Macquarie at the current price Have you thought to yourself, gee these guys are looking like good value?

SB: Yeah, it’s always dangerous to give stock, individual stock calls, but I’d say we’re a holder of the fund. We have a decent positioning in Macquarie Bank. And I’d say that that is one of those blue chip stocks that you’d have to look closely at in this pullback. It’s stays around that $70 or $80 level given any type of reasonable long-term outcome might be attractive.

PS: Yeah, I must admit, I watched FN arena to see what the analysts were saying about Macquarie last night. I think that at 35% rise, which doesn’t surprise me again, considering where it was. Look, they all want, stock questions now–

PR: Maybe, it’s time to bring the webinar to a close, we can’t continue stocks this is a SWTZ webinar.

PS:. What stock is in the buyer zone? Everyone that’s in our fund, you could say. What else were you got there? Hope the debt is repaid by some price increase from the GFC. That’s always a possibility, but no government will get it through. Is SWTZ currently an attractive buy versus other companies?
What is the percentage of your portfolio do you have invested in SWTZ. And what investments do you use for international investments outside the SWTZ Fund? Well, I have a pretty significant holding in SWTZ. Probably 10% of my self-managed superfund

PR: Yeah, mine is about that magnitude.

PS: I’d like to hold more, but we’re actually restricted.

PR: We are, so we’ve got to declare that. So yeah, that’s about the others… Internationally, I look at WQG, I’m also director of that. So that’s the WCM people I think that’s fantastic.

PS: They’ve actually performed and we recommend Magellan to our clients, but we also recommend WCM because they’ve actually out performed Magellan on 10, five, three, two, I think one year basis. So they’re both very good funds, but yeah Paul is right, WCM is a very good fund.

Well guys, it looks like we are out of time. Thanks for joining us. I hope we’ve actually helped you understand what’s going on and what our feeling is about the Switzer Dividend Growth Fund. Thanks for being supporters, and if you’ve got any other questions, make sure you email them to invest@switzer.com.au. Thanks very much for joining us.

[sc name="stock-in-focus-webinar-disclaimer-swtz"]

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