Newsletter November 2009

November 3, 2009

South Canterbury Finance

South Canterbury Finance has been in the news recently after a credit rating downgrade from Standard & Poors. The company now has a BB+ credit rating, down from its previous BBB-. This downgrade triggered a review of the $100million private placement facility made available by US private investors. This money is now going to be repaid over the next five months, and negotiations to secure a $75million credit facility with George Kerr have just been finalised. I hope South Canterbury can weather the storm – its owner, Alan Hubbard, has proved on more than one occasion that he puts his investors’ interests ahead of his own. South Canterbury Finance is covered by the Government Guarantee, and has stated their intention to apply for the extended guarantee. They are currently offering a very attractive short-term investment maturing just before the current Government Guarantee expires in October next year.

 SPECIAL OFFER                            MATURES 11/10/2010                                 8.00%

 Auckland Airport

Auckland Airport is issuing $125 million of fixed-rate bonds maturing on November 27, 2014.

The main features of the offer:

  • The interest rate has been set at 7.00%.
  • Interest will be paid semi-annually in May and November
  • “A-” credit rating (Standard & Poors)
  • Minimum Investment of $10,000 – thereafter in multiples of $1,000

These securities will be listed on the New Zealand Stock Exchange; so will be able to be freely traded. The full $125million has been allocated to brokers, and there will be no public pool. We have a limited allocation.

 

CONTACT OUR OFFICE AS SOON AS POSSIBLE IF YOU WOULD LIKE TO TAKE PART IN EITHER OF THESE OFFERS

 

Asset Allocation and Model Portfolios

Asset allocation is said to be the most important aspect of an investment portfolio. How much risk you are prepared to take will determine what percentage of your investment sum will be allocated to the various asset classes. Someone with a secure income from paid employment is likely to take more risk with their investments than someone relying on Government Superannuation. Your stage in life will also determine how much risk you take, with young people able to endure more risk than retirees. I use five model portfolios as a starting point to allocate a client’s assets when putting together a portfolio.

 Conservative

A conservative investor seeks income over growth, and is concerned with the maximum protection of their capital. Returns will be consistent and liquidity will be good. Funds are invested in Government Stock, bank deposits, and investment grade fixed interest securities. Because of the very low risk involved, returns will be lower. Inflation will have a negative effect on such a portfolio.

Balanced-Conservative

A balanced-conservative investor seeks mainly income over growth, but also wants to preserve some of the value of their capital. A small proportion of funds will be invested in higher-yielding shares for this purpose. The negative effects of inflation may not be entirely eliminated.

Balanced

Balanced investors seek income and capital growth. They aim to grow their assets in line with inflation, and will hold a number of growth assets such as shares to achieve this. Volatility in returns will increase; therefore investors in this category need a longer time frame.

Balanced-Growth

Balanced-Growth investors seek growth with some income. They aim to grow their assets at a faster rate than inflation, and are prepared to take more risk to do so. Income is less important than for a Balanced investor. Volatility is higher, and will suit investors with a five-year to ten-year time frame.

Growth

Growth investors are seeking to increase the value of their capital. They don’t require income from their investments, and are prepared to accept a higher level of volatility and a lower level of liquidity. The majority of assets are invested in growth securities such as shares and property, and would suit investors with a long time-frame, and a reliable primary income.

Asset allocation forces us to pigeonhole investors into a pre-determined category. We realise that everyone is different and will require an asset allocation that suits their specific situation; however model portfolios are a good point from which to start the process.

Kathmandu

At the time of writing I am unsure whether or not I can secure an allocation of the Kathmandu IPO. I have a list of people who have expressed interest, and if I do receive an allocation I will be offering it on a first-come, first-served basis. I personally have my reservations about the offer. It’s a great brand, and has performed well, however I can’t help but be cynical about a private equity firm selling out so soon after they have bought the business. News that the original founder, Jan Cameron, intends to compete head-on with Kathmandu would also concern me. I would let the business get some runs on the board as a listed entity before I bought into it. Of course, it will now be a raging success, trebling its share price in the first five years!

Barramundi

Barramundi shareholders have been sent a prospectus and investment statement for the new warrants the company has issued. Many investors have been confused with regard to what action they need to take. As I understand it, shareholders need take no action at present. Warrants will be issued to you based on your shareholding at October 23, 2009. There was a suggestion in the prospectus that holders of the existing warrants could exercise those warrants in order to increase their shareholding before October 23, and therefore be issued more new warrants as a result. This would have been a pointless, and expensive, exercise, as you could have simply bought more shares in the market at less than the cost of exercising the warrants (0.80cents versus $1.00). The important thing now is for warrant holders to keep an eye on the share and warrant prices. Your warrants give you the right to buy Barramundi shares at 0.75cents on certain days up to October next year. If you don’t want to own more Barramundi shares, you may want to sell the warrants. Today they are trading at 0.12cents. Call the office if you want to discuss your situation.

Portfolio Service

Bramwell Brown offers what I believe to be a very competitive portfolio service. We can manage the administration of your investments for you at one-third of the cost of most financial planners. We receive all the paper-work associated with your investments (annual reports, interest and dividend advices, rights issues, and other company mail) and liaise with your accountant at the end of the year. If you travel regularly, or would simply like to hand over the administration of your portfolio to someone else, call the office to discuss.

 

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