Super fund's borrowing through "bare trusts" is a very interesting area. Super funds can effectively borrow to buy shares as Lionel spoke about. The loan is limited recourse against the asset ie. like a warrant. Suffice to say this is a very complicated area and you would need to get specialist advice. Most accountants would not be comfortable in giving advice but probably know someone who is. Banks are usually not comfortable with lending against shares.
If you don't mind I might make a quick note as to why I am so excited about Exco for a small portion of investors - those over 55 receiving a pension in their SMSF.
They receive all their tax credits back from the government as they pay no tax at all within the fund.
Say the following takes place:
- exco pays a return of 35 cents in October. 25 cents is fully franked and 10 cents is capital return. Obviously these numbers are just an estimate subject to the ATO ruling on the issue. When the dividend was 29 cents I think the MD estimated a capital return of 8 cents.
- Super fund buys the share for 62 cents
- The share really cost them 62 cents - 35 cents return - 10.5 franking credit = 16.5 cents
What is the market going to value the shares after the return? That is the big question. If the share goes down by 35 cents (to 27 cents)they have made a signicant profit.
I would be interested to know if anyone else have considered this idea and have any thoughts.
EXS Price at posting:
62.5¢ Sentiment: Buy Disclosure: Held
