No one will be surprised that the Reserve Bank of Australia (RBA) left interest rates unchanged at a record low of 0.25% today. But there are three things that every investor should know.

Before I get into that, it’s worth pointing out that the S&P/ASX 200 Index (Index:^AXJO) failed to react to the news as it continued to hover around breakeven.

But the Australian dollar ticked up slightly to US67.9 cents when the RBA released its monetary policy decision.

Currency traders are probably reacting to the relatively upbeat statement by RBA governor Philip Lowe and reassessing the prospects for negative interest rates.

Sounding upbeat

On the first point, the Governor Lowe is taking a glass half full perspective on the COVID-19 fallout.

While highlighting that we are suffering from the worst economic contraction since the Great Depression of the 1930s and that total hours worked dropped by a record 9% in April as 600,000 Australians lost their jobs, he thinks the downturn won’t be as bad as earlier expected.

The RBA also believes that bond markets are functioning well. So well in fact, that the central bank only had to buy government bonds once in the past month and that total purchases up to date stands at $50 billion.

Negative to negative rates

The second thing to note is that the market may be over estimating the chance of negative interest rates here.

Some believe that the RBA will have to adopt this drastic policy of charging financial institutions to park money with the central bank. Other central banks, like its European counterpart, have used this to stimulate their sagging economies.

Negative rates aren’t so much about lowering borrowing costs for businesses and consumers, but about “incentivising” nervous financial institutions to lend by penalising them for being too cashed up.

Dr Lowe played down the chances of negative rates here on a few occasions, and his statement seems to confirm this even though it didn’t mention negative rates.

Passing the buck to government

For one, his comments on how well bond markets are working suggest that the financial system is working as it should be.

The RBA’s relatively upbeat view on the economy further drives home the point with our central bankers looking to manage the economy with a light touch, in my view.

The RBA doesn’t look like it will be doing much in the interim as it is prepared to sit back to see what happens next.

This could put the federal government under more pressure to support the economy with the Morrison Government tipped to announce housing grants and other fiscal measures to support sectors of the economy that are on their knees.

Don’t feel abandoned

This takes me to the final takeaway from the RBA’s decision. While RBA may be taking a step back, it’s reassuring investors and borrowers that it stands ready to act if and when required.

No one knows how the unprecedented coronavirus crisis will play out, not even the central bank, but as Dr Lowe said: “the Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional.”

More reading

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Whilst it has been a tumultuous few months for the S&P/ASX 200 Index (ASX: XJO), there are several companies that have benefitted directly from coronavirus-related lockdowns. Companies such as JB Hi-Fi Limited (ASX: JBH) did a roaring trade in work from home equipment. So too did Wesfarmers Ltd (ASX: WES) subsidiary, Officeworks. Yet several others have also benefitted with little or no fanfare. 

An ASX 200 growth giant

Jumbo Interactive Ltd (ASX: JIN) is one of the great growth shares of the past 10 years. It returned investors over 25 times their initial investment on 1 January 2010. Yet year to date, the company’s share price is still 20% down. 

Jumbo predominantly sells lottery games online. Prior to lockdown, 75% of lottery tickets were sold via retail outlets. I believe it’s fair to assume that even if lottery sales declined overall during the lockdown, the volume sold online is likely to have grown. As mentioned, Jumbo Interactive’s share price is 20% down year to date. The company recorded its lowest share price of $6.99 on 16 March, one week earlier than most of the market.

Jumbo is one ASX 200 growth company I particularly like. It has sound financials across most major valuation metrics. Compare this to say, Xero Limited (ASX: XRO), a company that posted its first profit last financial year.

Over the past 8 years, Jumbo has grown its sales volumes by 12.5% on average. Last year’s sales grew by 42% after the company began to license its software to other lottery sales organisations. 

Healthcare benefits

Ramsay Health Care Limited (ASX: RHC) initially appeared to be one of the definite ASX 200 losers of the pandemic. Early bans on elective surgeries were in place to ensure the availability of resources should COVID-19 take hold in Australia. This is the core of Ramsay’s revenue streams. 

However, very smart and agile thinking on behalf of the company has, at least, trimmed those losses. Over the course of the pandemic, Ramsay has done deals with governments throughout Australia and in the United Kingdom. These deals ensure that for the period of the agreements, the company will not lose money on its private hospitals. In return, it has guaranteed the availability of beds for coronavirus patients should they be required. 

We have seen agility across a range of smaller companies during the lockdown. However, it is rare to find an ASX 200 company able to act swiftly enough to mitigate lost revenue to this extent. Ramsay’s share price is down by only 5.8% year to date and is up by 48% since its low point on March 23. 

While it is presently trading at a price-to-earnings ratio greater than its 10-year average, I believe the company is selling at a good price. It has shown consistent growth over the past decade, and I remain impressed by the current management. 

More reading

• Is the AFIC share price a buy right now?
• 2 ASX 200 shares to watch on Tuesday
• 3 ASX shares to buy and hold for the next 2 decades
• 3 strong ASX dividend shares to buy right now
• Buy these ASX growth shares for monster returns

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of Wesfarmers Limited and Xero. The Motley Fool Australia has recommended Jumbo Interactive Limited and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy? The AFIC share price is recovering after the previous coronavirus market selloff.

It has done particularly well recently after the strong ASX bank rally. That saw AFIC shares go up 7.1% between 25 May 2020 to now.

If you haven’t heard of AFIC it’s the largest listed investment company (LIC). It has been operating for close to 100 years. The job of a LIC is to invest in other shares on behalf of their shareholders. AFIC has been doing a reliable job for decades.

What are some of the shares that AFIC is invested in?

I’m sure you recognise AFIC’s largest investments with shares like CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Transurban Group (ASX: TCL) and Wesfarmers Ltd (ASX: WES). Essentially, it’s mainly invested in those large Aussie blue chips. 

AFIC isn’t as invested in banks as the ASX index, which would have helped lessen the market selloff a couple of months ago.

How has it performed compared to the ASX 200?

The AFIC share price held up pretty well during the coronavirus selloff. At the end of May 2020 AFIC could show that its net asset performance (including franking) performed 2.6% better than the S&P/ASX 200 Accumulation Index (including franking) over the past year, with a fall of just 3%. Despite that recent outperformance, it still lags the index over the past five and ten years.

However, at the moment the AFIC share price is trading at a 6.9% premium to the May 2020 net tangible assets (NTA). That means you’re buying $1 of AFIC for less than $1 of assets. Not a great deal.

The dividend has been reliable over the long-term – but will it continue to be sustainable if banks are not paying the same dividends as they were before? However, I do like that AFIC’s operating costs are so low at just 0.13% per annum.

AFIC isn’t a bad option. But it’s trading at a noticeable premium right now, so you may as well just go for an ASX 200 or ASX 300 exchange-traded fund (ETF) which you can buy at asset value.

More reading

• 2 cheap ASX 200 shares to buy right now
• Is the CSL share price a buy?
• 2 ASX 200 shares to watch on Tuesday
• 3 ASX shares to buy and hold for the next 2 decades
• 3 strong ASX dividend shares to buy right now

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Transurban Group and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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