Author: therawinformant

The Australian Prudential Regulation Authority (APRA) this week released its Banking COVID-19 frequently asked questions (FAQs). 

Here are a few of the key takeaways from the release and what it could mean for ASX bank shares like Westpac Banking Corp (ASX: WBC).

What APRA’s update means for ASX bank shares

Importantly, the update tackled the issue of loan repayment deferrals. Authorised deposit-taking institutions (ADIs) offering payment deferrals to businesses and other borrowers do not need to treat this as a period of arrears.

That’s good news for ASX bank shares ahead of the earnings season. It’ll be interesting to see how Commonwealth Bank of Australia (ASX: CBA) reports its loan book with the rest of the big four to follow in October / November.

APRA also gave some guidance on residential mortgage lending. The Aussie regulator acknowledged the challenges associated with loan serviceability assessments for borrowers amid the coronavirus pandemic.

That could mean results for the ASX bank shares don’t fully reflect underlying deterioration in debt serviceability. 

The Aussie regulator provided some commentary on both market risk and credit risk. Thanks to the volatility in the March bear market, APRA expects to see an increased level of market risk capital held by the Aussie banks.

In terms of credit risk, one of the FAQs discussed revaluation of residential properties. That’s a hot topic right now and one that would concern both ASX bank share investors and homeowners.

Thankfully for both, ADIs will not be expected to revalue residential mortgage properties. That could mean the loan book is looking a touch healthier in these earnings results.

Foolish takeaway

There’s a lot to unpack from APRA’s Banking COVID-19 FAQs. No one really wants to read regulatory documents just for fun.

However, there are some important implications for ASX bank shares ahead of upcoming earnings releases. 

While the longer-term implications of the pandemic aren’t yet clear, this clarification is a good thing. It means both investors and the banks are clearer on what’s ahead for annual and half-year reporting.

More reading

• HUB24 and 2 more ASX 200 shares to watch this week
• 3 ASX dividend shares I like ahead of the August earnings season
• ASX 200 Weekly Wrap: ASX has week of high volatility
• 5 simple steps to financial independence
• Buffett buys more bank shares: Should you?

Motley Fool contributor Ken Hall 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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Warren Buffett – chair and CEO of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) – is often regarded as the greatest investor of all time. Not only does Buffett have an incredible track record of investing, but he is also well-known for his folksy approachability and pithy wisdom when it comes to stock picking.

As such, for most investors (including yours truly), he is a great person to draw inspiration from in navigating the sometimes-treacherous waters of the financial world. Our Fool colleagues over in the US have a comprehensive list of Buffett’s best quotes, so here are 3 that I think are worth keeping in mind as we embark on another week in the trenches of investing.

1) “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

Whenever I think about the ‘flash crash’ that S&P/ASX 200 Index (ASX: XJO) shares went through back in March, this is the quote that comes to mind. In my opinion, there was a period (around 19–24 March), where there were deals going left, right and centre in the share market. Whether it was Wesfarmers Ltd (ASX: WES) offering a price of $29.75 or Afterpay Ltd (ASX: APT) going for $8.01, there were more fish in the barrel than I had bullets.

In times like these, the more cash you have at your disposal, the more ‘gold’ you can collect. So if you think there are storm clouds on the ASX horizon, you better be working on converting your ‘thimble’ of cash to a bucket and fast!

2) “Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Those who seek short-term profits should look elsewhere.”

I love this quote as it wittily sums up the benefits of having a long-term investing horizon. There is no way in my view that Buffett could achieve a compounded annual average return of more than 20% per annum for Berkshire if he didn’t have this kind of mindset. If you own quality companies that effectively turn cash into more cash, short-term market fluctuations shouldn’t bother you too much!

So, I think all investors should aim to replicate Berkshire’s success in this way. You may not find Buffett’s style of investing congruent with your own, but I think his attitude towards time horizons is universally applicable and advantageous for all investing types.

3) “The most important thing to do if you find yourself in a hole is to stop digging.”

This one seems like common sense, but don’t underestimate how emotionally difficult it can be to let go of an under-performing investment. You might be hesitant to crystallise a loss, or otherwise be holding onto some irrational hope that a misfiring company can miraculously turn things around. I once had an investment where I doubled down when I should have just held my nose and sold out. I ended up losing almost all of my capital anyway.

So, if you have a loser in your portfolio, take a breath and assess whether the investment in question is irrevocably in the hole. If it is, then perhaps it’s time to put down the shovel. It’s tough, but, speaking from experience, turning a 50% loss into a 90% loss is even harder to deal with.

More reading

• Why these brokers are telling you to buy the crashing IAG share price today
• 2 ASX shares to buy as alternatives to the pitiful returns from a term deposit
• 2 top ASX growth shares to buy for long-term growth
• Is it time to dollar-cost average into ASX shares?
• All Technology Index celebrates 6 months with stunning outperformance

Sebastian Bowen 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 Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of AFTERPAY T FPO and Wesfarmers Limited. The Motley Fool Australia has recommended Berkshire Hathaway (B shares). 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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My ASX share of the week this time is listed investment trust (LIT) Magellan Global Trust (ASX: MGG) at today’s share price.

A quick overview of Magellan Global Trust

Magellan Global Trust is a LIT that was listed in October 2017. It is operated by the fund manager Magellan Financial Group Ltd (ASX: MFG).

The job of a LIT is to invest in other shares on behalf of shareholders. This particular LIT invests in global shares.

The two portfolio managers of the LIT are Stefan Marcionetti and Magellan co-founder Hamish Douglass.

The investment style of Magellan is to invest in the highest-quality shares at prices where it can make good long-term returns.

At the end of June 2020 its top 10 holdings and allocations were: 9.4% to Microsoft, 6.6% to Facebook, 6% to Alibaba, 5.9% to Alphabet, 4.9% to Tencent, 4.4% to Reckitt Benckiser, 3.8% to Atmos Energy, 3.3% to Visa, 3.1% to Eversource Energy and 3% to MasterCard.

Why I like the trust’s investment style and holdings

Only a certain number of businesses deliver outperformance of the market over the short-term and long-term. If you stay invested in the quality businesses for the long-term then they can deliver strong compound growth. Just look at how well Microsoft, Alphabet, Visa and Mastercard have done for investors.

The less investment decisions you have to make the better, if you’re invested in the right shares. I like that Magellan Global Trust tries to be a long-term investor. But it’s willing to sell as well, when it seems right to do so.

Whether it’s good times or bad, quality businesses are usually able to perform strongly. Just look at how shares like Alphabet and Microsoft have bounced back since the March 2020 crash.

Many of its top holdings are well positioned with whatever happens next with COVID-19. Businesses like Microsoft, Alphabet, Facebook, Alibaba and Tencent are internet, IT and ecommerce businesses which can keep thriving through COVID-19. Energy and utility companies are solid defensive options – they should continue to be robust businesses because of their essential service.

The Magellan Global Fund, a sibling fund, is one of the oldest Magellan funds. At 30 June 2020 it had generated returns of 15.8% per annum over the past decade, which shows the types of returns that Magellan Global Trust could make over the long-term.

Why I think it’s a buy today

I think Magellan Global Trust is a buy at this share price for a few key reasons.

The first is its quality portfolio that I outlined above. I think quality global businesses will be able to perform better than the ASX over the next 12 months and the long-term. The Magellan portfolio is stuffed full of quality businesses. I like the mix of growth and defence.

Another reason I think it’s a buy is that it’s trading at decent value. The current intraday indicative net asset value (NAV) per unit is $1.824, which means the Magellan Global Trust share price is at a 2.5% discount to the NAV. I like being able to buy assets cheaper than what they’re worth, with a manager that consistently outperforms its benchmark after fees.

The third reason why I think it’s a buy today is that the Australian dollar is the highest it has been against the US dollar. That means it’s cheaper to buy US shares in Australian dollar terms. Many of the shares in Magellan Global Trust’s portfolio are listed in the US.

The final reason why I think it’s a good buy today is its cash position. At 30 June 2020, 18% of the portfolio was allocated to cash. This gives the trust good downside protection if the share market were to fall again due to COVID-19 impacts, or perhaps due to the upcoming US election.

I do think the US election will cause more volatility over the next few months. So if you don’t think it’s good enough value to buy today, I think that the US election could create an even better buying opportunity.

More reading

• How to become a millionaire with ASX shares starting with $0
• Where should you invest $1k into ASX shares?
• How to create a yearly income of $65,000 in dividends
• 2 ASX shares for investors aged 50+
• Got $3,000? Here are 3 great ASX shares to buy

Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS. 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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The Estia Health Ltd (ASX: EHE) share price is sinking lower on Monday after the release of a coronavirus update.

In late afternoon trade the aged care provider’s shares are down 7% to $1.47.

This latest decline means that the Estia Health share price has now lost 50% of its value since peaking at a 52-week high of $2.93.

What did Estia Health announce?

This morning Estia Health provided an update on the impact of the coronavirus outbreak in Victoria on its operations.

According to the release, the company has been issued with notices from the Aged Care Quality and Safety Commission in relation to COVID-19 outbreaks at its homes in Heidelberg West and Ardeer.

It also confirmed that it implemented the requirements within the notices, which relate to the monitoring and management of the outbreaks.

These requirements include not admitting new residents into the home until the Victorian Public Health Unit has declared the home cleared of COVID-19; the immediate appointment of an independent adviser to assist with ensuring the health and wellbeing of residents; and providing daily and weekly reports to the Commission on managing the outbreak.

A very challenging time.

Management commented: “This is a very challenging time for our residents and their families. We have added extra support so that families are regularly updated about their loved ones, including those residents that have been transferred to hospital. We are providing daily updates to family members on their comfort and condition; and families can access a dedicated support line for the home.”

It also advised the market that it isn’t possible to quantify the full financial impact on the company arising from the “rapidly evolving COVID-19 situation in Victoria.”

A further update is likely to be given with the release its FY 2020 full year results next month. At present this is scheduled to occur on 18 August 2020.

More reading

• ASX 200 goes up 1%, big 4 ASX banks rise

Motley Fool contributor James Mickleboro 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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The COVID-19 pandemic has stunted the growth of many S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) shares. Conversely, it has presented opportunities for ASX 200 healthcare shares, particularly those that are engaged in products and services used in the prevention and treatment of COVID-19. Could these ASX 200 healthcare shares be a buy despite a significant run-up this year? 

1. Resmed Inc (ASX: RMD) 

Resmed is engaged in the development, manufacturing and distribution of medical devices and cloud-based software applications that diagnose, treat and manage respiratory disorders. More recently, the company has pivoted its business to support the surge in demand for respiratory devices. This involves ramping up production for products such as life support ventilators, non-invasive ventilators and ventilation mask systems.

In its Q3 update, Resmed advised its revenues had increased by 16% while net operating profit soared by 39%. I believe it is very challenging to buy at today’s Resmed share price. It trades at an expensive valuation and also hit an all-time record high last week. However, the company does play a pivotal role in supplying critical COVID-19 related products. Furthermore, its accelerated earnings are likely to push the Resmed share price higher in the medium to long term.  

2. Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) 

Fisher & Paykel delivered its full year results on 29 June. The company saw its operating revenue up 18% over the last year while net profit after tax increased 37%. The increase in revenue was largely driven by growth in the use of the company’s Optiflow nasal high flow therapy, demand for products to treat COVID-19 patients and strong hospital hardware sales throughout the course of the year. Like Resmed, the company is ramping up production, having brought forward capital expenditure to complete its fourth manufacturing building in New Zealand. Looking forward, the company has forecast operating revenue for 2021 to increase by 18% and net profit after tax to increase in the range of 13% to 18%. 

3. Ansell Limited (ASX: ANN) 

Ansell will announce its FY20 full year results on Tuesday 25 August. In February, the company highlighted that macroeconomic conditions were softening with political and cyclical uncertainties likely to prevent a strong rebound in global business investment. While overall business conditions remain a challenge, COVID-19 is likely to be an opportunity to lift Ansell’s earnings. Its 1H20 results highlighted the company’s involvement in producing personal protective equipment (PPE) for Chinese authorities. Given Ansell’s global footprint, it’s quite likely the company will expand sales of its PPE products to other geographies. 

Foolish takeaway

All three ASX 200 healthcare shares have experienced significant gains in 2020. Despite the companies trading at tech-like valuations, it’s possible they will grind even higher. Particularly given increasing global COVID-19 cases and the relevance of their products and services. While I wouldn’t be buying these shares at today’s prices, I would watch them closely for opportunistic pullbacks. 

More reading

• 3 fantastic ASX growth shares to buy in August
• Get rich with these stellar ASX growth shares
• How mandatory masks could impact these ASX shares
• 2 five star ASX healthcare shares to buy in July
• ResMed share price rockets to record highs

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ansell Ltd. and ResMed Inc. 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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The Lynas Corporation Ltd (ASX: LYC) share price is up by 10.14% at the time of writing, after the company signed a deal with the United States (US) Department of Defense (DoD) for a phase 1 heavy rare earth separation facility.

April announcement

This follows an announcement in April that the US DoD intended to award Lynas the phase 1 contract.

Lynas CEO Amanda Lacaze said at the time the deal created the foundation for a facility that would help the US “avoid the supply chain vulnerability that has been exposed over the past year”. 

As a result, it reflected the US desire to diversify its geographic supply of rare earth materials.

Heavy rare earth facility

Lynas and its US partner Blue Line will undertake a strategy study plus planning and design for the construction of a heavy rare earth separation facility – the only source of separated heavy rare earths outside China.

Completion of this work is expected within the 2021 financial year.

Lynas will process the materials sourced from Lynas mine in Mt Weld, Western Australia.

“We are very pleased to have signed a contract with the DoD for this Phase I work,” Ms Lacaze said today.

“Heavy Rare Earths are essential for the high performance magnets used in electric motors, and Lynas has the feedstock, intellectual property, and track record to deliver a Heavy Rare Earths facility in a timely and low-risk manner. We look forward to working with the DoD to progress this project,” she added.

About the Lynas share price

Lynas Corporation is the world’s second largest producer of rare earths and only significant producer outside China. Rare earths are an essential component of digital age technologies and green technologies such as electric vehicles and wind turbines. 

The company’s assets include its Mt Weld mine, Mt Weld Concentration Plant and a manufacturing facility in Malaysia. According to Lynas, Mt Weld is recognised as one of the highest grade rare earths mine in the world.

Lynas shares reacted positively to today’s developments, rising by 10.14% to $2.39 per share at the time of writing. However, the Lynas share price is still 10.15% down on this time last year.

More reading

• ASX 200 up 0.25%: Lynas rockets on U.S. deal, gold miners surge, bank shares tumble
• Why Lynas, Northern Star, REA Group, & Sezzle shares are storming higher
• Escalating US-China tensions are sending these ASX stocks jumping higher today

Motley Fool contributor Matthew Donald 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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If you’re wanting to add some blue chip ASX shares to your portfolio, then you’re in luck.

The ASX 50 index is home to a good number of blue chips that I believe have the potential to generate strong returns for investors in FY 2021 and beyond.

Two blue chip ASX 50 shares that I would buy are listed below. Here’s why I like them:

Cochlear Limited (ASX: COH)

The first blue chip ASX 50 share to consider buying is Cochlear. I think the global leader in implantable hearing devices could be a fantastic long-term investment option. This is due to its exposure to the ageing populations tailwind. Because hearing tends to fade as people get older, I expect demand for hearing products to increase strongly over the next couple of decades.

And given the industry’s high barriers to entry and its material investment in research and development, I believe it well-placed to capture this growing demand. Overall, I suspect that this could lead to the Cochlear share price outperforming the ASX 50 over the next decade.

Goodman Group (ASX: GMG)

Another blue chip ASX 50 share to consider buying is Goodman Group. It is an integrated commercial and industrial property group that owns, develops, and manages industrial real estate in 17 countries. Among its portfolio you’ll find warehouses, large scale logistics facilities, and business and office parks.

The main attraction to the company for me are its warehouses and logistics facilities. I believe these have put Goodman Group in strong position for growth over the next decade thanks to their exposure to the structural tailwinds of the ecommerce market. These assets have long term relationships with the likes of Amazon, DHL, and Walmart. In respect to the former, last month the company strengthened its relationship with Amazon. The ecommerce giant signed a 20-year lease for a distribution centre in Western Sydney owned by its joint venture with Brickworks Limited (ASX: BKW).

More reading

• 3 junior ASX healthcare shares with explosive growth potential
• Buy and hold Cochlear and these ASX shares for strong long term returns
• Why Mesoblast might be the best ASX healthcare growth share to own right now
• 3 of the best ASX blue chip shares you can buy right now
• What you need to know about Downer’s share price, $400m cap raise and acquisition

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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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The Coles Group Ltd (ASX: COL) share price has been a pretty decent performer over the last few months. Since 14 May, Coles shares have risen almost 20%, which includes making a new all-time high of $18.32 earlier this month. At the time of writing, the Coles share price is going for $17.96, which translates into a price-to-earnings (P/E) ratio of 20.2 and a trailing, fully franked dividend yield of 2.34% (3.34% grossed-up).

Coles is a consumer staples giant that investors flocked to when the coronavirus pandemic first struck. Although panic buying and the now-infamous hoarding of household essentials boosted Coles’ sales in March and April, things have arguably quietened down for the supermarket chain. So is the Coles share price still a buy today?

Coles launches new range of collectables

According to reporting in today’s Australian Financial Review (AFR), Coles is poised to launch a new range of collectables. Coles’ first foray into collectables came a few years ago in the form of the ‘Little Shop’ toys. It was a raging success and prompted a ‘collectables’ war with arch-rival Woolworths Group Ltd (ASX: WOW) that lasted until the start of this year. With the pandemic taking over priorities at Coles, it’s been radio silence for a while on any new collectables range. Until now.

The AFR reports that Coles’ new campaign will come in the form of pocket-sized children’s books. These will be produced in partnership with beloved children’s author Andy Griffiths and illustrator Terry Denton. The series will reportedly ‘draw inspiration from the award-winning Treehouse series’.

There will be 24 books in the series, including (of course) 4 ‘rare’ editions. Customers will be eligible for a ‘free’ book if they spend $30 or more in a single Coles shop.

The pocketbooks follow Coles’ Little Shop and Little Shop 2 promotions of recent years, as well as Woolies’ Lion King ‘Ooshies’ and ‘Secret Garden’ plant campaigns.

Is the Coles share price a buy today?

I think Coles’ new campaign could be a success for the company. I believe there’s a reasonable chance that branching out into books might be a hit with educationally-minded parents and collectable-loving kids alike.

However, just because Coles’ new program might hit the right note with consumers, this doesn’t mean Coles shares are necessarily a buy today. From where I’m standing, the Coles share price is at least being priced at fair value right now, and possibly even at a premium given its defensive nature as a business. A 2.34% dividend yield isn’t something to write home about either, in my view.

Further, with this announcement, it’s highly likely Woolworths will be dreaming up a rival scheme of its own, which could steal the wind from Coles’ sales, just like it did with the Ooshies toys.

Foolish takeaway

I think Coles is a solid business and certainly has a place in a diversified dividend portfolio. But I’m not too excited about the Coles share price or dividend potential right now. This new collectables campaign (even though it could be a hit) doesn’t change my mind on this thesis.

More reading

• These shares were the ASX 200’s biggest losers last week
• ASX 200 Weekly Wrap: ASX has week of high volatility
• Here are easy ways to diversify your ASX portfolio
• Should fixed-interest investments be part of your ASX share portfolio?
• 5 steps to start investing in ASX shares

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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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The Insurance Australia Group Ltd (ASX: IAG) tanked for a second day, but bargain hunters might soon swoop as a number of top brokers highlighted the stock as a value buy.

Shares in the insurer tumbled 4.2% in after lunch trade to a five year low of $5.09 when the S&P/ASX 200 Index (Index:^AXJO) inched up 0.1%.

Today’s loss comes after the IAG share price crashed around 8% yesterday on the back of a disappointing profit update.

Management warned that it suffered a pre-tax loss on investment income of around $280 million since the start of the financial year to end April and is unlikely to pay a dividend.

Missing the ASX rebound

The insurer blamed falling equity markets for part of its woes. I guess it’s safe to say it didn’t invest in superstar stocks like the Afterpay Ltd (ASX: APT) share price or Fortescue Metals Group Limited (ASX: FMG) share price during the market sell-off.

In fact, it cut its exposure to risk assets through the COVID-19 turmoil as its exposure to growth assets fell to 30% of its total investment portfolio from 49% at the end of the 2019 calendar year. IAG wasn’t expecting a big rebound in March.

This reinforces the view that mum and dad investors have been beating the experts for all the right or wrong reasons.

More defensive than its peers

But I digress. The more important question to investors looking for the next bargain is whether the IAG share price is too cheap to ignore.

A number of leading brokers think so. Citigroup believes at this price, IAG is looking more defensive in this highly uncertain COVID-19 environment than other stocks.

This is because of IAG’s limited downside exposure to insurance claims from disasters as its reinsurance arrangement provides a stop-loss for FY21.

Citi commented that while the reinsurance cover was expensive, it means IAG’s perils allowance for FY21 only rises by $17 million to $658 million.

The broker reiterated its “buy” recommendation on the stock even as it cut its price target to $6.15 from $6.60 a share.

Bad news more than priced in

Meanwhile, Credit Suisse is sticking to its “outperform” rating on the stock after upgrading IAG on May 25.

“Clearly this has not been a good call and the momentum is against IAG currently,” said the broker.

“However, we stick to our fundamental approach in picking stocks and maintain the view that IAG is ahead of the curve on the challenges that lie ahead and its valuation appeal is compelling.”

The broker incorporated the higher long-tail loss ratio and lower expected reserve release in to its forecasts. This resulted in a 6% downgrade to FY20 earnings and 3% to 5% downgrades in the outer years.

Credit Suisse’s 12-month price target on the stock falls to $6.25 from $6.40 a share.

More reading

• 3 Warren Buffett quotes to start the week off right
• 2 ASX shares to buy as alternatives to the pitiful returns from a term deposit
• 2 top ASX growth shares to buy for long-term growth
• Is it time to dollar-cost average into ASX shares?
• All Technology Index celebrates 6 months with stunning outperformance

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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Like the idea of investing in term deposits, but are put off by the disturbingly low rates? Given that the returns on fixed income are expected to remain lower for an extended period of time, why not look at some alternatives in the form of ASX shares?

The risks associated with listed entities are a lot higher than low-risk term deposits, which are protected by the Australian Government’s Financial Claims scheme for amounts of up to $250,000.

But, given that the returns from ASX shares can also be a lot higher, here are 2 options that, in my opinion, are worth considering as surrogates for fixed income.

Magellan Infrastructure Fund (ASX: MICH)

This actively managed diversified infrastructure fund invests in a portfolio of 20 to 40 infrastructure shares to ensure investors are not overly correlated to any single company, industry-specific or macroeconomic risk. It deploys the open-ended fund structure, which simply means the price at which units trade on the ASX, tends to mirror the underlying net tangible asset value (NTA) very closely.

The COVID-19 crisis has clearly been a tough time for the fund’s portfolio of global infrastructure assets, which include Atmos Energy Corp, Red Electrica Corp SA, Crown Castle International Corp, and Transurban Group (ASX: TCL).

Given that this share is a long-term play, I believe it looks well positioned to benefit from the return to normalcy as the threat of the coronavirus dissipates, with the eventual news of one or more proven vaccines likely to provide a massive kicker.

The fund has a market cap of around $626 million at the time of writing, and typically pays a dividend of around 3%.

The primary objective of Magellan Infrastructure is to achieve attractive risk-adjusted returns over the medium to long-term, while reducing the risk of permanent capital loss. By hedging the bulk of its foreign currency exposure, Magellan Infrastructure is also relatively well protected from adverse currency movements.

While the Magellan Infrastructure share price sits slightly below its NTA of $2.81 (at $2.80 at the time of writing), it’s currently trading at an 18% discount to its 21 February high of $3.44. Three years from now, I expect the current share price will have proven to be an attractive entry point.

MCP Master Income Trust (ASX: MXT)

Listed in October 2017 as a fixed-interest credit fund, the MCP Master Income Trust provides investors with direct exposure to the Australian corporate loan market. Having been the exclusive domain of regulated banks, fixed interest credit has largely been off-limits to mum-and-dad investors.

Given that the trust’s units have traded with little correlation to public domestic and international equity and bond markets, I think the trust gives investors the means to diversify their portfolios in a way that hasn’t been readily available before.

The Trust aims to provide investors with monthly cash income, low risk of capital loss and portfolio diversification by actively managing diversified loan portfolios.

Like other listed credit funds, the MCP Master Income Trust was a major casualty of the COVID-19 market sell-down. The trust’s share price swan-dived by over a third from $2.00 on 6 March to a low of $1.26 on 23 March, amid fears of a collapsing oil price and a flailing property market.

It has progressively regained most of that ground, courtesy of improving investor sentiment and a fall in credit spreads – in part due to the propping up done by central banks (notably the Reserve Bank of Australia, and the US Federal Reserve) – and is currently trading a little under its $2.00 NTA at around $1.90.

In my opinion, the underlying strength in MXT’s share price reflects its ability to consistently deliver cash income for its investors. The trust returned 5.55% per annum over the twelve months including December 2019, and 5.45% per annum since listing in October 2017.

The share has a market cap of $1.2 billion, which puts it just outside the S&P/ASX 200 Index (ASX: XJO), and it pays a respectable dividend yield of 6.1%.

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Motley Fool contributor Mark Story has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Magellan Infrastructure Fund. 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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