The case for Industrial Shares

Yes - many of us know this but some great case studies:

From the Factsheet - The case for industrial shares:

1. Capital Growth
2. Investing for Income
3. Tax-effective income
4. Protection against inflation

 

Good general information but It would appear to be a bit of a con in Perpetual’s case. Yes the general information about Industrial shares is correct but not how Perpetual invest. Their distributions are mostly from trading profits in the form of generally unwanted capital gains rather than from growing Dividend Income streams. Compare their growth (heavily negative) vs income distributions below. This is why Thornhill as a former employee of Perpetual won’t invest in any of their products, he want’s genuine dividends not his capital / capital growth back resulting in a potentially hefty tax bill.

 

Backtesting $10k invested in ARB from 1 January 2000. Not sure if this is right but amazing if it is. Have activated the DRP setting in sharesight.

 

Easy when you cherry pick a couple of companies and don't offer total returns on your index comparisons to make your point.

Since 2000 the Industrial's index hasn't even doubled, the XJR has almost quadrupled (the Material's Index has more than tripled).

If you have a really strong point you can probably just show all the facts without needing to skew them. Then again +1% return doesn't get anyone excited in the same way.

 

Out of curiosity I created a 10 and 20 year “total” return chart to compare ASX 200 vs Industrials vs Resources. Off course the 20 year chart includes the massive China led resources boom. This is the thing with data, the starting point makes a huge difference. Will we see another Resources boom of that massive scale in our generation?

The other important point is whether the investor takes a “total return” or a “dividend driven” approach to investing. Industrials provide a more more reliable and consistent income stream than Resources.

However I suppose that’s why indexing is so popular. You just never know what’s going to happen. So to cover all bases just invest in the lot (eg VAS)!

20 Year Chart:


10 Year Chart:


Going back even further:

 

I have owned these for a number of years and work in a similar industry. Regardless of conditions they seem to always grow revenue. Their products are extremely expensive and still power on regardless of disruptors.

 

Yes and we know what it is like since 1979 don't we Thanks Mr T.

 

Spot on. Let me choose start and end points and I can create any story you like. Market outcomes are based on unique events that can’t be replicated, we don’t deal well with that reality however.

Industrials as a source persistent alpha doesn’t hold water for me either, it once did much earlier in the journey.

 

Hi
Nodrog says "invest the lot in VAS"

I have to agree with this,,, mostly. The exception being a LIC with a Bonus Share type plan.
AND only then when using it in own name
AND asset protected by the PPSR through a Family Trust interest free loan that can be forgiven at any time or on death.
AND your tax rate is already high
AND you don't need the dividends right now.
AND you want to pass on those assets to a Testamentary Trust without risk of loosing control at death.
OR you just get sick of the Trust and want to fold it up one day without incurring CGT and just keep the LIC in your own name.

I should write a post about this, it took me years to work out what would be best for me and I suspect other forum members may be in a similar place.

But if you don't want asset protection and want the dividends now VAS is hard to go past for set and forget (which is me). Unfortunately I will have to use AFIC instead.

 

That would be an interesting post to read when you do write it!!!

 

Up 6% today. It rolls on....

 

Could say the same thing for CSL, CBA, TPM, RMD, etc.

Easier said than done to find those companies.

 

Or VGS. A bit more diversification from financials and a bit more to technology.

I prefer to avoid VGAD but my parents like it. My folks are older and don't like exchange risk. I am ok with it on dollar cost averaging.

And VAS is awesome. I am just not so keen now on the franking credits because Shorten is scaring me.

 

i think if shorten does that then many companies will simply stop doing franking credits.

 

How are companies going to stop paying tax?

 

By using tax haven and inter-business arrangement most big guys do it
That how Apple, BHP and the like do it, they set up low tax haven hub and route their goods via that hub

 

don't know as I am not a corporate tax accountant. but I guess it can be done because tax law is very complex to get.

with every new policy the polies think they have got it this time but they will just keep running after the money ... it is just a circus not a budget policy.

 

More on this:

Paying unfranked dividends

 

Unlikely as franking credits will still be valuable to many local investors except for foreigners and SMSFs in pension mode.