Pros and Cons of Movable Assets – Sunstone Edu Series 2
Sunstone is proud to bring you the second installment of the Sunstone Edu Series.
In Series One; we mentioned the Section 12J industry sectors, and today we would like to discuss, and share some detail on movable assets.
What is a movable asset?
A movable asset is anything which is not a part of a building/fixed asset. For example a motor vehicle or a security camera. The benefits of investing into a movable asset, versus an immovable asset (like property) is that these movable asset investments are associated with higher levels of liquidity (see definition below) and will typically try to provide returns in the form of dividend payments throughout the investment period. This can be quite attractive when enhanced by the tax benefit.
By contrast, investments into immovable assets are illiquid and generally associated with capital growth (increase in the value of the asset itself) which compensates for its delayed/smaller dividends throughout the investment duration. This means that the main incentive to invest is in the gain in value when the asset is sold/realised at the end of an investment period.
Liquidity refers to the speed at which an asset can be sold and converted to cash at a price equal
to its market value. This is an important feature when investing in a non-publicly traded share as it provides investors with the confidence that a share buyback can be speedily facilitated in order to exit (selling their shares back to the company).
Liquidity – Liquidity refers to the speed at which an asset can be sold and converted to cash at a price equal to its market value. This is an important feature when investing in a non-publicly traded share as it provides investors with the confidence that a share buyback can be speedily facilitated in order to exit.(selling their shares back to the company)
One economic benefit of being able to invest in movable assets through section 12J is that is has given SME’s access to finance, therefore thereby assisting them in growing and scaling their businesses and in turn the economy. At the same time investments can generate attractive dividend yields without direct exposure to operational risk of the assets, this is done by renting the assets out at predetermined rates and allowing the other party to take on the risk and reward of renting them out to the end user while providing predictable returns for the investor.
Features of an investment into a movable asset:
- Low risk – Rental income is at a predetermined rate, and is not subject to levels of operational use. This allows for consistent monthly rentals which form our profit.
There is also limited exposure to operational risk of operators as the QC’s (qualifying companies) maintain ownership of the asset throughout through an operating lease/rental agreement.
- Resale Value –We aim to only purchase assets which either have standing resale agreements on them or at the very least a strong track record of maintaining value in order to maintain predictability.
- Duration of investment – Depending on the type of asset we invest in assets that have historically been between 18 – 36 months at a time before we cycle the assets. The value is that we are able to engage with new investment opportunities as they become available in order to maximise investor returns over time.