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How to get Coles to give you money for 11 years

Young female investor holding cash
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There is much disagreement about where the world and share markets are heading.

Should you buy growth stocks or value shares? Should you build up your cash reserves in case of a second COVID-19 crash? Will there be a vaccine soon?

The divergence in opinion indicates one sure thing: no one knows.

For those wanting to hedge against the uncertainty, defensive shares might be an answer.

These are shares that sell products or services that will still have high demand even if the economy becomes depressed.

Grocery and healthcare providers are two examples – people still have to eat and will get sick regardless of what the economy is doing.

Pengana Australian Equities Fund senior fund manager Rhett Kessler famously bought up $110 million of shares as the world burned in February and March.

He told investors this month of two defensive shares in Pengana’s portfolio:

Get Coles to send you money for 11 years 

Waypoint REIT Ltd (ASX: WPR) is a real estate investment trust (REIT) that focuses on commercial properties. 

Real estate funds are currently out of favour due to uncertainty in how people might commute and work in the future. 

But Kessler said Waypoint has a major advantage in its relationship with Coles Group Ltd (ASX: COL).

“Its lease expiry dates prolong for 11 years or longer. So there’s 11 years of certainty,” he told an investor briefing.

“Its 95% tenant is Coles, through Shell petrol stations. So it’s essentially the landlord for the Shell forecourts — the pieces of land that petrol stations are built on.”

The agreement with Shell has a 3% ‘inflator’, meaning rents go up automatically each year.

And what’s remarkable is that this ownership hardly involves any maintenance costs.

“All its leases are ‘triple net’, which means the management team turns up every month, puts out its hand and Coles or Shell pays them rent. And Coles or Shell takes care of rates, taxes, maintenance capex, everything else,” said Kessler.

“We often tease [Waypoint] management about why they need a CEO, CFO and a IR person.”

Lucky for Pengana investors, Kessler was able to buy up Waypoint shares back when it had 8% yield. The price is a bit higher now, so yields 4.59%.

Invest in gold without owning a safe 

For centuries, investors have flocked to gold in times of anxiety. As well as its aesthetic use, in modern times the precious metal is useful for industrial purposes.

Kessler also feels gold is a good hedge against quantitative easing and inflation.

“We felt holding gold would be providing us some protection against all the printing presses being turned on.”

To simulate investment in gold without actually buying bars that you have to safely keep somewhere, many people buy gold ETFs or gold miners.

Kessler is a fan of this approach for another good reason.

“We don’t like holding physical gold because it doesn’t generate an income.”

Pengana Australian Equities Fund’s answer was Evolution Mining Ltd (ASX: EVN).

“We’ve never owned a gold company before and it’s done really well for us.”

Kessler said his team looked for “the lowest cost gold producer, with a well diversified set of gold mines and was run by a competent and honest management team with a balance sheet with no debt.”

The gold price and gold shares have since gone up, so the fund has sold out a significant portion.

Where to invest $1,000 right now

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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