Ask Justin

Asked by Gerard4901, submitted 25 August 2010.

Windfall shares ex Sun Life of Canada, now known as Sun Life Financial - holding of 951 shares.

Should I sell now?

Answered by Justin on 27 August 2010

At the time of writing Sun Life Financial shares are trading at about 24 Canadian dollars (£14.60) each, which values your holding at around £14,000 – a nice windfall.

However, difficult markets have taken their toll on the share price, which has fallen almost a quarter over the last year. The fortunes of Sun Life Financial, like most financial companies, depend on investment performance in general. These types of company tend to be the first to benefit when stockmarkets are rising and the economic outlook rosy, but during troubled times they feel the pinch quicker and harder than most.

A quick glance at the company’s latest quarterly report highlights this pretty clearly. Net income during Q2 2009, a period when markets were generally recovering, was C$591 million. Fast forward to Q2 2010, when markets were hurting, and the net income plunged to C$213 – taking the share price with it.

The same report also estimates that a 10% move in stockmarkets could affect net income by C$125-175 million on the upside and C$175-225 million on the downside.

So, in simple terms, holding the shares is a fairly aggressive bet on wider financial markets and economies.

If your outlook is positive I’d hold onto the shares and if it’s negative consider selling them.

My own view is pretty negative re: the economic/stockmarket outlook for at least the next couple of years, although bear in mind I could be wrong (in some ways I hope I am).

Alternatively, if you’re unlikely to need the money for a few years you could take the view that markets will recover at some point and as Sun Life Financial appears a robust company (rated ‘very strong/excellent’ by the major agencies) it’s worth just holding on to the shares until their price returns to a more appealing level.

If you do decide to sell watch out for capital gains tax - the acquisition cost of windfall shares is deemed to be zero so the full proceeds will be taxable. But you can use your annual capital gains tax allowance (currently £10,100), if available, so spreading the sale over two tax years or giving some shares to a spouse (to use their allowance too) should avoid having to pay any tax.