Categories
Fixed Income Fixed Income

TCW Core Fixed Income I (TGCFX)

while the more expensive N share class is rated Silver. This strategy is hemmed in compared with others they run given its 5% limit on high-yield corporate, and in practice it has had very little exposure there. As a result, the strategy outpaced 80% of peers in 2020, its best calendar year relative to peers since 2012. Among traditional core bond offerings, this is one of the best options available to investors.

Executing and refining

The strategy has long exhibited a strong balance between flexibility and discipline, while smaller, more recent improvements should continue to differentiate it from peers. As a result, its Process Pillar rating is upgraded to High from Above Average. This strategy is run by value investors looking to buy bonds when they’re cheap and sell them when they get expensive. They also dial risk up and down in a predictable fashion, and have made slight changes in recent years, such as an adjustment to more dynamically manage duration, which has resulted in the strategy being more competitive.

Back on defense

As of December 2020, the strategy’s largest allocation was to U.S. Treasuries, which soaked up 41% of assets. This was up dramatically from just a few months prior; Treasuries accounted for 30% of assets at the end of 2019 before managers drew down that stake to fund purchases during the sell-off, and by March 2020 it had fallen to under 9%. Agency mortgage-backed securities were the next-largest allocation at 30% of assets, a number that also moved around dramatically throughout the last year.

The managers dropped it to 5.2 years when the Fed cut rates in early 2020 but have since been increasing it as the economy and market recovered.

Rock steady

From January 2010 (the team’s first full month) through March 2021, the strategy’s institutional share class returned 4.3% annualized, beating roughly four fifths of distinct intermediate core bond peers; the peer group’s median return over the same period was 3.8%, while the benchmark Aggregate Index returned 3.7%. Though this strategy has less flexibility to invest in high-yield than Metropolitan West Total Return Bond (this one can own up to 5%, while its sibling can hold 20%), its overall positioning has mirrored the firm’s flagship strategy. Conservative positioning heading into 2020 led the strategy to hold up better than two thirds of distinct peers in the COVID-19 sell-off between Feb. 20, 2020, and March 23, 2020. As a result, the strategy beat out 80% of peers for calendar-year 2020.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

ClearBridge RARE Infrastructure Value Fund

Our Opinion…

  • Well-resourced with a highly experienced team. RARE’s investment team is one of the largest in global listed infrastructure with 11 investment professionals focused on analysis of infrastructure securities solely. The Fund is managed by Nick Langley, Shane Hurst and Charles Hamieh and more recently Simon Ong who possess strong credentials and investment experience. PMs Mr. Hurst and Mr. Hamieh are also responsible for the governance and management of the investment process and the Sydney-based Infrastructure Investment team. They report to ClearBridge’s co-Chief Investment Officers and PMs Scott Glasser and Hersh Cohen, who are located in New York, but by and large are left alone to manage the Fund.
  • Strong interest alignment. Relative to peers, the Manager has one of the best remuneration programs which aligns the interest of the investment team with investors. PM remuneration focuses on delivering 1-, 3-, and 5-year performance versus benchmark and peer group whilst research analysts compensation is skewed towards new idea generation, best ideas as measured in the performance model and PM feedback.
  • Investment process yielding proprietary investment Universe. RARE utilises a list of 200 infrastructure companies known as the ‘RARE 200’ as its proprietary investment universe. The ‘RARE 200’ consists of 200 of the most liquid, high quality, high concentration infrastructure companies globally. Additionally, these stocks are screened for specific characteristics including long duration in assets, predictable cash flows, low volatility, inflation protection, and monopolistic or little competition.
Main Details   APIR Code
TGP0034AU
Asset Class
Global Shares
Market Capitalisation Large
Style
Neutral (Value bias)
Fund Size
$846.6m
Fees (MER)
0.974% p.a.
Distribution
Quarterly

Downside Risks…

  • Rising interest rate environment.
  • Deterioration in growth of economies that the Fund invests in. This includes

unfavorable regulations towards infrastructure assets.

  • Key man risk – departures of any personnel on the investment team, but especially, Nick Langley, Shane Hurst and Charles Hamieh and Simon Ong.

Source: ClearBridge Investments Ltd.

Fund Performance

Figure 1: Fund historical performance (as at 30 Jun 2021) – Currency Unhedged

    
(%)FundBenchmark**Out-performance
1-mths+1.5+1.0+0.5
3-mths+5.4+2.8+2.7
1-year (p.a.)+12.0+7.5+4.5
3-year (p.a.)+8.1+7.1+0.9
5-year (p.a.)+7.5+7.3+0.2
Inception*+9.9+7.1+2.8

Source: ClearBridge Investments Ltd. Past performance is not indicative of future performance.

* Internal calculations for ClearBridge RARE Infrastructure Value Fund – Unhedged Class A Units. All index data sourced from FactSet. Results over one year annualised. Fund performance is net of fees, assuming all distributions are reinvested and before tax. Performance inception date for ClearBridge RARE Infrastructure Value Fund – Unhedged Class A Units is 31/05/2011.

** OECD G7 Inflation Index +5.5% over a market cycle (rolling 5-year periods)

Fund Positioning

Figure 2: Fund Characteristics and Top 10 Positions (as at 30 Jun 2021)

    
Portfolio Weighted Avg Top 10Weight (%)
Avg Market Capitalisation60.7bnEnbridge Inc5.11
Div Yield (Fwd) Gross3.10%Union Pacific4.85
5 Yr DPS Growth (PA)8.10%Vinci4.57
Gearing (Current)34.00%Exelon Corp4.37
Interest Cover (Historic)3.7xGetLink4.07
EV/EBITDA (Forward)17.20%Cheniere4.06
  American Tower3.93
  Cellnex3.78
  Public Services Enterprise Group3.75
  Ferrovial3.50
  Total42.00

Figure 3: Fund allocation breakdown (as at 30 Jun 2021)

Source: ClearBridge Investments Ltd.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Altius Bond Fund

Our Opinion…

  • Well-resourced, capable and experienced investment team. We regard the CIO and investment team of Altius as very experienced and capable investment managers.
  • We like the total return focus, to protect capital in a rising yield environment. The Manager has an absolute return focus and is looking to protect capital in a rising interest rate environment. Whilst global rates are likely to be lower for longer, a specialist manager that can adequately navigate this risk is highly desirable.
  • Being benchmark unaware requires conviction. We agree that most managers will look to manage their portfolios relative to a benchmark, which leads to risk managed on a relative basis (rather than absolute) and foregoing opportunities to drive alpha. This is where we expect Altius’ investment team to exercise significant investment experience and investment process to deliver superior returns.
  • Scenario analysis critical to the investment process. In our view, the key component of the investment process is the scenario analysis forecasting and building a case for Best Case, Central Case and Worst Case. Putting a well thought-out and researched narrative around each case allows the investment team to answer critical questions and define the macro economic landscape. In our discussions with the team, we broadly agree with their current view under each case and analysis to support it. Whilst agreeing to their view is not so important to us, what we appreciate is the analysis (and logic) and how the narrative was articulated to us. We believe the Manager understands the market and critical drivers.
  • Focus on liquidity management. The Manager embeds risk management in strategy formulation, with the liquidity risk being a key consideration during the security selection process and managed through a 10% buffer of cash-like assets, giving the fund some downside protection from impaired liquidity when credit cycles turn.
Main Details 
APIR CodeWFS0486AU
Asset ClassAustralian Fixed Interest
Inception date14 June 2011
StyleAbsolute Return
Fund Size$133.39m
  Fees (MER)0.46% p.a. + expense recovery
DistributionQuarterly
  
Portfolio Characteristics
    Benchmark  50% Bloomberg AusBond Composite (0+Y) + 50% RBA Cash Rate
  Yield to maturity (%)1.17 (versus 0.58 benchmark)
Modified duration (years)1.91 (versus 3.02 benchmark)

Downside Risks…

  • Interest rate risk (however the Fund’s total return focus should limit this).
  • The Manager gets the thematic and top down view wrong.
  • Key man risk – Bill Bovingdon, Chris Dickman and Gavin Goodhand.
  • Key man risk – Bill Bovingdon, Chris Dickman and Gavin Goodhand.

Source: Altius Asset Management

Fund Performance

Figure 1: Altius Bond Fund historical performance (as at 30 June 2021)

(%)FundBenchmark**Out-performance
1-month-0.16+0.35-0.51
3-months+0.38+0.77-0.39
1-year (p.a.)-0.48-0.32-0.16
3-years (p.a.)+1.53+2.49-0.96
5-year (p.a.)+1.66+2.13-0.47
7-year (p.a.)+2.27+2.73-0.46
10-year (p.a.)+3.53+3.45+0.08
Since inception (p.a.)*+3.54+3.46+0.08

Source: Altius Asset Management; Past performance is not an indicator for future performance. * Inception date for performance calculations is 14 June 2011. ** Effective 1 July 2016, Benchmark is 50% Reserve Bank of Australia Cash Rate and 50% Bloomberg AusBond Composite 0+Yr Index and applied retrospectively for all periods.

Fund Positioning

Figure 2: Fund sector allocation (as at 30 June 2021)

   
 Fund %Benchmark %
Australian Commonwealth Government6.4428.65
Supranational15.064.63
Industrials17.062.08
Financials18.631.50
Asset Backed9.620.00
Agencies10.590.14
11am0.970.00
Cash at Bank0.690.00
RBA Cash0.0050.00
Semi Government20.9513.00

Source: Altius Asset Management

Figure 3: Top 10 holdings (as at 30 June 2021)

   
 Fund %Benchmark %
New South Wales Treasury Corp11.133.09
National Housing Finance & Investment Corp10.600.05
Australian Commonwealth Government6.4428.25
Asian Development Bank4.940.40
Treasury Corp Victoria4.342.78
Queensland Treasury Corp3.283.09
Inter-American Development Bank3.220.33
UBS Ag Australia2.920.04
Intl Bank Reconstruction & Development2.210.35
McDonalds Corp1.890.00

Source: Altius Asset Management

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Square, Inc. has announced plans to acquire Afterpay, which will strengthen and enable stronger collaboration among its seller and cash app ecosystems.

The agreement’s specifics

Square, Inc. and Afterpay Limited confirmed today that they have signed a Scheme Implementation Deed through which Square has come to terms to purchase all of Afterpay’s issued shares through a court-approved Scheme of Arrangement.

Jack Dorsey, the CEO of Twitter, is leading a $29 billion acquisition of Australian Afterpay

The deal is expected to be paid in all stock and has an indicated value of about US$29 billion (A$39 billion) based on the closing price of Square common stock on July 30, 2021. The merger will allow the organizations to achieve more enticing financial goods and services to more clients, as well as boost profits for retailers of all sizes. The deal is expected to close in the first quarter of 2022, depending to the fulfilment of certain closing terms stipulated.

Square’s strategic ambitions for its Seller and Cash App ecosystems will be accelerated by Afterpay, the world’s first worldwide “buy now, pay later” platform. Afterpay will be integrated into Square’s current Seller and Cash App business units, allowing even the tiniest retailers to offer BNPL at checkout, allowing Afterpay consumers to handle their instalment payments directly in Cash App, and allowing Cash App customers to discover merchants and BNPL offers directly within the app.

With such a best-in-class solution and a strong cultural alignment with Square, Afterpay is an industry leader. As of June 30, 2021, Afterpay had over 16 million customers and approximately 100,000 merchants worldwide, including major shops in fashion, home goods, cosmetics, athletic goods, and more.

Customers can buy with control of their finances

Afterpay enables customers to get the products they want and need while also enabling them to stay in control of their finances. Afterpay also helps merchants expand their operations by encouraging repeat purchases, increasing average transaction sizes, and allowing customers to pay over time. Afterpay is dedicated to assisting consumers in spending responsibly without incurring service fees, interest, or revolving debt, and currently supports customers in a number of countries spanning APAC, North America, and Europe (including under its Clearpay brand).

Source: squareup.com

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

CNH’s Second-Quarter Results Show Sales Growth Across All Segments; with Agriculture Continuing to Lead Profit Growth.

Looking across CNH’s end markets, we think agriculture demand will continue to be a major driver in the back half of the year. In our view, demand will be supported by strong crop exports to China. This dynamic has been a key reason why crop prices have been relatively high over the past year. Rising crop prices have propelled farmer incomes higher, allowing them to refresh their aging agriculture equipment–a benefit to CNH.

Overall, manufacturing sales reached $8.5 billion in the quarter, up 65% year on year. The strength in the company’s top line was attributable to increased volumes and favorable product mix. In agriculture, tractor sales worldwide were up 28%, compared with the prior-year period. Of that, high horsepower tractors (above 140 horsepower) saw strong volume growth in North America, surging 49% year on year. Combines also contributed to volume growth in the quarter, up 14% worldwide, with extraordinary growth in South America (up 38% year on year). CNH’s gross margins were also strong in the quarter, coming in at 19.3% as higher pricing more than offset cost inflation (due to supply chain constraints).

Company’s Future Outlook

Management reaffirmed its commitment to spinning off the on-highway business (commercial vehicles and power train businesses). Following the spin-off, CNH’s end market exposure will largely be focused on agriculture markets, with the balance in construction markets. We believe this is a good move for the company as the agriculture business has been fairly profitable for CNH. On average, its EBIT margins have been nearly twice the consolidated business’ EBIT margins. We estimate over 80% of EBIT will be coming from agriculture after the spin-off is completed, putting CNH on much better footing from a profitability standpoint.

Company Profile

CNH Industrial is a global manufacturer of heavy machinery, with a range of products including agricultural and construction equipment, commercial vehicles, and power train components. One of its most recognizable brands, Case IH, has served farmers for generations. Its products are available through a robust dealer network, which includes over 3,600 dealer and distribution locations globally. CNH Industrial’s finance arm provides retail financing for equipment and vehicles to its customers, in addition to wholesale financing for dealers; which increases the likelihood of product sales.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Twitter’s Mix of Direct Response and Brand Offerings Continues To Improve

. Twitter is an open distribution platform for (and a conversational one around) short-form text, image, and video content. Its users can access real-time information regarding a wide array of topics or news events. They can also share information and content, interact with content, and express their reactions to other Twitter users. These types of interactions allow Twitter to compile more data about its users, their interests, and their behavior, which is then licensed and/or utilized by Twitter and advertisers to launch online brand and targeted ads.

Product enhancements such as the Explore tab may have helped increase initial user engagement and improve user retention, but the firm’s network effect is weakening considerably as its user base shrinks in size relative to rivals. As the likelihood of Twitter attracting more users via content improvement and increasing focus on more live premium content will probably decline (due to significant competition on both fronts), so will the firm’s access to more user data. As a result, more advertisers will increasingly gravitate toward other platforms that offer better targeting capabilities.

Financial Strength

Twitter reported excellent second-quarter results that exceeded our expectations and the FactSet consensus estimates. In addition, some of the firm’s latest non-ad offerings could gain traction in the long run and slightly reduce dependence on advertising, while contributing a bit to revenue growth. Our higher projections resulted in a $58 fair value estimate, up from $52. We recommend new investors to wait for a margin of safety before investing in Twitter as the stock increased 6% in after-hours, trading at 1.27 times our fair value estimate, and 10 times and 35 times our 2021 sales and adjusted EBITDA projections, respectively.

Twitter posted total revenue of $1.19 billion, up 74% from the pandemic-ridden second quarter of 2020, with ad revenue up 87% to $1.05 billion and data licensing and other revenue up 13% to $137 million. The firm’s user count increased 11% to 206 million, with U.S. and international users up 3% and 13%, respectively. The firm has also begun to help small and medium-size businesses launch direct response campaigns based on location, age, and gender. While we had expected such a feature, referred to as Twitter’s Quick Promote, to be available much earlier, it will still likely attract more advertisers.

The firm generated operating income of $30.3 million (2.5% margin) driven by revenue growth, compared with an operating loss of $273.9 million last year–which included a $150 million fine by the FTC regarding usage of phone numbers and email addresses for target marketing. Management guided for $1.22 billion-$1.3 billion in revenue during the third quarter, and operating losses between zero and $50 million. Twitter expects operating expenses to grow by 30% and revenue growth to exceed that. The firm also expects share-based compensation expense of $600 million and capital expenditure of $900 million-$950 million this year.

Twitter has a strong balance sheet with net cash of $5.9 billion. The firm generates cash from operations, and we expect it to generate free cash flow going forward. Twitter’s free cash flow to equity/revenue ratio averaged 18% over the past three years, and we project this ratio to improve to over 26% in 2025.

Company Profile

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%).

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
IPO Watch

CarTrade Tech IPO price band fixed at Rs. 1,585 – 1,618to raise Rs. 2,999 crore

On August 6, a day before issue opening, the corporation will open its anchor book, if any, for a day.

The public offering of 1,85,32,216 equity shares is a full offer for current selling shareholders to sell their shares. The total value of the offer is Rs 2,998.51 crore.

Highdell Investment 84,09,364 equity shares, MacRitchie Investments Pte Ltd 50,76,761 equity shares, and Springfield Venture International 17,65,309 equity shares will be sold through the IPO by CMDB II.

Bina Vinod Sanghi (jointly held with Vinay Vinod Sanghi) will sell 1,83,333 equity shares, Daniel Edward Neary will sell 70,000 equity shares, Shree Krishna Trust will sell 2,62,519 equity shares, Victor Anthony Perry III will sell 50,546 equity shares, and Vinay Vinod Sanghi (jointly held with Seena Vinod Sanghi) will sell 4,50,050 equity shares.

Investors can bid for as few as 9 equity shares and as many as 9 equity shares after that.

The company has set aside 50% of the overall offering for eligible institutional purchasers, 35% for retail investors, and the remaining 15% for non-institutional buyers.

With 34.44 percent of the company, Mauritius-based Highdell Investment is the largest shareholder, followed by MacRitchie Investments with 26.48 percent, CMDB II with 11.93 percent, Springfield Venture International with 7.09 percent, and Vinay Vinod Sanghi with 3.56 percent.

CarTrade is a multi-channel auto platform that covers a wide range of vehicle types and add-on services. CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto, and AutoBiz are some of the company’s brands.

The company uses these platforms to make it simple and efficient for new and used car buyers, dealerships, OEMs, and other businesses to buy and sell their automobiles.

(Source: Fact Set)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
IPO Watch

Sweetman Renewables Plans for Its ASX Debut with a Pre-IPO Raise

Sweetman Renewables is aiming for the biomass and green hydrogen industries with a $4 million pre-IPO capital raise ahead of its ASX launch later this year. The listing date is later this week.

With the addition of three divisions covering hydrogen production, biomass supply, and the sale of high-quality timber products, the company hopes to more than tenfold its revenue base.

This potential has already been recognised, with the company recently negotiating a 20-year biomass supply contract with a Japanese conglomerate worth US$90 million.

It is also in advanced talks with Verdant Earth Technologies about becoming the primary supplier of Verdant’s $550 million biomass power project in the Hunter Valley.

Sweetman Renewables intends to raise only $4 million in the pre-IPO round. As a result, Sweetman is trying to leverage its sustainable biomass to manufacture green hydrogen, which Goldman Sachs predicts will be a US$10 trillion market by 2050.

Company Profile

Sweetman Renewables is developing a hydrogen production plan to become one of the largest true green hydrogen producers, leveraging its sawmill operation to offer biomass and green hydrogen for sustainable energy. Using sawmill operations to supply biomass and green hydrogen for long-term energy.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Range: A Natural Gas company has Ample Free Cash Flows to Devote to Debt Reduction

The downward trajectory of natural gas prices in the last few years has forced Range to focus on cost-cutting. It has been fairly successful at reducing costs over the last few years, and the firm also boasts best-in-class drilling and completion costs. It has not historically been able to generate free cash flow, but this should change in 2021 with higher oil and gas prices and Range shifting its stance to operating in maintenance mode. It has not been as explicit as peers with regards to capital allocation and production targets such as only spending 75% of operating cash flow in any given year.

Financial Strength

Range’s balance sheet is a cause for concern. At the end of the last reporting period the firm had just over $3 billion in long-term debt, resulting in lofty leverage ratios. Debt/capital was 67%. We expect leverage to decline in 2021 with free cash flow generation, but Range needs to do more (asset sales, partnerships) to ensure its balance sheet remains in a prudent position on a more sustainable basis. We expect leverage to fall to below 1.5 times in late 2022 given expected free cash flows. We expect Range to generate free cash flow in 2021 with the recent increase in oil and gas prices. This should allow it to make progress on debt reduction. The firm also has about $1.9 billion available on its revolving credit facility for additional flexibility, so there is a reasonable liquidity buffer. But it would be unwise to heavily utilize this revolver, as it would leave the firm with nothing in reserve. Besides, the capacity of this revolver is subject to periodic redetermination and could come down if lenders get worried about the firm’s ability to service its obligations

Bull Says

  • As an early entrant into the Marcellus, Range has a big, blocky acreage position that allows for longer lateral drilling, decreasing capital costs per unit of production.
  • Range’s capacity on the Mariner East 2 pipeline gives it access to international NGL markets, supporting realized prices.
  • The firm enjoys peer-leading drilling and completion costs per thousand lateral feet.

Company Profile

Fort Worth-based Range Resources is an independent exploration and Production Company with that focuses entirely on its operations in the Marcellus Shale in Pennsylvania. At year-end 2020, Range’s proved reserves totaled 17.2 trillion cubic feet equivalent, with net production of 2.2 billion cubic feet equivalent per day. Natural gas accounted for 70% of production.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.