Tag: Recommendations

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Dividend Stocks Philosophy Technical Picks

U.S. Foods Experiencing Strong Recovery From the Pandemic, but Moat Remains Out of Reach

will emerge from the pandemic in a stronger position that it was prior to the crisis, given the $1 billion in new business secured over the past year and the permanent elimination of $130 million in operating expenses. We expect the increasing availability of COVID-19 vaccines in 2021 will return US Foods’ organic sales to pre-pandemic levels by 2022, with long-term opportunities remaining intact. But as US Foods has not demonstrated a cost advantage, organic market share gains , consistent economic returns, or superior profits, we do not grant the firm a moat.

US Foods has improved profits the past few years, as gross margins increased from 16.8% in 2014 to 17.8% in 2019 (pre-pandemic), operating margins from 2.0% to 3.2%, and ROICs .We attribute this to positive customer mix (both to more profitable segments and more selective customer contracts within segments), more effective data-driven pricing, the centralization of purchasing and administrative functions, and a reduction of the sales force, facilitated by productivity-enhancing tools. But despite the added profits, we believe the reduction in the sales force hampered organic market share gains, a move with nontrivial consequences, as we view scale as the path to a competitive edge.

The lack of organic share gains impairs the firm’s ability to leverage its scale and progress toward a scale-based cost advantage. But we are encouraged by the firm’s recent decision to invest $50 million in growth opportunities, including expanding the sales force. We expect the firm will continue to grow inorganically, and we have a favourable view of its $1.8 billion tie-up with SGA Food Group and the $970 million acquisition of Smart Foodservice Warehouse, but we hold these deals fall short of providing a scale-based competitive edge.

Financial Strength

 US Foods has the financial strength to weather the pandemic. Given the firm’s acquisitive strategy, leverage runs high, with net debt/adjusted EBITDA at 5.4 times as of June. US Foods secured a $300 million term loan, issued $1 billion in long-term notes, and $500 million in convertible preferred stock since the onset of the pandemic. We expect leverage to return to a comfortable 2.6 times by 2023 as the market recovers from the pandemic and US Foods lightens up on share repurchases to prioritize debt reduction, which we think is prudent. We expect US Foods will resume repurchasing shares in 2025 (to the tune of 4%-5% of shares outstanding annually). We view this as a prudent use of cash when shares trade below our assessment of its intrinsic value. Furthermore, we have no concerns in the firm’s ability to service its debt (even during the pandemic), as interest coverage (EBITDA/interest expense) should average 6.5 times over the next five years, better than the 4.4 times average over the past three years. The firm’s priorities for cash use are capital expenditures, which we expect to amount to 1% of revenue annually over the next decade) and acquisitions (we expect about $140 million to $220 million annually, contributing a 1% bump to revenue each year). Further, the firm paid a $3.94 per share special dividend in 2016, but management has no plans to initiate an ongoing dividend as they view share repurchase as a more flexible way to return capital to shareholders. 

Bull Says

  • Continued acquisitions could modestly enhance US Foods’ scale, and the addition of its e-commerce platform should help increase share of wallet and loyalty with acquired firms’ customers.
  • US Foods is emerging from the pandemic as a stronger player, having secured over $1 billion in new business and eliminated $130 million in fixed costs.
  • US Foods benefits from secular tailwinds, such as Americans’ tendency to consume more food outside the home and industry share shifts to independent restaurants.

Company Profile

US Foods is the second-largest U.S. food-service distributor behind Sysco, holding 10% market share of the highly fragmented food-service distribution industry. US Foods distributes more than 400,000 food and non-food products to the healthcare and hospitality industries (each about 16.5% of sales), independent restaurants (33%), national restaurant chains (22%), education and government facilities (8%), and grocers (4%). In addition to its delivery business, the firm has 80 cash and carry stores under the Chef’Store banner .After Sysco’s attempt to purchase US Foods failed to gain federal approval in 2015, US Foods entered the public market via an initial public offering.

(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.

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LICs LICs

WAM Strategic Value Limited Commences Trading

Young businesswoman sitting at the table with touchpad and communicating with senior woman

There Pre – Net Tax Tangible Assets is $1.27 till June 2021. IPO price is $1.25 on 28th June 2021.

Till now, there is no Dividend history for WAM Strategic Value.

WAM Strategic Value Limited ((WAR)) date of listing on ASX on June 28, 2021, at a price of $1.25 per share with 180 million shares on issue.

Following the merger proposal with WAM Global Limited ((WGB)), the portfolio increased following the IPO, with Templeton Global Growth Fund Limited ((TGG)) being a positive contributor. 

TGG shareholders can choose between receiving WGB stock consideration with an attaching option or cash consideration equal to the NTA after tax and transaction charges under the terms of the offer.

The announcement of MHH’s reorganisation from a LIT to an ETMF would have given the portfolio a lift as well, with the MHH unit price reacting positively to the news.

Company Profile 

WAM Strategic Value Ltd is an investment company. Its investment objectives are to provide capital growth over the medium-to-long term, deliver a stream of dividends and preserve capital while providing shareholders with exposure to a diversified equities portfolio.

(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.

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ETFs ETFs

Vanguard Australian Shares High Yield ETF

 The benchmark leans toward the highest-dividend payers, excluding property trusts. The index provider ranks all dividend-paying stocks based on their dividend yield forecast for the next year and constructs the index using stocks that make up the top 50% of the floatadjusted market capitalization. Industries are capped at 40% and individual stocks at 10%. The index is rebalanced semiannually, and in 2018, it changed its rules around buying and selling so that stocks are added or removed more gradually. This should increase the portfolio to around 55 names from 45 and reduce stock turnover, though it will likely remain higher than market-cap-weighted index funds. Vanguard’s global presence allows the Australian team to leverage the U.S. team’s extensive indextracking experience.

Portfolio

The FTSE Australia High Dividend Yield Index is a real-time, market-cap-weighted index comprising companies with higher-than-average forecast dividends. The biggest sector exposure is financial services, at around 39%-40% of the portfolio. The fund’s exposure to materials has historically been volatile. Following dividend cuts in the sector, exposure dropped to 4% in 2016 from 20%. However, a fall in Rio Tinto’s share price and corresponding increase in yield saw the stock return to the portfolio in June 2017, increasing the fund’s exposure to the sector to 21%. That came at the expense of industrials exposure, which fell to zero. As of 30 June 2021, materials exposure was at 23%. This highlights the risk of “dividend traps” in a rules-based strategy. The portfolio has an underweighting in the high-growth sectors of technology and healthcare, as these companies typically reinvest a large proportion of their cash flow into research and development to drive future earnings growth rather than focusing on high dividend payouts. Real estate investment trusts are excluded. More than half the portfolio is in giant caps, with the balance mostly in large and medium caps. The portfolio’s exposure to cyclical/sensitive names has increased over the years and currently stands at 93%, implying high dependence on the domestic economic cycle.

Performance

Vanguard has fared relatively well over the long term, but short- and medium-term results have been a drag. Moreover, the annual return track of the strategy is visibly inconsistent as compared with its category index. In 2012 and 2013, the strategy delivered 24.5% and 26.5%, respectively–incredible relative and absolute returns. But investors should be cautiously optimistic about a repeat of such performance as the fund delivered equally subdued relative performance in 2014, followed by a 4.22% decline in 2015 and category benchmark relative underperformance of negative 1.2% in 2016. Poorly timed buys into materials such as BHP and Rio Tinto hurt in 2016. Vanguard recouped some of these losses in 2017, though this was curtailed as exposure to Telstra took a bite out of returns. As the banking industry came under pressure because of falling property prices and the focus of the Royal Commission in 2018, returns were again below the broader market.

Source: Morning star

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.

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Dividend Stocks Philosophy Technical Picks

Heady (ASX: JHX) Raw Materials Inflation Offering Little Challenge to Hardie in Early Fiscal 2022

After patenting cellulose-reinforced fibre cement in the late 1980s, the Australian company entered the North American market in 1990, establishing its business with the benefit of patent protection. In doing so, the company’s product line has become synonymous with the product category. The firm now enjoys 90% share in fibre cement siding in North America, its largest and most important market, with similar positions in Australia and New Zealand. Fibre cement siding possesses durability advantages and superior aesthetics over vinyl cladding, leading to vinyl’s market share eroding to about 26% today from around 39% in 2003. At this same time, fibre cement’s share has increased to 19%, almost entirely due to increased penetration for Hardie’s product.

Hardie’s siding product range is now in its seventh iteration of product innovation, known as HardieZone, under which the product formulation is tailored to the different climatic zones within North America, increasing durability. Meanwhile, the company assesses its competitors’ product as equivalent to somewhere near its second generation of product, which Hardie released in the mid-1990s. The continued reinvestment in R&D supports Hardie’s strong brand equity and thus perpetuates the price premium that Hardie’s range attracts. 

Financial Strength 

Balance sheet flexibility has improved markedly in early fiscal 2021 despite the economic shock delivered by the coronavirus pandemic. Hardie will return to its regular dividend policy from fiscal 2022 after regular dividends were suspended in early fiscal 2021 in response to the pandemic. Leverage–defined as net debt/EBITDA–stood at 1.0 times at the end of the first quarter of fiscal 2022.Hardie runs a conservative balance sheet with leverage typically within a targeted range of 1-2 net debt/EBITDA. With net debt/EBITDA of 1.0 at the end of the first quarter of fiscal 2022, significant headroom exists relative to Hardie’s leverage covenant, calibrated at a net debt/EBITDA of 3. 

Therefore, Hardie has significant capacity to return surplus capital to shareholders.Hardie’s asbestos-related liability—the AICF trust–has a gross carrying value at fiscal 2021 year-end of USD 1.135 billion and remains an overhang. However, payments to fund the liability are capped at 35% of trailing free cash flow. Narrow-moat James Hardie is off to a flying start in early fiscal 2022 despite substantial inflationary pressures in raw materials and freight which, year-to-date, have shown little sign of abating. Our revised forecast sits slightly above the midpoint of Hardie’s upwardly revised full-year fiscal 2022 net income guidance range of USD 550 million-USD 590 million. Hardie continues to execute impeccably. 

Hardie’s Growth 

First-quarter North American fibre cement volumes rose 21%, tracking significantly above the broader market for exterior wall siding. Reflecting the year-to-date momentum in Hardie’s market share gains, we upgrade our full-year expectations for Hardie’s growth above the North American market index, or PDG, to 9.6% from a prior 7.9%. We lift per share our fair value estimate by 8% to AUD 34.20/USD 25.00, due to the recent depreciation of the Australian dollar. Accordingly, the North American softwood pulp price increased 23% in Hardie’s first quarter to USD 1,598 per tonne. Hardie continues to make progress against its cost savings targets under its ongoing lean manufacturing programme. We continue to expect achievement of USD 340 million in cumulative savings under the lean manufacturing programme by fiscal 2024, a USD 233 million increment over the USD 107 million in incremental cost-out achieved through to the end of fiscal 2021.

Bulls Say’s 

  • James Hardie’s clear leadership in the fibre cement category should drive growth in market share in the North American siding market. We forecast the company retaining its 90% share of the category, while fibre cement climbs to 28% of the total housing market.
  • Hardie’s strong brand equity translates into pricing power, allowing for inflation in manufacturing costs to be easily passed on, thus protecting profitability in the face of imminent input cost inflation.
  • The Fermacell acquisition could finally unlock Europe as an avenue of significant growth following market saturation in North America.

Company Profile 

James Hardie is the world leader in fibre cement products, accounting for roughly 90% of all fibre cement building materials sold in the U.S. It has nine manufacturing plants in eight U.S. states and five across Asia-Pacific. Fibre cement competes with vinyl, wood, and engineered wood products with superior durability and moisture-, fire-, and termite-resistant qualities. The firm is a highly focused single-product company based on primary demand growth, cost-efficient production, and continual innovation of its differentiated range. With saturation of the North American market in sight, the acquisition of Fermacell in early 2018, Europe’s leading fibre gypsum manufacturer, will provide Hardie with a subsequent avenue of growth.

(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.

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Philosophy Small Cap Technical Picks

Groupon (NAS: GRPN) Outperforms Expectations in Q2; EBITDA Outlook Improved Due to One-Time Benefit; FVE Maintain

Groupon provides daily deals (in the form of online vouchers) from local merchants to consumers. Groupon’s online discounts cover a variety of services including restaurants, health, beauty and fitness, and home and garden. Groupon’s average take rate on the purchase and/or usage of the vouchers is between 30% and 35%.

Customers can make one-time voucher purchases without guaranteeing repeat business with either the merchant or Groupon in general. This dynamic has led to lackluster revenue growth and consistently high customer acquisition costs that pressure margins. Groupon’s revenue growth has been decelerating and gross margins have been declining since the company went public in 2011.

Additionally, the firm is implementing a more aggressive customer acquisition strategy that requires higher marketing expenses. Although a restructuring plan is in place for a turnaround, we remain concerned about future revenue growth and gross margin compression, both of which may prevent Groupon from yielding excess returns on capital in the long run.

Financial Strength

Groupon ended 2020 with net cash of $421 million. The firm has $250 million in 3.25% convertible notes, which were issued in April 2016 and are due in April 2022. Groupon also has $200 million in revolver borrowings. Groupon burned $63.6 million in cash from operations in 2020. The company’s very high accrued merchants payable balance (nearly 25% of cost of revenue) has a positive impact on cash from operations. Groupon’s free cash flow to equity/revenue ratio has been negative the past three years, but we project this ratio to hit the teens in 2025 as a result of a return to revenue growth in 2022 and margin expansion throughout our explicit forecast period.

Total revenue declined 33% year over year to $266 million, as 86% growth in local was more than offset by the expected 75% decline in goods. Local revenue reached 71% of the prepandemic 2019 levels. Groupon’s gross profit increased 41% to $194 million, resulting in a 73% gross margin, as the lower-margin goods revenue continued to decline. In addition, unredeemed vouchers (mainly in international markets) added $10 million to gross profits. Operating loss of nearly $2 million was a significant improvement from losses of $72 million last year and $7 million in 2019.

In addition, gross profit per North America active user was 10% above the 2019 level. International customer count declined 37% year over year, but the firm generated 10% more gross profit from each than in 2020. Total gross profit per active user increased year over year (17%) and sequentially (13%). Purchases per active user increased 11% year over year but declined 3% sequentially. The firm expects full-year adjusted EBITDA between $115 million and $125 million (up from previous guidance of $110 million- $120 million). The increase is less than the $10 million benefit in the second quarter as the firm is planning to continue its aggressive marketing during the second half of this year. Groupon maintained its $950 million-$990 million full-year revenue guidance.

Bulls Say

Groupon should maintain its first-mover advantage as it leverages its current relationships with local merchants to provide more attractive offerings for consumers.
As more local businesses become more tech-savvy, they may need less hand-holding from Groupon’s salesforce, which could lead to lower costs for Groupon.

Company Profile

Groupon acts as the middleman between consumers and merchants, offering a variety of products and services at discounts via its online store. It offers consumers daily deals (in the form of online vouchers) from local merchants. Groupon also sells products directly to consumers. It generates revenue from the take rate on the purchase and/or usage of the vouchers (40% of total revenue) and from direct sales (60% of total revenue). More than 65% of Groupon’s revenue comes from North America.

(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.

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Dividend Stocks

Asset Sales and Plan for Greater Investment by Lumen Technologies Inc’s (NYSE: LUMN) Put Onus on Management to Return to Sales Growth

Lumen’s fiber holdings make it one of the biggest communications infrastructure providers in the U.S., and its extensive network is matched by few other companies. However, technological advances continually improve networking efficiency and enable less costly solutions to store and transport data. Consequently, even in Lumen’s business services segments, which account for over 70% of total revenue, we think revenue is likely to continue declining. Lumen’s business customers will continue to benefit from the ability to use shared, rather than private, networks and technological advancements that require less bandwidth and enable more efficient routing.

Lumen’s intention to sell a substantial portion of its incumbent local exchange carrier, or ILEC, business should relieve the firm of a big chunk of its fastest-declining revenue (voice) and lower-quality consumer Internet revenue. While the divestiture alone should moderate the firm’s sales declines, it will also result in significantly lower cash flow, which will be further diminished because the firm expects to ramp up investment in its remaining business. 

Financial Strength

Lumen Technologies Inc’s (NYSE: LUMN) continued strengthening its financial position in 2020. In 2020, the firm paid down nearly $2 billion in debt and refinanced $13 billion in debt to push out maturities and reduce interest rates. At the end of 2020, the firm had $400 million in cash, $32 billion in debt, and a net debt/adjusted EBITDA ratio of 3.6. Less than $7 billion of the debt now matures before the end of 2024. With the free cash it generates, we project Lumen has the ability to reduce debt materially while also having a substantial amount of cash to return to shareholders and not scrimping on any capital investment needs. It reliably pays about $1 billion in annual. While the firm is set to sacrifice well below 30% of EBITDA between these transactions and the expiration of CAF-II funds the firm has been receiving. Its dividend for the year 2020 is marked at 10.3 % while in 2019 it was 7.6 %.

Bull Says

  • After selling much of its ILEC business, Lumen may be able to return to sales growth over the next few years rather than face perpetual decline.
  • Lumen has further shifted its business away from the declining consumer and toward the enterprise, which leaves it with a better chance for future top-line growth.
  • The explosion in data use, particularly mobile, could make fiber assets much more lucrative than they have historically been, and Lumen’s fiber holdings place it in the top two or three in the U.S.

Company Profile 

Lumen Technologies Inc’s (NYSE: LUMN) is one of the United States’ largest telecommunications carriers serving global enterprises with 450,000 route miles of fiber, including over 35,000 route miles of subsea fiber connecting Europe, Asia, and Latin America. Its merger with Level 3 further shifted the company’s operations toward businesses (over 70% of revenue) and away from its legacy consumer business. Lumen offers businesses a full menu of communications services, providing collocation and data center services, data transportation, and end-user phone and Internet service. On the consumer side, Lumen provides broadband and phone service across 37 states, where it has 4.5 million broadband customers.

(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.

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Technology Stocks

Motorola Solutions Inc. (NYSE: MSI) Increases Guidance Following Strong Quarter, Meeting Prior Expectations; $175 FVE

Our $175 fair value estimate for Motorola is unchanged, as the new outlook aligns with our previous above-guidance expectations for fiscal 2022. We’re also pleased to see continued growth for the firm’s software and services segment, and continue to believe a heavier software mix will drive margin expansion for Motorola through 2025.

Motorola is benefiting from looser security budgets as the U.S. economy rebounds from 2020, and think it will see multi-year demand as state and local governments digest funds from U.S. government stimulus during the pandemic. Still, we think of Motorola as a steady grower, and think the market is painting a more rapid sales growth and margin expansion picture than is reasonable. We currently view shares as overvalued, and would recommend waiting for a pullback to invest. Management commented on its acquisition of Open path that occurred after quarter-end. The $297 million acquisition gives Motorola a stronger position in access control, which is quickly becoming a greater portion of its video segment.

Second-quarter revenue grew 22% year over year to $1.97 billion–2% higher than the top end of quarterly guidance– behind broad-based strength. Motorola’s video business posted 66% annual growth, which we think is resulting from strong market share gains against Axon in the body cam market. Non-GAAP operating margin of 24.5% grew 230 basis points year over year and 130 basis points sequentially, mainly behind higher sales volume and a greater mix of video and command center revenue.

Company’s Future Outlook

It is estimate these to continue increasing as part of Motorola’s mix, and think margin expansion should continue. We maintain our forecast for non-GAAP operating margin to expand 500 basis points through 2025. Command center software lagged the firm’s overall growth profile, but we think it’s primed for an inflection point with the full Command Central suite launching during the quarter, which we expect to augment switching costs a customers over time.

Company Profile

Motorola Solutions Inc (NYSE: MSI) is a leading provider of communications and analytics, primarily serving public safety departments as well as schools, hospitals, and businesses. The bulk of the firm’s revenue comes from sales of land mobile radios and radio network infrastructure, but the firm also sells surveillance equipment and dispatch software. Seventy-five percent of Motorola’s revenue comes from government agencies, while 25% comes from its commercial customers. Motorola has customers in over 100 countries and in every state in the United States.

(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.

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Funds Funds

Zurich Australian Property Securities Fund

Our Opinion

Our rating is based on the following key drivers:

Experienced Portfolio Managers (PMs)

The Fund is led by Carlos Cocaro and Damien Barrack of Renaissance Property Securities Pty Ltd. The two principals have worked together for over 18 years, specialising in ASX listed property securities and have a combined total of over 45 years of experience in analysing and investing in listed property securities. Whilst one may criticize the size of the investment team, in our view, the size of the team and credentials are appropriate considering the small universe (relative to other investment classes).

Disciplined investment process

The Fund uses a rigorous investment process with the Managers employing an active, value-based investment style, characterised by incorporating bottom-up investment research into individual securities, with a particular focus on analysing and forecasting the present and potential future income generation of each underlying property investment.

Solid absolute performance but relative underperformance

Although past performance is not an indicator for future performance, it is an indicator of whether the Fund’s strategy has worked in the past. Although the Fund has performed well on an absolute basis, the Fund has now underperformed relative to its benchmark by up to 3.5% p.a. (3 years performance numbers) and a marginal -0.65%, since inception; This is surprising considering, the Fund’s active risks is minimised, with low tracking error and the PMs being very benchmark aware. Indeed, with the idea that the Managers are very benchmark aware and the Funds beta close to 1.0, over the longer term, investors are by and large taking a view of the S&P/ASX300 Property Trusts Accumulation Index (rather than whether a passive or active manager is best).

Downside Risks

Deterioration in Australian economy especially the property market (deterioration of property prices and fundamentals).

The Portfolio Manager/analysts miss-calculate their bottom-up valuation.

Softening in bond yields negatively impacting pricing.

Key-person risk in Mr. Cocaro and Mr. Barrack.

Our Opinion…

  •  investment classes).

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
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

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.