Australian Investors Association. 2 September 2015

Transcription

1 Australian Investors Association 2 September 2015

2 Topic one: Listed Investment Companies

3 Disclaimer This presentation has been prepared for use in conjunction with a verbal presentation and should be read in that context. Information for the graphs, charts and quoted indices contained in this presentation has been sourced from IRESS Market Technology, WAM Capital Ltd, WAM Research Ltd, WAM Active Ltd, Future Generation Investment Company Ltd and Future Generation Global Investment Company Ltd unless otherwise stated. The information in this presentation is only intended for Australian residents. The purpose of this presentation is to provide information only and the contents of the presentation does not purport to provide investment advice. We strongly suggest that investors consult a financial advisor prior to making any investment decision. The presentation does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making investment, financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular investment or security, or Fund offered by Wilson Asset Management. The information provided in the presentation is given in good faith and is believed to be accurate at the time of compilation. Neither Wilson Asset Management, WAM Capital Ltd, WAM Research Ltd, WAM Active Ltd, Future Generation Investment Company Ltd and Future Generation Global Investment Company Ltd nor its directors or employees make any representation or warranty as to the accuracy, reliability, timeliness or completeness of the information. To the extent permissible by law, Wilson Asset Management, WAM Capital Ltd, WAM Research Ltd, WAM Active Ltd, Future Generation Investment Company Ltd and Future Generation Global Investment Company Ltd and its director and employees disclaim all liability (whether arising in contract, tort, negligence or otherwise) for any error, omission, loss or damage (whether direct, indirect, consequential or otherwise). Performance figures quoted in the report are past performance. Past performance is not an indicator of future performance. Neither Wilson Asset Management, WAM Capital Ltd, WAM Research Ltd, WAM Active Ltd, Future Generation Investment Company Ltd and Future Generation Global Investment Company Ltd nor its directors or employees guarantee or make any representation as to the performance of the Funds, the maintenance or repayment of capital, the price at which shares may trade or any particular rate of return.

4 Agenda: Listed Investment Companies Overview of LICs Benefits of the LIC structure Assessing LICs for investment Market outlook About Wilson Asset Management About Future Generation Questions

5 Overview of LICs World s first LIC Established in London in 1868 Foreign and Colonial raised 1 million: to give investors of moderate means the same advantage as the large Capitalists In LICs in UK 118b market cap Australian LICs First Australian LIC est Whitefield Ltd (WHF) In LICs in Australia $ 28.9b market cap Australian Foundation Investment Company Ltd (ASX: AFI) is the largest

6 Growing LIC industry Market capitalisation Performance and trading activity Source: ASX

7 LIC benefits Outperformance: of market and managed funds *^ Closed end structure Long term investment horizon Fully franked dividends Low Management Expense Ratio (MER) Intra-day liquidity Accountability and transparency Diversified portfolio of assets Range of investment styles / market sector exposure ^ Australian Study: Morgan Stanley Wealth Management Research, Bell Potter Research * UK Study: Collins Stewart

8 LICs versus ETFs LICs ETFs Structure Closed End Fund Portfolio Manager has fixed amount of cash to invest No inflow/outflow of cash allowed (unless through Capital Management) Share price tends to deviate from the NAV, due to demand and supply Open End Fund Portfolio Manager will have to buy/sell positions based on cash Inflows/outflows Share price trades close to NAV, thanks to market makers Dividends/ Distributions Ability to retain earnings allowing LICs to smooth dividend income Have to distribute all income earned within that financial year

9 Assessing LICs for investment Performance after fees and adjusted for dividends Investment team Pre-tax Net Tangible Assets Backing (NTA) the value of the company Buy at a discount to NTA and sell at a premium to NTA an incredible opportunity Understand why the LIC is trading at a discount or premium Fully franked dividend yield = profit reserve + franking credits Mandate and investment style

10 Premiums / discounts to NTA Source: ASX

11 Market outlook

12 Equity market outlook Mining boom ends Banks capital requirements Equity valuations full Technical Bond market correction? Interest rates

13 Equity valuations look full ASX Year Forward PE Source: Deltec

14 While earnings growth is lacking Source: Macquarie Group Research

15 Volatility is causing headlines, at home Source: Goldman Sachs

16 About Wilson Asset Management

17 Experienced team Geoff Wilson B Sc GMQ FAICD FFinsia Chairman / Portfolio Manager Kate Thorley B Com CPA Grad Dip ACG Chief Executive Officer / Company Secretary Chris Stott B Bus Grad Dip App Fin Chief Investment Officer / Portfolio Manager Martin Hickson B Bus B Comp Senior Equity Analyst / Dealer Matthew Haupt CFA B Com Grad Dip App Fin Senior Equity Analyst Tobias Yao CFA B Com Equity Analyst

18 Listed investment companies (ASX: WAM) (ASX: WAX) (ASX: WAA) Gross assets $866.8 million $203.3 million $36.3 million Share price * $1.985 $1.225 $0.955 Pre tax NTA $1.88 $1.18 $1.02 Premium/ (Discount) to 5.6% 3.8% -6.4% NTA * Fully franked dividend yield * 7.1% 6.5% 2.6% Investment strategy Research Driven / Market Driven Research Driven Market Driven As at 31 July 2015 * As at 1 September 2015

19 Investment process Exposure to both research and market driven strategies Extensive company research (meeting 1,000+ companies per year) focused on forecasting free cashflows and rating investment attributes Identify a catalyst and sell when the company reaches our valuation Provides exposure to undervalued growth companies Low portfolio turnover Scour the market for trading opportunities Allows sound return with a low correlation to traditional markets Provides the opportunity to perform in both bull and bear markets High portfolio turnover Flexibility to hold cash Flexibility to hold cash

20 Research driven investment process Investment universe 2,000+ Investment ideas Preparation and company meetings (1,000+ p.a.) 250 companies under review Analysis: qualitative and quantitative Stock rankings Catalyst identified PORTFOLIO stocks selected

21 Market driven investment process We utilise our extensive information network in the investment community and exploit mispricing in the market. These opportunities include: initial public offerings capital raisings block trades oversold positions takeovers LIC discount to NTA stocks trading at a discount to their NTA earnings momentum / surprise short selling market themes and trends

22 Capital preservation Average cash since inception Cash at 31 July 2015 Objective to deliver riskadjusted returns and preserve capital 34% 29.7% 34%* 43.8% Default to cash Closed pool of capital Nimble and flexible mandate Use of stop losses 46% 15.8% Weighting of investments *Since the change in investment strategy July 2010

23 Growing funds under management We have recently grown our funds under management (FUM), reaching more than $1 billion across three LICs Larger FUM has a range of benefits to shareholders: Reduced fixed management expense ratio (MER) Increased liquidity in shares Greater relevance in the market: - Increased broker and research coverage - Additional interest from platforms, financial planners and SMSFs - Improved access to investee companies and capital raisings

24 Investment portfolio

25 Top 10 research driven holdings ASX Code ECX ASB IPH ENE MTR SIQ ISU CCP CSV RFG As at 31 July 2015 Company Eclipx Group Limited Austal Limited IPH Limited Energy Developments Limited Mantra Group Limited Smartgroup Corporation Limited iselect Limited Credit Corp Group Limited CSG Limited Retail Food Goup Limited Held in WAM Capital and WAM Research

26 Top 10 market driven holdings ASX Code HHV CYA IIN MYX BAP PVM HVN QAN SGF PRY As at 31 July 2015 Company Hunter Hall Global Value Limited Century Australia Investments Limited iinet Limited Mayne Pharma Group Limited Burson Group Limited Premier Investments Limited Harvey Norman Holdings Limited Qantas Airways Limited SG Fleet Group Limited Primary Health Care Limited Held in WAM Capital and WAM Active

27 WAM Capital Limited (ASX: WAM)

28 Dividend growth Cents per share WAM Capital dividends since inception Ordinary fully franked dividend Special fully franked dividend Equal access share buy-back

29 Outperformance Performance at 31 July 2015 (% pa) 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (Aug 1999) WAM Investment Portfolio* 16.8% 19.8% 15.9% 14.1% 18.0% S&P/ASX All Ordinaries Accumulation Index 5.4% 14.7% 9.4% 7.2% 8.5% Outperformance +11.4% +5.1% +6.5% +6.9% +9.5% * Investment performance and Index returns are before expenses, fees and taxes

30 WAM Research Limited (ASX: WAX)

31 Dividend growth Cents per share WAM Research dividends since inception Ordinary fully franked dividend Special fully franked dividend

32 Outperformance Performance at 31 July 2015 (% pa) 1 Yr 3 Yrs 5 Yrs Since change in investment strategy (July 2010) WAX Investment Portfolio * 25.4% 25.3% 19.0% 19.5% S&P/ASX All Ordinaries Accumulation Index 5.4% 14.7% 9.4% 10.1% Outperformance +20.0% +10.6% +9.6% +9.4% * Investment performance and Index returns are before expenses, fees and taxes

33 WAM Active Limited (ASX: WAA)

34 Dividend growth WAM Active dividends since inception Cents per share / / / / / / /15 Return of Capital Fully franked dividends

35 Positive performance Performance at 31 July 2015 (% pa) 1 Yr 3 Yrs 5 Yrs Since Inception (Jan 08) WAA Investment Portfolio * 7.3% 14.3% 11.8% 12.5% S&P/ASX All Ordinaries Accumulation Index 5.4% 14.7% 9.4% 2.7% Outperformance +1.9% -0.4% +2.4% +9.8% UBS Bank Bill Index (cash) 2.6% 2.8% 3.6% 4.2% Outperformance +4.7% +11.5% +8.2% +8.3% * Investment performance and Index returns are before expenses, fees and taxes

36 Investor communication Weekly s including market update Half yearly national investor presentations Monthly NTA announcement & investment update Half & full year financial results Website wamfunds.com.au Media Industry conferences Independent research

37 Together, we are investing in Australia s future generation

38 Future Generation: our purpose Australia s first listed philanthropic wealth creation vehicles Shareholders pay 0.0% management fees and 0.0% performance fees for access to Australia s prominent fund managers who act pro bono Directors and most service providers have also agreed to act pro bono This outstanding generosity allows the companies to donate 1% of assets each year to Australian charities Future Generation Investment Company Limited (ASX: FGX) provides investors with diversified exposure to Australian equities while supporting children at risk Future Generation Global Investment Company (ASX: FGG) will provide investors with diversified international equities exposure while changing the lives of young Australians affected by mental illness

39 FGX: fund managers

40 FGX: supporting children at risk

41 FGX: performance With its FY2015 results, FGX announced: Maiden pre-tax profit of $15.02 million Fund managers outperform benchmark by 3.2% with half the market s volatility 2.0 cents per share fully franked dividend Inaugural donation of $1.64 million to Australian charities FGX is on track to deliver over $2.1 million to charities in FY2016

42 FGX: NTA at 31 July 2015 NTA before tax* c NTA after tax and before tax on unrealised gains c NTA after tax c Share price^ c Option price^ 2.00c Dividend yield** 3.8% The above figures are not diluted for 181,424,187 options on issue with an exercise price of $1.10 *Includes a provision of $3.23m (1.76 cents a share) in tax relating to FY2015 ^As at 1 September 2015 **Annualised

43 FGG: an exciting new opportunity FGG s IPO offer closed Friday 28 August 2015: $1.10 issue price One for one bonus option issue Option expiry 15 September 2017 Listing on the ASX 10 September 2015

44 Sep-15 Sep-15 Aug-15 Aug-15 Aug-15 Aug-15 May-14 May-14 Jun-14 Jul-14 Aug-14 Aug-14 Sep-14 Oct-14 Nov-14 Nov-14 Dec-14 Dec-14 FGG: an exciting new opportunity $350,000, Recent LIC IPOs $300,000, $250,000, $200,000, $150,000, $100,000, $50,000, $- FGG Sep-15 PAI Sep-15 EAI Aug-15 GC1 Aug-15 ALI Aug-15 CIE Aug-15 ACQ May-14 PAF May-14 BAF Jun-14 GVF Jul-14 BST Aug-14 QVE Aug-14 FGX Sep-14 EGI Oct-14 NAC Nov-14 BTI Nov-14 PIC Dec-14 CBC Dec-14 FGG PAI EAI GC1 ALI CIE ACQ PAF BAF GVF BST QVE FGX EGI NAC BTI PIC CBC

45 FGG board, CEO and IC members Board Belinda Hutchinson (Chair) Sue Cato Sarah Morgan Karen Penrose Frank Casarotti Geoff Wilson Investment Committee Amanda Gillespie (Chair) Aman Ramrakha Sean Webster Geoff Wilson Joint Chief Executive Officers Louise Walsh Chris Donohoe

46 FGG: our global fund managers Long Equities Absolute Bias Quantitative Strategies

47 Changing the lives of young Australians Shareholders will be able to direct their pro rata 1.0% of NTA to the following charities

48 Creating wealth and changing lives FGG is determined to transform youth mental health by driving philanthropic investment in three core areas: Helping the community understand the issue Enabling investment in research and development Investing in the most effective programs and services Shareholders can nominate a charity of their choosing if they own 1M+ shares.

49 Supported by leading service providers

50 Questions?

51 Topic Two: Dividend imputation

52 Agenda: dividend imputation Background Imputation system under review? Our submission Next steps Questions

53 Background We actively advocate for the rights of our shareholders We believe all shareholders, retail and institutional alike should have the opportunity to participate in primary capital raisings equally Last year we lodged two separate submissions to the Financial System Inquiry advocating for a fairer, more effective Australian financial system We argued that retail investors should be on a level playing field with institutional investors by participating in primary capital raisings without the requirement of a prospectus As dividend imputation has come in to question, we have responded on behalf of our companies and their shareholders

54 Imputation system under review? Chairman David Murray, Financial System Inquiry, December 2014 The case for retaining dividend imputation is less clear than in the past. To the extent that dividend imputation distorts the allocation of funding, a lower company tax rate would likely reduce such distortions For investors (including superannuation funds) subject to low tax rates, the value of imputation credits received may exceed tax payable. Unused credits are fully refundable to these investors, with negative consequences for Government revenue Treasurer Joe Hockey, Tax Reform White Paper, March 2015 [Dividend imputation] makes little contribution to attracting foreign investment to Australia other than eliminating dividend withholding tax for franked dividends paid to foreign shareholders. It also involves a significant cost to revenue and may impose more compliance costs to achieve similar outcomes to other jurisdictions

55 Our submission On March , Treasury Joe Hockey released a tax discussion paper and commenced a formal consultation process In June 2015 we lodged our submission. We argued that the existing dividend imputation arrangements should be retained as it leads to: robust capital formation in Australia efficient capital distribution a more stable economy with reduced cyclicality greater financial support for Australian charities The removal or adjustment of dividend imputation would therefore be detrimental to the Australian financial system

56 Robust capital formulation in Australia Dividend imputation leads to efficient capital allocation by directing capital towards Australia companies Encourages Australian companies to invest in Australian projects as they do not earn franking credits on foreign-earned revenue* Increased local investment good for the Australian economy in general, even better for shareholders In general, Australian companies have a mixed track record of generating returns on overseas investment, e.g. big four banks *Source: Abraham, M. (2013). Tax refund for unused franking credits and shareholder pattern change: Australian evidence. International Journal of Social and Behavioural Sciences, 1: 1-15.

57 *Source: Abraham, M. (2013). Tax refund for unused franking credits and shareholder pattern change: Australian evidence. International Journal of Social and Behavioural Sciences, 1: ^Source: Arnott, R. and Asness, C. (2003). Surprise! Higher dividends = higher earnings growth, Financial Analysts Journal, 59: Efficient capital distribution Dividend imputation incentivises Australian companies to distribute significant portions of tax paid earnings Academic literature has shown that companies that distribute franking credits have higher payout ratios* and outperform companies with lower payout ratios^

58 A more stable economy with reduced cyclicality In lowering the costs of equity relative to debt, dividend imputation limits the imperative for companies to gear As a result, Australian companies are the lowest geared in the world Source: Goldman Sachs

59 A more stable economy with reduced cyclicality Leverage is a key indicator of the financial health of companies and the economy in general Leverage exacerbates the cyclicality of financial markets as it drives performance during bull markets and intensifies losses during financial downturns The capital discipline dividend imputation has driven in Australia is a crucial defence against cyclicality and debt-related systemic risk

60 Greater financial support for Australian charities Australian philanthropic trusts and foundations are excluded from income tax exemptions on all forms of investment due to their charitable purpose Reintroducing double taxation would offend the principle that funds applied for charitable purposes should be income tax exempt

61 Outcomes and next steps General manager Roger Brake, Tax White Paper Taskforce, August 2015 There is strong support for reducing personal income and company tax rates, for abolishing state stamp duties and for maintaining dividend imputation from the 850 submissions received on the March discussion paper. Treasury is required to prepare an options paper on tax reform by the end of 2015 We will continue to engage in this debate

62 Questions?

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