Geoff Wilson’s newest listed investment company has side-stepped the carnage among domestic stock pickers after sniffing the winds of change and investing heavily in banks during November.
The decision has ensured that the WAM Leaders Fund has got off to a flying start, reporting a $17.8 million after-tax profit and a fully franked maiden dividend of 1¢ a share after a little over seven months on the ASX.
Part of Wilson Asset Management’s stable of listed investment companies worth almost $2 billion, the capital raising for the WAM Leaders Fund was the most successful raising of its type in Australia, taking in $394.3 million.
WAM Leaders chairman Mr Wilson said he was pleased the vehicle had been able to deliver on its objectives of providing capital growth and yield, noting that he anticipated delivering an even larger dividend in the second half.
The fund delivered a portfolio return of 7.1 per cent since inception before fees, expenses and taxes compared with a return or 4.8 per cent from the S&P/ASX 200 over the same period.
Critical to the performance was a decision to pivot away from the underperforming sectors of the market and build large positions in the big four banks, portfolio manager Matthew Haupt said.
“Toward the end of 2016 we made significant changes to the portfolio, reducing our exposure to mid-cap holdings and consolidating our large-cap positions” Mr Haupt said.
“Notably, we invested in the four major banks as we gained comfort with the short-term negative sectoral headwinds, particularly the capital requirements and falling interest rates.”
“Similarly, increasing bond yields saw us focus on other diversified financial and insurance companies including QBE Insurance Group, Computershare and Suncorp Group.”
The change in strategy represents a considerable shift for the fund and the portfolio manager, who told The Australian Financial Review in June the outlook for banks was not bright enough for the fund to consider owning them.
When marketing around the fund began in the first half of calendar 2016 it was pitched as offering a diversified exposure to the S&P/ASX200. It promised to exploit market mispricing and it was understood that it would generally avoid the top 20 stocks where many investors had significant holdings.
As of July 31 not a single bank was listed among the funds top 10 holdings but by December 31, each of the big four banks were among its top five holdings, accounting for 16.5 per cent of the funds total exposure.
Mr Haupt said that the fund also took positions in BHP Billiton and Rio Tinto as global economic growth gained momentum. Mr Haupt said that he expected minor earnings growth from Australian companies and that the fund was prepared for conditions to change as the year progressed.
“We are in the mature stage of an eight-year bull market that is showing signs of fatigue. We expect the domestic market to run out of steam toward the end of the calendar year in contrast to the strong start we are currently experiencing.”