WAM Capital, the $1.2 billion listed investment company, has upped its cash levels to 46 per cent from 33.4 per cent at the end of the year, after it took profits from the Donald Trump induced share market rally at the end of the year.
“We positioned ourselves for the rally, which occurred and as those trades have played out we realised our profits and defaulted back to cash,” the fund’s chairman Geoff Wilson told The Australian Financial Review.
The high cash position reiterates its characteristically cautious outlook for stocks, at what Mr Wilson says is the “mature end of an eight-year bull market”.
“Effectively a lot of companies are priced for perfection and there is no room for error,” Mr Wilson said.
“We have seen that if a company misses its earnings numbers, then the market is quite brutal in terms of forcing a significant readjustment.”
The largest position is another LIC, the Hunter Hall Global Value fund, which Wilson is agitating to embark on a buy-back of shares at their net asset value after the controversial departure of Peter Hall. The position accounts for 2.3 per cent of the investment portfolio of WAM but 11 per cent of the share register of HHV.
WAM Capital has added to its position in Ardent Leisure, which fell sharply after the tragedy at its Dreamworld theme park in the Gold Coast. The position is its second largest holding, accounting for 2 per cent of the funds assets.
Wilson said the fund had also been buying shares in furniture retailer Nick Scali, JB Hi-Fi, fintech play Afterpay and Superloop. WAM added to its position in A2 Milk, after reducing its holding throughout the year.
‘Beneficial to the various oil plays’
The fund also participating in the surprise capital raising by Santos in December, which Wilson said was a trading opportunity.
“It wouldn’t surprise us if there were fireworks in the Middle East, which would be beneficial to the various oil plays.”
The fund is also betting on financial services beyond the big banks to deliver sold returns. WAM Capital buying into Challenger, Magellan and Macquarie – a position Wilson says is more market-driven than “research-driven”.
“These are well managed companies with high beta. If there is going to be a rally because interest rates are backing up, the leverage would have been in financial services.”
During the year, Mr Wilson said they rotated the portfolio out of small and mid-cap stocks such as Blackmores that had delivered strong returns.
“Our research-driven positions had either reached or exceeded our valuations and were looking stretched.”
The fund reported a half-year profit before tax of $79.7 million as upped its distribution to 7.5 cents, which based on the current share price of $2.44 equates to a dividend yield of 6.1 per cent.
WAM Capital is slightly behind the benchmark All Ordinaries Accumulation index over the financial year tracking at 9.7 per cent versus the 9.9 per cent index return but is out-performing the index by over 10 per cent over three years, 7.4 per cent over five years and 9.8 per cent since inception in August 1999.