by James Thomson

Veteran investor Geoff Wilson says his blue chip-focused listed investment company, WAM Leaders, will remain cautious as the market gets inevitably closer to the end of its long bull run. WAM Leaders delivered a return of 17.8 per cent for 2017-18, compared with a 13 per cent return from the S&P/ASX 200 Accumulation Index. Mr Wilson praised portfolio manager Matthew Haupt, who correctly picked the rise in energy prices, and then took the fund into stocks including Origin Energy and Santos (which also benefited from restructuring moves) and BHP (which has been under extra pressure to perform from activist fund Elliott Associates).

WAM Leaders also increased its holding in CSL, which has become one of the top four largest Australian-listed companies by market capitalisation and delivered share price growth of 91.8 per cent during the 2018 financial year.

“We know it’s hard to outperform when you’re focused on the top stocks, so this is a pretty solid result,” said Mr Wilson, adding that WAM Leaders had outperformed the market in 10 out of 12 months during the year. The beaten-down banks also provided the LIC with opportunities during the year, and Mr Wilson believes the worst of the news from the royal commission has probably been built into share prices now. “The banks were sold off significantly, so more recently we’ve slightly increased our weighting,” he said.

‘We are getting closer and closer to the end of the bull market’

Macquarie Group, which has seen its stock rise 47 per cent in the last 12 months, was another winner for WAM Leaders. But Mr Wilson said he remains very cautious on the state of the market, given its long winning run and what many see as elevated valuations. “We are getting closer and closer to the end of the bull market – we just don’t know when it will finish. He said it was difficult to pick the catalyst that would shake global markets, but said the world economy was facing several challenges, including the introduction of tariffs by US President Donald Trump that Mr Wilson described as “effectively a consumption tax on US consumers”.

WAM Leaders has a cash holding of about 10 per cent, though the high liquidity of the companies it invests in means the LIC can quickly increase this level if it needs to. WAM Leaders is the only LIC in the Wilson Asset Management stable that trades at a discount to its net tangible assets. Mr Wilson said this was partly due to a $377 million capital raising the fund had completed during the year – the pricing of which created a short-term arbitrage opportunity – and partly due to the fact WAM Leaders has a shorter history than many of the other WAM LICs. “It takes a little while to build up that profit reserve to be able to stream those fully-franked dividends to shareholders,” Mr Wilson said.

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