by Bruce Jackson

The $864 million Wilson Asset Management WAM Leaders Limited (ASX:WLE) listed investment company (LIC) increased its exposure to the banks during the June, saying market valuations became supportive.

In its monthly update, the LIC said it believes the move to increase mortgage rates by Bank of Queensland (ASX:BOQ), AMP Limited (ASX:AMP) and Suncorp Group (ASX:SUN) has the potential to offset some of the negative headwinds for bank shares in the short term.

As with the Perennial Value Australian Shares Trust, which also moved to an overweight position on bank shares in June, the timing of WLE’s move could have been perfect.

Since hitting a multi-year low in mid-June, the Commonwealth Bank of Australia (ASX:CBA) share price has jumped 11 per cent higher.

In the same period, National Australia Bank (ASX:NAB) shares have added 8 per cent, Westpac Bank (ASX:WBC) shares have added 8 per cent and ANZ (ASX:ANZ) shares are up 10 per cent.

The WAM Leaders investment portfolio rose 2.6 per cent in June, under-performing its S&P/ASX 200 Accumulation Index, which increased 3.3 per cent in the month.

Winners for the month included Mayne Pharma Group (ASX:MYX), up 12.3 per cent, Corporate Travel Management (ASX:CTD), up 10.9 per cent, Caltex (ASX:CTX), up 10.6 per cent, APN Outdoor (ASX:APO), up 10.4 per cent, and Whitehaven Coal (ASX:WHC), up 9.9 per cent.

Energy shares drive out-performance

Zooming out to a more meaningful comparison period, the WAM Leaders investment portfolio increased 17.8 per cent for the financial year to 30 June 2018, outperforming the S&P/ASX 200 Accumulation Index by 4.8 per cent.

A key driver of performance was the LIC’s exposure to the energy and materials sectors including Origin Energy (ASX:ORG), Santos (ASX:STO) and BHP Billiton (ASX:BHP), which benefitted from rising oil prices due to supply cuts led by OPEC.

In the last 12 months, Origin shares are up 35 per cent, Santos shares have gained 106 per cent, and BHP shares have risen 33 per cent.

WAM Leaders increased its position in CSL Limited (ASX:CSL), with earnings momentum driving the CSL share price higher. CSL is now the fourth largest ASX company, and WAM Leaders says the biotech giant has cemented its global position and profitable niche.

Another winner for the LIC has been Macquarie Group (ASX:MQG). The investment team identified underlying earnings potential embedded within the company, saying the Macquarie share price re-rated to reflect the changing business model.

Macquarie, a member of The Capital Club 10, differs from the big four banks in that it has a global footprint, and its profits are derived more from its fund management business than traditional banking.

Around 55 per cent of the WAM Leaders portfolio is invested in ASX 20 shares. Over the past 12 months, the best performers in that index are CSL and Macquarie, with Telstra (ASX:TLS) being by far the biggest laggard. The Telstra share price has slumped 36 per cent in the past year.

Geoff Wilson buys more WAM Leaders shares

WAM Leaders trades at a 2.9 per cent discount to the 30 June 2018 pre-tax net asset value, something that prompted Chairman Geoff Wilson to increase his holding in the LIC. Mr Wilson says he believes the discount will dissipate with continued portfolio performance and an active shareholder engagement strategy.

WAM Leaders announced a fully franked full year dividend of 5.0 cents per share, an increase of 66.7% on the previous year.

With WLE shares currently swapping hands at $1.185, WLE are trading on a fully franked dividend yield of 4.2 per cent, or 6.0 per cent when grossed up for franking credits.