WAM Vault

Going to WAR

Chairman and Chief Investment Officer Geoff Wilson AO on WAM Strategic Value (ASX: WAR). ​​​​​​Geoff discusses fully franked dividends, current discounted asset opportunities including VGI Partners Global Investments (ASX: VG1) and Magellan High Conviction Trust (ASX: MHH) and more.

James Marlay: Geoff, you are about to list your eighth listed investment company (LIC), WAM Strategic Value (ASX: WAR). Could you tell me a bit about the strategy itself and why you have decided to bring it to market?

Geoff Wilson AO: We are doing it to simplify our structure. I read a great book a little while ago, about Steve Jobs at Apple, saying what he really focused on is simplifying choices for people. What we are doing with WAM Strategic Value is buying a $1 of assets for 80 cents. Of course, we would love to pay 50 cents if we can.

It is really an undervalued asset play. It is going to be what we have done for the last 20 years, buying assets cheaply, but the focus of WAM Strategic Value is mainly on listed investment companies and listed investment trusts (LITs). We have been doing that for 20 years.

In our investment team, we have Oscar Oberg who is the Lead Portfolio Manager for WAM Capital (ASX: WAM) and WAM Active (ASX: WAA). We also have Matthew Haupt, who is the Lead Portfolio Manager for WAM Leaders (ASX: WLE); Catriona Burns who is the Lead Portfolio Manager for WAM Global (ASX: WGB); and Dania Zinurova who runs WAM Alternate Assets (ASX: WMA). The Lead Portfolio Manager for this new company, WAM Strategic Value, is myself. So the pressure is on.

James Marlay: One of the things you have been able to do with your stable of LICs is ensure that they trade at premiums to their net tangible assets (NTA). What has been the key ingredient, or ingredients, to making this happen?

Geoff Wilson AO: Of the six listed investment companies we have floated, they are all trading at NTA, if not at premium. The biggest premium is WAM Research (ASX: WAX), which is 40% plus. WAM Capital is at a 20%-odd premium, which is assuming that we will continue to outperform on a consistent basis. So, they are big challenges for the business.

In terms of what the ‘secret sauce’ is, when you are looking at listed investment companies or listed investment trusts, those have to do a number of things. Firstly, they have to perform. That is probably a given with fund managers. Secondly, they have to provide a growing stream of fully franked dividends, because your marginal buyer tends to be your self-managed super fund. We have been able to do that. Thirdly, and this is probably what all listed companies need to do, is treat shareholders with respect. Unfortunately, you do get a number of companies that do not understand that the shareholders own the company, so they really do not treat shareholders with the respect they should have as your owners. The fourth thing is something that we really spend a lot of time on, shareholder engagement, communication and marketing. We employ eight people in that area and are adding more. A lot of people, when they set up listed investment companies and listed investment trusts, can focus on the first three, but they forget to focus on the fourth, and that is very important.

James Marlay: We have a number of questions from Wilson Asset Management shareholders about the new vehicle, so we might run through a few of those. As a starting point, can you provide any specific examples of the LITs or LICs that the new vehicle might buy or hold?

Geoff Wilson AO: Yes. With WAM Strategic Value, we are raising $225 million. $125 million is going to come from the Wilson Asset Management Family, our 100,000 shareholders and supporters among our listed investment companies. The other $100 million is coming from a broker firm.

Also, we are selling across $150 million worth of LICs that we own in WAM Capital and WAM Active at an average price over the 10 days before WAM Strategic Value lists. So, there is already going to be about $150 million worth of portfolio in there. In terms of some of the companies that are in there, you have exposure to some of the best boutique fund managers in Australia, and to me it is nearly unbelievable that you can get exposure to these people and get exposure cheaply.

One is VGI (ASX: VG1), which has been very topical recently. Rob Luciano is a great fund manager. We were able to buy exposure to him at 85 cents in the dollar. What a great opportunity. Another one we bought more recently is Magellan High Conviction Fund (ASX: MHH), gaining exposure to Hamish Douglass. We are buying at about a 12% discount, and if it goes to a bigger discount, we will take a bigger position. We have a small position in Thorney Opportunities (ASX: TOP), and that is Alex Waislitz. You are getting exposure to his LIC at a 20% plus discount. They are currently in our portfolio in smaller positions, because we want to be confident that we can see the catalyst that is going to change the valuation and move those share prices – say from being 80 cents in the dollar to be trading at a dollar in the dollar. When we have confidence that we have identified those catalysts, then we will increase our positions. That is an example of some of the opportunities. To me, it is nearly unbelievable that you can get exposure to these people. I love buying value, I love getting a good deal. It is sort of like going to buy a new car, it is worth $20,000, you get it for $16,000. How good is that?

James Marlay: Value is one thing you love, the other you are known for is paying fully franked dividends. What is the dividend strategy for WAM Strategic Value?

Geoff Wilson AO: At the end of April, the portfolio we have exposure to that is going to go into WAM Strategic Value, is trading on a running yield of about 3.6% fully franked. Our plan will be to pay a fully franked dividend to shareholders, and our plan will be to grow that fully franked dividend over time. What we try to do is enhance the actual yield we are getting, with realised profits, to give shareholders better than a fully franked return that they would get if they were investing in the market.

James Marlay: What about liquidity during times of distress, how have you thought about that with this new portfolio?

Geoff Wilson AO: The great thing about the listed investment company structure it is a closed-end pool of capital. So as a fund manager, we have enormous flexibility. We do not have to buy when everything is expensive, and we are never forced to sell when everyone wants their money back, or when things are going badly, such as during the Global Financial Crisis. We can take whatever opportunities we see present themselves, and we can take a medium and long-term view. What you tend to find is when there are periods of stress, that is when the exceptional opportunities present themselves. Being the Lead Portfolio Manager for WAM Strategic Value, it will have a cash buffer, so we are well positioned when those opportunities present themselves.

James Marlay: Are you participating yourself in this raising?

Geoff Wilson AO: Yes. I am investing $5 million dollars. I think that is a good start. I actually have in our more recent initial public offerings, like WAM Global and WAM Leaders, about a $12 to $13 million exposure to each of those individually. So if the opportunity presents itself, then I would like to increase my exposure to WAM Strategic Value. Initially I am starting with a $5 million exposure.

James Marlay: Now you mentioned also that you are going to be the Lead Portfolio Manager, putting that cap back on. Who is going to be supporting you in that role?

Geoff Wilson AO: The great thing is we have 14 professionals that look at the market globally and domestically. We work in an open-plan office, everyone feeds in with the ideas. Also, in terms of working through some of those opportunities, there are people like our Chief Financial Officer Jesse Hamilton and Head of Operations Marty McCathie. Really it is a whole team effort.

James Marlay: WAM Vault really is for your shareholders, so do you have a final message about the opportunity in discounted assets for Wilson Asset Management investors?

Geoff Wilson AO: When you are investing, it is hard-earned cash, and we have all have a finite amount of cash. What I really enjoy doing is buying something I think is exceptional value. Think about Warren Buffet, when he got involved with Berkshire Hathaway in 1965 some of his early investing was in closed-end pools of capital like LICs and LITs. That to me is the purest type of investing.

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