There’s value back in the market say the directors of the country’s biggest listed investment company which holds a near $7 billion investment portfolio consisting of the bluest of local blue-chips.
In fact its the very factors that drove the late 2018 sell-off around the world – interest rate worries, growth concerns in China, instability in the UK and Europe, President trump’s trade war with China and Trump’s growing political instability in the US – that are creating opportunities that were hard to find a half a year ago.
Back in July in the 2017-18 results commentary, directors of Australian Foundation Investment Co were struggling to find value, although they told investors there could be some buying opportunities created if interest rate rises created uncertainty.
“…high valuation levels at a time when interest rates are starting to move from very low levels may create some uncertainty for markets and therefore could then provide investment opportunities,” directors said in the July release.
Six months on and that’s exactly what happened, although AFIC’s performance in the half year of a negative 6.4% was a little worse than the 6.2% drop in the ASX 200 Accumulation Index – the key comparator for the company’s performance.
Big share buybacks from BHP and Rio Tinto and the Coles demerger from Wesfarmers helped soften the impact of the fall and an 8 cents a share special dividend was the result (see separate story).
And now directors are more confident about the outlook given the extent of the sell-off seen in the final quarter of the year (when the ASX fell 8% or so).
Directors of Australia’s biggest listed investment company said yesterday that sell-off had “produced a more conducive environment for long term investing”
“Valuations have moved towards longer-term averages, which make for a sensible starting point to invest. Volatility is likely to persist at least in the short term as the market digests the changing environment, with interest rates likely to increase further in the US and no short-term solution to trade and geopolitical dislocations.
“In this environment, AFIC will continue to look for opportunities to add positions in companies that have a sustainable competitive advantage, sound balance sheets and, importantly, strong management that can deliver long term benefits to shareholders,” AFIC directors said.
With the 2019 federal election looking set for May, AFIC’s board doesn’t like the policy of the ALP to end the refundability of franking credits for some investors.
“We continue to receive feedback from our shareholders about the significant negative impact they will experience from the current policy proposal from the Federal Opposition to end the refundability of franking credits. AFIC will continue to advocate for a reassessment of this proposal on our shareholders’ behalf.
“We believe the proposal is more likely to significantly impact our investors who have a low income, and for them, we believe it to be both inequitable and very unfair,” AFIC director said.