For personal use only
1
Profit Up Strongly as Income Recovers, Portfolio Outperforms
Half Year Report to 31 December 2021
only | AFIC's investment focus is on a diversified portfolio of Australian equities, seeking to |
provide attractive income and capital growth to shareholders over the medium to long | |
term. This is achieved at a low cost, with lower volatility than the market, and with low | |
portfolio turnover which produces tax effective outcomes for shareholders. | |
use | Half Year Profit was up by 73.5% to $146.0 million following on from the recovery in |
dividend income. In the corresponding period last year, Half Year Profit was $84.1 | |
million. | |
Investment income for the six months to 31 December 2021 was $159.4 million, up from | |
$93.8 million in the corresponding period last year. The biggest increases came from | |
the major banks, Macquarie Group, and BHP and Rio Tinto as a result of previous very | |
strong iron ore prices. A number of companies in the portfolio also reinstated dividends | |
personal | during the half year, which included James Hardie Industries and Ramsay Health Care. |
The interim dividend for the half year is 10 cents per share fully franked, the same as | |
Portfolio performance (including the full benefit of franking) - to 31 December 2021 | |
the previous corresponding period. | |
The six-month portfolio return including franking was 6.9% compared with the S&P/ASX | |
200 Index return including franking of 4.6% over the same period. | |
For the 12 months to 31 December 2021, the portfolio return including franking was | |
22.4%. The return from the S&P/ASX 200 Accumulation Index over this period including | |
franking was 18.7%. | |
The management expense ratio for AFIC is 0.15% (annualised), with no performance fees. | |
The level of economic activity has improved materially from the pandemic-induced lows | |
of mid 2020 putting interest rate increases back on the agenda. While the timing of | |
these increases remains uncertain US interest rates have already started to move | |
upwards leading to increased volatility in equity markets. We remain well positioned to | |
purchase our preferred companies should attractive opportunities present themselves | |
in these conditions. | |
For |
Per annum returns other than for six months. AFIC's performance numbers are after costs.
3
For personal use only
Portfolio Performance
The Australian equity market continued to deliver gains in the six months to 31 December 2021 following on from the very strong rebound in markets in the first six months of the calendar year. While market valuations remained higher than historical levels, as a result of continued low interest rates, corporate earnings growth remained strong supported by improved economic activity.
The strengthening demand environment is producing supply chain challenges in many industries with rising costs leading to a meaningful increase in reported inflation. In the near term, operating costs are likely to remain elevated making it more challenging for companies to sustain recent strong earnings growth. A feature of our focus on quality businesses is identifying those companies displaying attributes of pricing power over the long term. Companies owning unique assets with a market leadership position are best able to pass through rising costs. Core portfolio holdings are represented by high-quality companies we consider relatively well positioned to pass through any cost increases.
Reflecting the quality of companies in the portfolio during these uncertain times, AFIC's portfolio was up 6.9% for the six months to 31 December 2021 compared with the S&P/ASX 200 Accumulation Index, which was up 4.6% over the same period. These figures include the benefit of franking credits, with AFIC's performance numbers after costs.
Companies in the portfolio that contributed strongly to returns through the six-month period were Macquarie Group, Sydney Airport, Mainfreight, James Hardie Industries and Goodman Group.
AFIC is an investor with a long term focus. Ten-year portfolio return figures to 31 December 2021 are 12.5% versus 12.4% for the S&P/ASX 200 Accumulation Index over the same period. These figures include the full benefit of franking, with AFIC's return after costs. This performance has been achieved with lower portfolio volatility than the market and more consistent dividend income.
Portfolio Adjustments
Short term volatility provided attractive prices to increase our holdings in Transurban, Coles Group, CSL, Goodman Group, Domino's Pizza Enterprises and BHP, where we consider long term prospects for all these companies remains strong. Transurban will be a significant beneficiary as economies gradually reopen, leading to increased traffic across its road transport network, while improved mobility will enhance plasma collection volumes for CSL.
We initiated positions in JB Hi-Fi and WiseTech Global. JB Hi-Fi is the largest consumer electronics retailer in Australia and New Zealand. While primarily providing attractive income to the portfolio, we expect the consumer electronics category to continue delivering meaningful growth. WiseTech Global is a leading developer and provider of software solutions to the global logistics industry facilitating customers to digitise their freight forwarding operations.
We exited Qube Holdings, APA Group, Lifestyle Communities, Origin Energy and Altium, considering each company's long term prospects increasingly challenged as competitive intensity increases. We also exited our holding in Milton Corporation as a result of the takeover by Washington H. Soul Pattinson.
Outlook
Our strategy of owning a diversified portfolio of quality companies that are well placed to deliver earnings growth over the medium to long term remains appropriate. While market volatility may emerge, short term periods of uncertainty often present good buying opportunities for investors focused on a company's long term prospects. The portfolio is soundly positioned despite the spectre of rising interest rates and heightened global uncertainty.
Please direct any enquiries to: | |
Mark Freeman | Geoff Driver |
Managing Director | General Manager |
(03) 9225 2122 | (03) 9225 2102 |
24 January 2022 |
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TOP 5 TRANSACTIONS IN THE INVESTMENT PORTFOLIO
onlyAcquisitions
Santos (as a result of the merger with Oil Search) Transurban Group (including participation in entitlement offer) JB Hi-Fi
Coles Group
CSL (participation in placement)
useDisposals
Oil Search# (as a result of the merger with Santos)
Qube Holdings#
APA Group#
Milton Corporation#
Lifestyle Communities#
- Complete disposal from the portfolio.
personalNew Companies Added to the Investment Portfolio Santos (as a result of the merger with Oil Search)
JB Hi-Fi
WiseTech Global
For
Cost ($'000)
72,660
65,548
47,191
35,000
30,214
Proceeds ($'000)
72,660
68,985
57,159
50,443
36,760
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Australian Foundation Investment Company Limited published this content on 23 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 January 2022 22:43:07 UTC.