The Fund generated a robust 2.8% return for the September 2021 quarter, against a market return of 2.1% (ASX Accumulation All Ordinaries Index) and our targeted return (RBA Cash rate +6% annually) of 1.5% for the quarter. Several of the Fund’s larger holdings exhibited strong share price growth including Telstra, Aristocrat, Resmed, and NAB.
The Fund also benefited from strong contributions from Smart Group (takeover offer), Ryman Healthcare in NZ, and Medibank. The main detractors in the quarter were confined to Evolution Mining and Accent Group (the latter in particular has rebounded strongly in October), as well as miners Fortescue and Rio Tinto following the correction in iron ore prices.
We continue to be somewhat surprised that the Fund has performed as well as it has over the quarter. As we have commented previously, we believe protecting capital and generating a sufficient return in this environment is nontrivial. A key element of our capital preservation tool kit has always been the option to remain in cash, however, we find ourselves increasingly drawing on other elements such as put options, exposure to gold/utilities, and an even stronger overall bias towards defensively characterised business models.
With an average after-tax cash earnings yield of approximately 7% across a portfolio of largely toilet paper and toothbrush-type stocks, we think that we can accumulate 7% in value on a fairly reliable basis, with opportunities for management teams to leverage generally under-geared balance sheets to create additional value from accretive M&A or capital returns.
We are pleased with the Fund’s performance in the first quarter of FY21 and remain focused on our primary objectives of capital preservation and generating a reasonable real return for our investors.
Below is a recording of our recent webinar where Fund Manager Anton du Preez and Investment Analyst Mark Christensen provide performance, portfolio, and stock-specific updates for the Fund. Financial planners may also complete a short questionnaire available HERE for CPD points.