It’s official, the group of listed investment companies have trimmed their holdings of the big banks – notably Westpac (WBC) and the Commonwealth (CBA), as it looks for better value among small and medium capitalised stocks.
On Monday Amcil (AMH) revealed this new approach and yesterday Australian Foundation Investment Co (AFI), the biggest company in the group and the country (with a value of $6.2 billion), confirmed the new approach in its interim statement.
In addition to the two banks, other sales in the large cap stocks group have included Woolworths (WOW) and its rival Wesfarmers (WES).
“Major sales were reflective of some repositioning of the portfolio particularly in banks where AFIC already has a large exposure," directors said in yesterday’s statement.
"As a result positions in Westpac and Commonwealth Bank were reduced. In the supermarket sector, which is facing margin pressure from increased competition, we sold some Woolworths (early in the half) and reduced the overweight position in Wesfarmers.”
And unlike Amcil which said it was almost full invested, AFIC directors say the company is sitting on a cash pile of more than $150 million and looking for value.
CEO Ross Baker said yesterday AFIC is wary of initial public offerings and would prefer instead to pump some of its cash pot funds into existing holdings in the mid-cap sector.
"IPOs are always on the agenda but we’re not going to rush and buy things that are very popular," he said. “I’d be looking at what we currently have and invest in companies that have a proven track record and of quality,” he said.
AFIC is looking to lift its exposure to healthcare and diversified financial stocks in 2016, as the investment house looks for quality companies in the mid-cap sector.
“Our primary strategy is to continue to tread carefully and we have been adding quality companies in the healthcare sector and adding to diversified financials such as Challenger and Macquarie Group,” Mr Baker said yesterday.
Despite selling some of its bank holdings, CBA, Westpac and National Australia Bank remained AFIC’s top three investments at the end of December.
The company hasn’t abandoned bigger stocks, it has lifted its stakes in insurance giant Suncorp, logistics group CSL, Qube Holdings, James Hardie, healthcare operator Healthscope and winemaker Treasury Wine Estates. It also bought new shares in New Zealand-listed logistics group Mainfreight, and participated in the initial public offering of radiology company Integral Diagnostics.
This shift comes after AFIC posted a 1.3% loss for the six months to December, compared with the 0.5% loss of the S&P/ASX 200 Accumulation Index.
The company reported revenue of $156.6 million for the period, which was up 7.2% from 2014. Profit hit $145.5 million, up 10.3% from 2014’s $131.9 million.
The company is paying an interim dividend of 10 cents a share, up one cent from the previous 9 cents a share. The increase was signalled at the time of the release of the full year results last year.
Looking at the rest of the year, AFIC said, "The broad Australian equity index has fallen from close to 5400 at the end of the calendar year to around 4900 as the market reacted negatively to concerns about China. The outlook remains uncertain and market volatility is likely to continue.
“However, AFIC has taken the opportunity to add to holdings in small and mid-sized companies where we have been looking to invest and long term value has started to emerge through the recent sell off.
“The long term performance history of AFIC suggests this is a sensible approach despite present uncertainty and the current cash position continues to provide great flexibility in this type of market,” directors said.
“The stronger performance of mid and small companies over the period was reflected in the AFIC portfolio, with some of the best performing holdings in the investment portfolio by their percentage increase over this period being Treasury Wine Estates, iProperty, Bega Cheese, Freedom Foods, AP Eagers and iCar Asia,” directors pointed out.
AFIC sees no value in ‘bottom fishing’ among the big commodity groups and miners, like Rio or BHP.
"We’ve already got exposure in these companies and in the gas sector through Oil Search and Santos. We’ve never been invested in the more speculative parts of the market which have been troubled – and we don’t plan to invest there either,” Mr Barker said. That holding in Santos is losing money at the moment, such as been the fall in its share price to 15 year plus lows.
AFIC shares fell 0.8% to $5.64.
