WCM Global Growth Limited (WQG) provides investors with access to an actively managed portfolio of high quality global growth companies, selecting enterprises with a rising competitive advantage, or an expanding economic moat with return on invested capital, along with ingrained corporate cultures that are supportive of this moat trajectory. Gravitas is placed on the direction of this economic moat, not necessarily the magnitude. While portfolio turnover is anticipated to be low due to long-duration investment horizons, a deterioration in this aspect largely dictates exit positions.
Contango Asset Management (Contango), in capacity as the Company’s Investment Manager, has appointed WCM Investment Management (WCM) as its Investment Adviser with the mandate to manage the Company’s portfolio. Headquartered in Laguna Beach, California, the specialist global and emerging markets equity firm was founded in 1976 with total assets under management of A$130.6bn (as at 30 June 2021). As at 31 July 2021, WQG had recorded 3 year net tangible asset (after tax and before tax on unrealised gains) growth of 17.3% p.a. (adjusted for option dilution and inclusive of the effect of net dividends), outperforming the benchmark MSCI ACWI Ex-Australia Index (A$) by 2.4% p.a. On a risk-adjusted return basis, we also calculate a Sharpe Ratio of 1.25 and 1.17 for the WQG and the benchmark, respectively.
The Investment Adviser differs from other quality growth peers, seeking to invest not only in companies with sustainable competitive advantages, but also acknowledges the dynamic changes in this. Giving consideration to the system of shared meanings that guide organisational behaviours within the context of moat trajectory tends to create a quality/defensive bias in the portfolio. While difficult to quantify, this is a logical stance. Companies with strong positive corporate cultures are generally highly resistant to disruption, supportive of innovation and exhibit retained personnel expertise.
The important point here is that corporate culture reflects how people actually behave and make decisions within a company. This is not just a superficial statement of aspirational morals. Enron is a textbook example. The 1998 annual report claimed core company values such as respect, integrity, communication and excellence. However the widely-known November 2001 accounting scandal saw Enron report non-entitled profits through special purpose entities and by engaging in related party transactions. Superior comps relative to peers, especially in the high growth context, may therefore raise red flags. Cultural questioning, along with financial statement analysis may have revealed aggressive revenue recognition before the tipping point.
Further to the declaration of a $0.0250 final fully franked dividend, payable on 30 September 2021, WQG’s Board has announced the intention to progressively increase dividend payments over the next twelve months, starting with an interim dividend for FY22 expected to be $0.0275 per share and the final dividend for FY22 expected to increase to $0.0300 cents per share. It is also anticipated that the FY22 interim and final dividends will be fully franked, subject to sufficient profit reserves and franking credits and corporate, legal and regulatory considerations. WQGOA option holders who exercise their options by 17:00 AEST 17 September 2021 and continue to hold the newly allotted shares at the relevant record dates will be eligible for these three dividends.
Bell Potter’s Indicative NTA tracks the ‘indicative’ movement of a LIC’s underlying NTA each month by monitoring the percentage movements of the disclosed holdings and using an index to track the movement of the remaining positions. The Indicative NTA works best with LICs that have a high percentage of investments concentrated in its Top 20, regular disclosure of its Top 20, lower turnover of investments, regular disclosure of its cash position and the absence of a performance fee. We have also included an adjusted indicative NTA and adjusted discount that removes the LIC distribution from the ex-dividend date until the receipt of the new NTA post the payment date. This report is published each Monday prior to the market open and is available on a daily basis. Intraday indicative NTAs will be available on request through your adviser.
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