Gross of fees and transaction costs the WAM Leaders (ASX:WLE) investment portfolio delivered a return of 9.7% for FY22 while the S&P/ASX 200 Accumulation Index fell by 6.5%. The Company’s net asset backing (NTA) also grew by 3.8% for the financial year after operating expenses, provision and payment of both income and capital gains tax.
WLE employs an investment process that is focused on identifying large cap companies with an identifiable macro-economic quantum (seasonality and sensitivity), compelling fundamentals (earnings momentum) and supportive sentiment indicators. The resulting portfolio is therefore benchmark unaware and more akin to an absolute return style – with positions that are accordingly dialed up and down through the cycle to gain optimum exposure. In the first half of FY22 the Company was skewed towards financials, materials and energy in an attempt to capture the acceleration in economic growth. However by mid calendar year the portfolio had pivoted into outperforming defensive sectors such as healthcare and consumer staples in response to hawkish monetary policy settings.
In light of the strong investment performance, the Board of Directors have also declared a fully franked full year dividend of 8.0c per share (14.3% increase yoy), with the fully franked final dividend being set at 4.0c per share. Portfolio turnover for the financial year was 4.8x (3.8x FY21), an equivalent 28.8% increase on the pcp. Booking and harvesting profits through incremental stock position changes, plus an uptick in the underlying passive investment income ($77.7m FY22; $24.5m FY21), continues to ensures that cash flow underpins dividends and that tax is paid at the corporate level. Balance of the franking account at 30 June after adjusting for franking credits arising from estimated income tax payable was $81.8m ($57.6m FY21). Assuming an annual payout at 8.0c per share, tax offsets available on attaching dividends are approximately 9.9c (using the reported weighted average number of shares outstanding of 1,008,478,036) per share. WLE could therefore pay a maximum fully franked dividend of 32.9c per share until this amount was depleted.
WLE featured in the Bell Potter March LIC/LIT Report and was a top investment pick. We believe that the investment manager is building a judicious track record of returning income while growing and preserving capital, with the asset backing rallying harder than the market during periods of euphoria; while also shrinking less than the market when sentiment wanes (i.e. a calculated 116.6% capture ratio since inception. A value greater than 100 spells outperformance).
Qualitas Secures $700m Sovereign Mandate
Investment manager of the Qualitas Real Estate Income Fund (ASX:QRI), Qualitas Limited (ASX:QAL), has secured a new fully discretionary mandate to invest A$700m in Australian Commercial Real Estate (CRE) private credit opportunities. A potential Equity Interest in QAL through options also provides for an additional scope to bring the total commitment to A$1,700m. The capital commitment comes from a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), a Sovereign Wealth Fund. The ADIA was established in 1976 and invests funds on behalf of the Government of Abu Dhabi through a highly diversified portfolio that is focused on long-term value creation. The mandate will be carried out through a new vehicle, the “Qualitas Diversified Credit Investments”, that is to be predominantly underpinned by a mix of Senior and Mezzanine CRE debt similar to the deployment exposure by loan type in QRI, noting that QRI has an income focused strategy compared to the wider ADIA mandate.
The result is positive and marks an institutional appreciation for alternative financiers in the less bank dominated Australian CRE market with rising interest rates. 54% of the QRI loan book is based on a variable rate that is expected to increase as the existing short duration assets mature. Pricing is set on the forward-looking SWAP bid rate plus a fixed risk margin. Our bootsrapped yield curve implies a 1 month spot rate of 3.6% out to Aug 2023 that is already ahead of the “official cash rate”. Pricings will therefore keep an attractive spread over cash on distributions received by investors as the RBA raises rates on loans secured by real property.
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.
For full details refer to the detailed report below or click here to download your copy.
