Australian Foundation Investment Co (AFIC), the country's largest listed investment company, has reported solid financial results for the 2023-24 financial year, while also revealing ambitious plans for international expansion.
The Melbourne-based firm posted a net profit of $296.4 million for the year ended June 30, a modest 4% decline from the previous year. This was primarily attributed to lower dividend income from mining behemoths BHP, Rio Tinto, and Woodside Energy. However, the company managed to offset some of this decline through strategic portfolio adjustments and improved performance from other holdings, notably the major banks.
AFIC's investment acumen was evident in its portfolio's 15.1% return, outpacing the S&P/ASX 200 Accumulation Index by a comfortable margin of 1.6%. Key drivers of this outperformance included a concentrated exposure to high-performing stocks such as CAR Group, Goodman Group, Wesfarmers, Reece, Netwealth, and ARB Corporation. The company’s decision to underweight the mid-cap resources sector, which experienced a significant downturn, further contributed to its relative strength.
While AFIC’s domestic performance was commendable, the company’s strategic focus has extended beyond Australian shores. The firm has been quietly building a global investment portfolio since 2021, and after three years of careful evaluation, it is now considering its next steps.
A key consideration is the establishment of a standalone, low-cost global investment company. Such a venture would allow AFIC to tap into the vast opportunities presented by international markets while potentially providing investors with a more diversified investment option.
To date, AFIC has invested $103.7 million of shareholder capital into its global portfolio, which has grown to be valued at $147.5 million as of June 30, 2024. This represents a modest 1.5% of the company’s overall portfolio, indicating that there is ample scope for expansion.
The company has expressed satisfaction with the performance of its global holdings, which have outperformed the MSCI World Index ex Australia benchmark. Strategic investments in high-growth companies like Nvidia, Freeport McMoran, Netflix, Meta, and Nextera Energy, coupled with opportunistic additions to its Fortinet position, have contributed to this success. To fund these acquisitions, AFIC exited its position in Roche Holdings, reduced its exposure to Starbucks, and trimmed holdings in some of its previous outperformers.
As AFIC navigates the complexities of international investment, the company will need to carefully consider funding options, including the potential for a preferential share offering to existing shareholders. While the ultimate shape of AFIC’s global ambitions remains to be seen, the company’s strong domestic performance and strategic vision position it well for future growth.
