AFIC is the country’s biggest listed investment company, or LIC and it and its outriders such as Djerrawarrh Investments and Mirrabooka, not to mention rivals like Milton, caught the surge in big miners like BHP, but were undone by the weakness in bank shares.
All missed or were not quite positioned for the surge in mid-caps and emerging tech groups such as Afterpay or stocks such as A2 Milk.
As a result most underperformed to varying degrees the ASX benchmarks such as the accumulation index (with dividends added into the performance of the ASX 200).
“AFIC’s portfolio was up 10.8% for the twelve months to 30 June 2018 compared with the S&P/ASX 200 Accumulation Index which increased 13.0%.
"In the resources sector AFIC’s primary exposure is to companies with long-life assets and low-cost production such as BHP and Rio Tinto, rather than the more cyclical small and mid-sized companies.
The best performing companies in the AFIC portfolio outside the large resource companies (BHP and Rio Tinto especially) were CSL, Wesfarmers, Macquarie Group, Oil Search and Woolworths. Not a bank in sight. And its portfolio management during 2017-18 reflected that position.
Major purchases were in big cap stocks such as additions to holdings in Macquarie Group, CSL, Sonic Healthcare, James Hardie Industries and Alumina, “ ll of which have unique industry exposures in global markets", and Sydney Airport and Boral.
“Additions were also made to smaller companies, Reliance Worldwide and Reece, including participation in their respective capital raisings to fund offshore acquisitions, and Carsales.com.
“Unibail-Rodamco-Westfield (which acquired Westfield Corporation through a scrip bid), NEXTDC and Qantas were the more significant new additions to the portfolio,’ directors said.
Major sales included the complete disposal of Incitec Pivot, Coca-Cola Amatil and Japara Healthcare. Westfield Corporation and Tox Free Solutions were sold because of takeovers.
Other major sales included a small reduction in the positions of QBE Insurance, AMP, Telstra and Treasury Wine Estates, all of which have been long term holdings in the portfolio, and Vicinity Centres. And AFIC directors summed it up nicely the dilemma for this big conservative investors with this outlook
"The ongoing strength of the Australian market continues to create a challenging investment environment. In particular, the drive by investors towards companies displaying good growth prospects is pushing share prices for these businesses very high.
"For AFIC it is a matter of being patient and making adjustments that make sense as a long-term investor in quality and growing companies.
“In this context, high valuation levels at a time when interest rates are starting to move from very low levels may create some uncertainty for markets and therefore could then provide investment opportunities. For the year to June AFIC made a net profit of $279 million for the 2018 financial year, up 13,7% from the previous year.
The company will pay a fully franked dividend of 14 cents a share on August 31, taking the total dividend for the financial year to 24 cents, unchanged from 2016-17, which is always the best guide to the sentiment around the boardroom table for companies as conservative as AFIC.
Revenue from operating activities was $308.5 million, up 11.1% from 2016-17.
The one thing that distinguishes the likes of AFIC from super and other managed investments is the very management expense ratio – in this case it was an unchanged 0.14%.
AFIC shares ended yesterday up half a per cent to $6.27.
