New ASX-listed Growth Fund with a focus on ‘owner-managed’ Aussie stocks

From

Nathan Bell

Intelligent Investor’s Australian Equities Growth Fund (ASX: IIGF) has reached its minimum listing requirements and will list on the ASX early next month.

With a 20-plus year history of out-performing the ASX 200, the Intelligent Investor growth model – which the newly listed IIGF portfolio directly mirrors – has returned 7.2% p.a. over the past five years. It has also outperformed the average of 1,260 peers and the Benchmark by 5.2% p.a. and 1.2% p.a. respectively over the same time period.

The IIGF portfolio is a low fee (0.97%) Exchange Traded (actively) Managed Fund designed for long-term investors focused on capital growth. The IIGF portfolio comprises 10 to 35 diversified and well-researched quality ASX-listed investments – with a maximum holding in any one share of 15%.

The IIGF portfolio aims to achieve a return of 2% above the S&P/ASX 200 Accumulation Index p.a. over five year rolling periods. It aims to do this by combining deeply discounted large-cap cyclicals with small-caps that could become tomorrow’s undiscovered leaders.

Value and growth are key drivers

The IIGF portfolio’s top five holdings include developer of online classifieds businesses, Frontier Digital Ventures (ASX: FDV); investment management firm Pinnacle (ASX: PNI), Australia’s number one employment marketplace, Seek (ASX: SEK); developer of online classified businesses, RPM Global Holdings (ASX: RUL); and provider of digital audio network technologies, Audinate (ASX: AD8).

By also including heavily discounted large-cap cyclicals within the IIGF portfolio, including Star Entertainment (ASX: SGR), and Crown Resorts (ASX: CWN), Intelligent Investor remains true to value investing origins.

What the IIGF portfolio also recognises, says Portfolio Manager, Nathan Bell is the heightened role that deep value-stocks – with significant growth upside, yet to be factored in the share price – can play when chasing growth within a post-COVID environment.

Skin in the game

Integral to Bell’s stock selection is a heavy focus on investing in owner/manager businesses. Bell believes that focusing on owner-managed companies, where the person running the business has most of their personal wealth invested – right alongside clients’ savings – is one of the most statistically reliable ways to out-perform the market.

“The owner/managers’ ability to increase competitive advantages during a downturn, has been instrumental in these companies taking market share off competitors that have pulled back on critical investments and marketing during COVID,” said Bell.

For example, Shaun Di Gregorio former senior executive at realestate.com.au, and Singapore-based iProperty, used his own money to establish Frontier Digital Ventures in 2014. Frontier is a collection of 12, mostly online property classifieds businesses.

Since listing on the ASX in 2016, Frontier’s share price has more than doubled, and Bell expects the stock to at very least double what it is today. So convinced is Bell in Frontier’s growth upside – much of which will come from its 30% stake in Zameen, Pakistan’s version of realestate.com.au – it is the portfolio’s largest holding (8.4%).

The owner/manager dynamic is equally prevalent within IIGF’s second largest holding, Pinnacle Investment Group Ltd, with individual insiders owning a hefty 50.58% stake – of which founding managing director Ian Macoun controls over 10%. The IIGF portfolio’s best returner since COVID, Pinnacle is an independent umbrella fund, comprising around 16 fund managers that have collectively delivered excellent returns.

The IIGF portfolio is also invested in another investment and funds management group, 360 Capital, of which managing director Tony Pitt is the major shareholder (29.07%). “Like Pinnacle, 360 Capital ticks all our boxes; management with skin in the game; pristine balance sheet; sensible long-term strategy; and a long growth runway,” Bell said.

Value-stocks with growth upside

The IIGF portfolio also owns some genuinely very good businesses, which due to a major earnings hit this year, currently sit in what Bell refers to as the post-COVID value bucket, including Star Entertainment (ASX: SGR), Crown Casino (ASX: CWN), and Sydney Airport (ASX: SYD).

Bell expects the earnings of these value-stocks to come back along with the economy over the next two or three years. Over time, he also expects the value that the market is currently unwilling to recognise in both Star Entertainment’s and Crown Casino’s brand-new casinos, to eventually be reflected in their deeply discounted share price.

“Star’s current market capitalisation of just $2.5 billion means investors are getting the Sydney and Gold Coast casinos for a steal, and this is what value investors call a big margin of safety,” said Bell. “The company’s share price could more than double over the next few years, which is why it’s also a key portfolio holding.”

All Intelligent Investor funds now ASX-listed

Following the recent listing of both its highly successful Ethical Share Fund (ASX: INES), and its Australian Equity Income Fund (ASX: INIF), the IIGF portfolio is the third investment that Intelligent Investor has listed on the ASX.

The decision to list all three funds on the ASX recognises that many investors’ favour the benefits of holding listed investments – including greater portfolio transparency, fewer fees, better liquidity when buying/selling and potential tax advantages – over less stream-lined, off-market structures.

Important offer detail and timelines

Limited Initial Offer:              $100 million

Initial Offer opens:               31 August 2020

Initial Offer closes:               25 September 2020

Expected listing date:          5 October 2020

Application price:                 $2.50 per unit

Minimum application:          $2,500 (1,000 units)

Management Fees:             0.97%

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Dates are indicative only and are subject to change

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