The PM Capital Global Companies Fund (‘Fund’) is now only one of two out of 28 investment products in its Zenith category to be rated ‘Highly Recommended’.

The rating upgrade equates to Zenith giving the Fund a score of greater than 80 out of 100 across a combination of factors including: investment team; portfolio management; product structure; and PM Capital as an organisation.

In its Review, Zenith says the Fund’s high conviction and contrarian investment approach is differentiated, and that Zenith continues to rate the PM Capital Global Companies Fund team highly.

Zenith concludes: “As a result, the Fund is one of Zenith’s preferred choices within the Zenith International Shares – Global Equities Long/ Short sector.

“Relative to Zenith’s assigned benchmark and the RBA Cash Rate, the Fund has materially outperformed since inception.”

Zenith also highlighted the Fund’s after-tax return potential: “Holding all else equal, the Fund may be more appealing to investors who are high marginal tax rate payers as it will result in superior after-tax return outcomes.”

The Fund’s Portfolio Manager, Paul Moore, said: “Zenith has a detailed approach to its research so to be rated ‘Highly Recommended’ is an honour.

“We provide opportunities significantly different to those provided by the index and more traditional benchmark-aware global equity funds.”

The Fund is available on all major platforms. The ASX-listed PM Capital Global Opportunities Fund (ASX:PGF) also uses the global equities strategy utilised by the Fund. 

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Paul Moore

PM Capital Global Opportunities Fund (ASX: PGF) and its subsidiary, PM Capital GO 2025 Limited (GO 2025) have jointly issued a Prospectus for the Offer of a next-generation Listed Investment Company (‘LIC’) security: ‘PTrackERS’, which stands for Portfolio Tracking Exchangeable Redeemable Securities (Converting Security).

A first of its kind innovation in the LIC space, PTrackERS have been developed to improve LIC investor outcomes and choice.

The Offer is made via a 1:1 Entitlement to PGF shareholders, plus a General and Broker Firm Offer. The Issue Price is $1.40 per PTrackERS, to raise a minimum of $105 million and a maximum of $491 million.

The Chairman of PGF and GO 2025, Andrew McGill, said: “GO 2025 is unique in the Australian market, combining the skills of an exceptional global equities investment manager, PM Capital, with a highly innovative offer structure that gives investors more control, choice and flexibility.

“PM Capital is in its 20th year of applying its global investing philosophy and process, and has one of the most deeply experienced global equities teams in Australia. In 2017, PM Capital’s global equities strategy applied to funds ranked first for performance in their peer group from 1 year all the way out to 9 years.

“PTrackERS provide access to the management experience of PM Capital, along with a significant benefit – the choice for sellers to redeem in the future based on NTA, thereby providing a redemption safety net if the securities are trading on market at a discount to NTA.

“This is a first of its kind benefit for investors in listed investment companies.

The Chief Investment Officer and Chairman of PM Capital, Paul Moore, said:

“Australians are citizens of the world. Given our outward focus and desire to experience the best the world can offer, it still surprises me that Australians keep such a large proportion of their assets in Australian equities rather than global equities.

“PM Capital GO 2025 provides an efficient and flexible way to take advantage of what we see as the best global opportunities to build wealth – with a long-term perspective.

“We believe our benchmark-unaware philosophy and process suits GO 2025’s aims and structure, allowing us to seek market anomalies that can provide attractive long-term returns.”

GO 2025’s Investment Strategy, and that of its parent PGF, is consistent with that of PM Capital’s unlisted managed investment scheme, the PM Capital Global Companies Fund and other associated global mandates. Across these funds and mandates PM Capital was ranked first in its peer group over 5, 6, 7, 8 and 9 years returns to 31 December 20171.

Since inception the PM Capital Global Companies Fund has doubled the annual returns of the MSCI World Net Total Return Index (AUD)2. PGF’s portfolio, also managed using a consistent global investment strategy, has generated a total return3 of 75% since inception. PM Capital was awarded the Money Management/Lonsec – 2018 Fund Manager of the Year – Equities (Long/ Short category).

GO 2025 is a step forward for LICs

‘GO 2025’ stands for ‘Global Opportunities’, reflecting its focus on global securities, and the year 2025, which is when its ASX-listed securities, the PTrackERS, provide holders the choice to either convert into PGF shares or redeem based on NTA.

The 7 year conversion/ redemption right reflects PM Capital’s recommended investment time frame of seven years plus across its global equities strategies.

It is the first time this type of security has been offer by an LIC.

Major factors which can negatively affect LIC investor returns:

• significant establishment costs resulting in day 1 investable assets being materially below the IPO price;
• even strongly performing LICs can trade away from their underlying net tangible asset (NTA) value, creating uncertainty for investors as to whether they can obtain the underlying value of their securities;
• growth in a LIC’s capital can lead to a dilution of NTA per share for existing holders making NTA performance vary from the investment manager’s performance;
• Locked-up capital creating low alignment between shareholders and the LIC investment manager, and
• Uncertain dividend policy.

PTrackERS by GO 2025 have been designed to address the above concerns. With PTrackERS:

• PM Capital is paying all Offer costs. On day 1, PTrackERS investable assets will equal the Issue Price (NTA will not include any soft intangible receivables from the investment manager. This is extremely rare with LICs);
• a selling holder has the choice of selling on market or redeeming based on NTA on 30 June 2025. This feature should also act as a catalyst for PTrackERS to trade closer to NTA;
• PTrackERS are non-dilutive to NTA before tax plus franking credits for both PGF and GO2025;
• other LICs lock-up capital, whereas PTrackERS gives investors the choice in 7-years’ time to redeem or stay. This makes the investment manager truly aligned and accountable for investment performance and communication, and
• a clear dividend policy that intends to target a distribution yield of between 3% and 4% per annum.

With PTrackERS the benefits of traditional LICs outlined below remain:

• PTrackERS will be traded on the ASX (Code: P25PA) consistent with shares of LICs;
• the Investment Manager can, due to the seven year time frame, genuinely invest for the long term without the distraction of daily capital flows, and
• dividends can be franked where franking credits are available.

Higher levels of alignment between investors and the Investment Manager

PM Capital is strongly aligned to the GO 2025 and PGF investment strategy:

• The Investment Manager, PM Capital, and its staff are, in aggregate, the largest holders in GO 2025’s parent, PGF, with a co-investment representing approximately 8.9% of PGF’s issued capital (amounting to an investment of over $40 million);
• If the Offer is fully subscribed, PM Capital will be required to pay approximately $15 million in fees and costs on behalf of the Issuers; and
• If investors do not believe they have had a good investment experience, they can redeem PTrackERS on 30 June 2025, and in doing so remove a source of PM Capital’s management fees revenue.

Broker Syndicate

Morgans Financial Limited is the Lead Arranger and Joint Lead Manager to the Offer. Morgan Stanley Australia Securities Limited and Ord Minnett Limited are the other Joint Lead Managers.

The Co-Managers to the Offer include Baillieu Holst Limited, Bell Potter Securities Limited, Kimber Capital Pty Ltd, Patersons Securities Limited, and Shaw and Partners Limited.

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“We’re delighted he has come on board given his wide knowledge, particularly in the technology and communications space. He will add significant expertise in detecting investment anomalies around the world.”

Mr Huey was most recently an Investment Analyst at Platinum Asset Management, a role he held for over 21 years. He covered Asia from 1996-2000, the technology sector globally from 2000-2014, and South East Asia, Korea and Taiwan from 2014 to the present.

Initially, Mr Huey will be concentrating on the information technology, communications services and healthcare sectors for PM Capital.

Mr Moore said: “As a senior member of the investment team, in addition to his sector focus, Doug will contribute broadly across our investment and peer review process.”

Mr Huey said: “PM Capital finds long term anomalies using deep research, then invests with high conviction. This philosophy and process provides the best opportunity the best chance of delivering strong investment returns.

“PM Capital has one of a handful of global funds in Australia that can claim to have navigated long term market cycles. Market experience and instinct matter going forward.”

PM Capital has been managing global equities since 1998.

As at 31 December 2017, PM Capital-managed global mandates ranked first for performance in their Morningstar global equities peer group over 5, 6, 7, 8 and 9 years.*

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Paul Moore

PM Capital has been awarded a new global equities mandate by Alpha Fund Managers.

Alpha has cited PM Capital’s Global Companies Fund’s “long term track record and high conviction approach” when awarding the mandate.

PM Capital has been appointed to provide investment expertise to Alpha’s diversified ‘fund of fund’ international equities strategy.

William Wang, Head of Funds Management at Alpha Fund Managers, said: “We found PM Capital’s high conviction, concentrated style and long term track record particularly attractive.

“Its ability to successfully and consistently add value over the long term fits well with our belief that benchmark unaware investment managers can generate above market returns over the medium to long-term.

“PM Capital’s style characterised by exploiting anomalies in the market also blends well with our other mandated managers.”

Paul Moore, Portfolio Manager of the Fund, said: “We see an alignment of philosophies with Alpha, particularly given its commitment to long term investment.

“We are looking forward to providing Alpha’s clients with the benefits we can derive from finding and exploiting market anomalies around the world.”

PM Capital has a Global Equity strategy ranked number one for performance by Morningstar in its peer group over 1,3,5,7 and 8 years.* The PM Capital Global Equities Fund has produced annualised returns 4.6% above the relevant benchmark since inception.**

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Paul Moore

The PM Capital Australian Companies Fund (‘Fund’) is now available on Netwealth platforms, giving its investors an innovative way to access the Australian equities market.

The Netwealth inclusion coincides with the Fund achieving an investment performance ranked number one out of 318 products in its sector for the year to 30 June 2017*.

The Fund joins the other PM Capital products in providing investors with market-leading returns. Funds and/or mandates using PM Capital’s Global Equities investment strategy were not only ranked first among the peer group funds for the 1 year to June 2017, but also ranked number one over 3, 5, 7 and 8 years. The Asian Companies Fund’s performance was ranked first in its peer group since the date of its inception and the Enhanced Yield Fund was ranked number 2 in its sector for the year.

Portfolio Manager of the Australian Companies Fund, Uday Cheruvu, said: “We use a handpicked portfolio of 15-25 companies to create long term wealth. The Fund gives access to a unique portfolio of Australian equities with the ability to also obtain a small proportion of global exposure powered by domestic and international market insights. This means that the Fund provides opportunities in the Australian market significantly different to those provided by the index and more traditional benchmark aware Australian equity funds.”

The Australian Companies Fund has been added to Netwealth’s Wrap and Super public menu, joining the PM Capital Global Equities and Enhanced Yield Funds. It is already available on platforms including Macquarie Wrap and BT Wrap.

Founder and Chairman, Paul Moore, said: “Performance has been strong across the entire PM Capital product suite, including the Australian Companies Fund. I hope these kinds of results are seen as testament to our investment philosophy and process that we have and always will employ, irrespective of market circumstances.”

Since its inception, the Australian Companies Fund has produced total returns of 513.6%, compared with 282.6% for the benchmark S&P/ ASX 200 Accumulation Index. This has meant that $20,000 invested in the Fund at inception has now grown to $122,717 (end June), versus $76,519 if held in an index fund.

Mr. Cheruvu said: “The Australian equities market is highly concentrated, with more than half of the benchmark S&P/ ASX200 Accumulation Index in banks and resource-related companies. This makes it extremely difficult for managers to add value over the long term when they have to hold stocks that they may not like in order to remain close to the index.

“However, for us, if we don’t like a stock, we don’t invest in it. Our exposure to sectors and stocks is determined solely by our conviction in the risk/ reward opportunities that we identify within portfolio guidelines.”

PM Capital’s flagship product, the Global Companies Fund, has produced annualised returns 4.7% above the relevant benchmark since inception.

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Paul MoorePaul Moore

A new survey by PM Capital shows investors struggle to take a long-term approach to meet their expectations, while also having a very optimistic view towards global equity markets.

PM Capital has surveyed 214 financial advisers at a series of investment forums events in Sydney, Melbourne, Brisbane, Adelaide and Perth, representing thousands of end investors.

According to the survey, only 15% of financial advisers say their typical client considers a long-term investment horizon to be over 10 years, while nearly two thirds (64%) cite five to 10 years as the time frame horizon for long-term goals.

At the same time, more than 60% of respondents think global equity markets will be 10-20% higher two years from now.

Australians are one of the longest living populations in the world with average age expectancy currently 80.9 years for men and 84.8 for women, according to the World Health Organisation.

PM Capital’s founder and Chief Investment Officer, Paul Moore, said investors’ relatively optimistic near term expectations combined with investment horizons that may be inconsistent with life expectancy in retirement, risked resulting in unfulfilled financial goals.

Mr Moore said: “Equity markets in general have delivered strong investment returns over the past five to eight years. Passive investing has produced adequate returns over this period and investors are betting this will continue. However, with the secular reduction in interest rates in developed markets over the past 30 years coming to an end, we think select stock picking is going to be more important than ever to generate acceptable returns.

“Australians need multi-decade funding to have a financially secure retirement. Their objectives are most likely going to be achieved by extending their investment horizon and finding a means to invest in a selectively picked portfolio of companies likely to deliver strong earnings growth. With this mindset, investors are able to look pass any short-term price fluctuations on their path to retirement goals.

“Passive investing is not going to do the job. Passive asset allocation – a combination of cash, bonds and property – is going to give investors future returns of 2% to 3% at best. Passive investment in equities may give you 4% to 6%. Once fees and the net return are taken away from passive investment in a typical blend of major asset classes, the return is likely to be 3% or 4% – not enough for retirees to meet their objectives. That’s why we believe investors need credible, high-conviction fund managers.

“Investors need to look away from the crowd, to do something different, to search for market anomalies, to improve the likely returns from equities over the long term,” Mr Moore said.

With the aim to build long term wealth, PM Capital manages both equity and fixed income portfolios by using a focused, patient and considered approach to find simple investment ideas. The recommended investment period for its equity funds is 7+ years.

The survey also found that more than 75% of investor clients are not looking to change their asset allocation.

As at September 2016, SMSFs held 30% fund assets in direct Australian shares, 25% in cash and term deposits, and 15% in direct Australian property according to the ATO. The remaining 30% of SMSF assets were held in trusts and other managed investments, as well as 12 other categories.

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Paul Moore

Just like human anomalies can make all the difference in sporting teams, picking anomalies in equities and fixed income markets can help investors achieve winning performance, according to PM Capital.

This month PM Capital is hosting a series of investor forums across five Australian capital cities exploring how the manager goes about finding and interpreting anomalies to drive risk-adjusted returns.

PM Capital’s founder and Chief Investment Officer, Paul Moore, refers to the book and movie Moneyball, which tells the inspirational story of the cash-strapped Oakland A’s baseball team and how its general manager Billy Beane thinks differently to find excellent value-for-money replacement players. The A’s go on to set a record-breaking winning streak

Mr. Moore said the theory of Moneyball also applies in the financial world.

“In Moneyball, Beane’s secret is turning his back on accepted baseball wisdom and searching for players, who, for whatever reason – age, appearance – were unliked or overlooked, and therefore mis-priced.

“With investing it is no different. The best investment opportunities will find few who are interested, many who are dismissive and some who will even ridicule.“Many people may think they are taking extra risks if they are investing differently. But in our opinion, the real risk is you are not doing anything different. Never let the opinion of the crowd stop you from acting on what you know to be right,” he said.

“From an investment perspective, to be a successful investor you have to be doing something that others are not.

“Anomalies can arise because other investors are afraid of underperforming their peer group, lazy research or relying on perceptions rather than facts,” Mr. Moore added.

Mr. Moore pointed out two market anomalies that he believes represent great opportunities for active fund managers and investors: ‘Bondnado’ – a reference to the chaotic horror film Sharknado, and passive investing.

‘Bondnado’ is coming for long-term government bond investors

Bondnado is a termMr. Moore used to describe how the likely hikes in interest rates could be harmful for investors in government bonds.

In Sharknado a freak cyclone causes Los Angeles to be hit by a watery tornado of man-eating sharks.

“’Bondnado’ is how we are describing the carnage investors may see in long-term government bonds.

“In 1989 the standard variable rate in Australia was 17%. We now have interest rates in the low single digits when debt is at record levels and inEurope some variable mortgage interest rates are actually negative. It’s all driven by central bank flows and investors may be underestimating how far from normality we really are,” Mr. Moore said.

Passive investing – the more subtly anomaly

Mr. Moore noted that passive investing was dominating fund flows but that this investment approach did not take account of underlying corporate valuations.

“This surge of passive investing has caused a greater likelihood of distortions in market prices. Ironically, the greater the concentration of flows into passive, the greater distortion in asset pricing and thus opportunity for a genuine long term investor.

“Investors may expect historically low net returns from a blended portfolio that includes passive equities, increasing the need for high conviction managers,” Mr. Moore added.

Jarod Dawson, director and Portfolio Manager of PM Capital’s Enhanced Yield Fund, also warned that interest rate duration was overlooked by many credit investors.

Interest rate duration represents the sensitivity of bonds to changes in interest rates. The longer the duration, the more a bond’s price is likely to fall as interest rates rise.

“As Australian and indeed global interest rates have fallen, interest rate duration in the commonly used Bloomberg Composite Bond Index has increased. Part of the reason is that companies and governments are issuing debt with longer and longer maturities in order to take advantage of low rates.

“Counter to this, we are confident we’ve seen the inflection point in long-term interest rates, and thus we strongly believe that investors should have little to no exposure to interest rate durations in their portfolios. This is not what the index will give you.

“In a more normalised environment where rates have gone up by at least 2-3%, we’re actually talking about potential 10-15%+ type capital losses from a portfolio with a similar duration to the index – that is, with an average interest rate exposure of around 5 years. That is very different from what many investors would expect from their fixed income portfolios in terms of volatility,” Mr Dawson said.

In addition to interest rates, Mr Dawson also discussed other overlooked players in credit investing, such as ANZ and Westpac bank subordinated debt.

“The nuances within specific subordinated bank securities created a huge opportunity to invest meaningful capital for our clients. We have generated a return of about 40% on these investments over the past 12 months – an equity-like return but with a low degree of capital risk.

“Unlike the broader fixed income industry which generally prefers to lean on excessive diversification – almost to the point of eliminating any value add from an individual investment in a portfolio, PM Capital would rather have meaningful exposures to a smaller number of investments that represent true investment anomalies in global markets. This means that each anomaly that we identify actually makes a meaningful contribution to the performance of the portfolio,” Mr. Dawson said.

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Paul Moore

The constant domestic and global media focus on the state and fate of Chinese financial markets poses potential risks to local investors, in that they may choose to ignore the region as an investment option, foregoing significant growth opportunities warns Paul Moore, Founder and Chief Investment Officer, PM CAPITAL.

This is a key message being delivered this month across Australia, in a series of investor presentations. Both Paul Moore and Kevin Bertoli, PM CAPITAL’s Asian investment portfolio manager, are suggesting to investors to look behind the headlines to understand what is occurring in the region and what is likely to occur in a geography that is host to the biggest growth story in the history of civilisation.

“There is general agreement among economic commentators that Asia will be the epicentre of growth over the next decade as hundreds of millions of consumers move up the socio-economic scale to create a middle class behemoth” added Mr Bertoli.

“Middle class is defined as those households with daily expenditures between $US10 and US $100 per person. The numbers are both dramatic and arresting both in terms of percentage increase but more importantly in the absolute quantum change.”

“Between 2009 and 2030 the Asian middle class is projected to balloon from 525 million to 3,228 million – a 600% increase over the span of less than one generation. By contrast the next fastest growing region, the Middle East and Africa, the comparative numbers are 137 million in 2009 and 341 million projected for 2030 – an increase of 240%.”
“The figures for North America are negative growth (2009: 338 million; 2030: 322 million) in the middle class whilst for Europe the figures a fraction over static (2009:664 million; 2030:680 million),” he said.

Mr Moore said “That’s why we argue very strongly that it’s not a market for top down analysis or index huggers, but for value investors who know where and how to look for growth business.

“Not surprisingly we find these opportunities are not in financials or commodities sectors but those entwined to the rising tide of local consumption.”

“Whether countries with large addressable markets with low penetration, such as China, India and Indonesia, or countries benefiting from growth in wages such as China, again, or baby boomer markets where consumption patterns are transitioning such as Korea and Taiwan, there are businesses with excellent growth prospects due to their focus on local middle class consumption,” Mr Moore said.

“The areas we have been focusing on include online classified advertising and ecommerce, gaming, consumer, infrastructure and technology,” said Mr Bertoli.

He added: “By way of example PM CAPITAL’s Asian funds currently hold 51Jobs, Zhaopin and 104Jobs in the employment/jobs sector, Autohome Inc in the automotive sector and Baidu in the search industry.”

“In the recent past we have held Ctrip.com in travel; iCar Asia in automotive, iProperty group in real estate sector, Jobstreet in jobs/employment and Naver in search.

“Just as ecommerce stock have played out in the local Australian market we have and are entering similar invests in the ecommerce space across Asia.”

“In the case of Jobstreet we exited that position with a 187% gain plus dividends; with iProperty we exited with a 466% gain, whilst in the case of Zhaopin, which we still hold, the stock is currently the subject of a US$17.5 offer from a Chinese private equity firm to acquire minority interests which represents a 30% premium to the 2014 IPO price.

“For those who are committed to a simple investment philosophy of buying good companies at value prices and being prepared to back your judgement and hold those business over a reasonable period, usually three to five years, Asian businesses can provide diversification from the local bourse, in which most retirement savers are over invested, and solid medium term growth opportunity,” Mr Bertoli said.

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Paul Moore

ASX listed investment company, PM Capital Global Opportunities Fund Limited (ASX: PGF), posted strong growth in its first half financial year results, with earnings per share (EPS) of 15.26 cents for the six months to 31 December 2014, up from 0.87 cents per share a year ago, while Total Comprehensive Income was $26.5m for the period, up from $1.5m last year.

The after tax Net Tangible Asset (NTA) value per share of the PGF was up more than 16% over the six month period to $1.0962 (compared to $0.9435 at 30 June 2014).

PGF is managed by Sydney based specialist global equity manager PM CAPITAL. PM CAPITAL’s Chairman and Chief Investment Officer, Paul Moore, has said the PGF is well positioned, currently having a 96% net equity exposure; “The basic framework we employ at PM CAPITAL has not changed.  We firmly believe that the risk reward from owning a business is far superior to that of owning government bonds, property or cash. We continue to find compelling valuation opportunities offshore, relative to the Australian market, which looks expensive”.

“The value proposition when we listed the PGF remains relevant as Australian investors generally, and SMSF trustees in particular, are significantly underweighted in offshore investments”. He said.

PGF’s top five holdings comprising of Lloyds Bank (UK), ING Group (Netherlands), Pfizer (US), Barclays Plc (UK) and Google Inc (US).

The manager, PM CAPITAL, is a benchmark agnostic, fundamental focused investment firm, which seeks to invest in quality companies trading below their long-term intrinsic value. It uses a stock specific, bottom up process.

The primary focus of the PGF is the capital growth of its invested funds over a long term investment period.

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Paul Moore

While the Australian market is going through some tough times at the moment, there is no clear catalyst for that to change according to Paul Moore, Chief Investment Officer and founder of boutique fund manager, PM CAPITAL.

“The September quarter showed that the market status has come to an end, and that going forward the price movements will be very different from what we have experienced over the last couple of years,” he said.

“The big movements have been commodity prices which have come off hard, and the stronger US dollar,” said Moore. “Commodity prices have been correcting since about May.”

“We see iron ore prices at the forefront of all discussions, but what most people might not realise is that it is right across the commodities spectrum; corn and wheat in the agricultural commodities have fallen 30 to 40 per cent over the last three months and towards the end of the quarter oil joined in and finally crack through $100. Oil is now its trading at about $85, off about 30 per cent from its highs.”

“We believe this is just a reflection of slowing Chinese demand,” he said.

“The falling A$ currency is showing that there is better relative value in stocks overseas and investors should be moving their equity investments offshore.”

“We still believe the A$ is overvalued by about 10 per cent relative to where commodity prices are at the moment but the timing of the next move will be more difficult,” he said.

“Any extra movement will require a movement in relative interest rates, a stronger US economy which will lead to a rates rise in the US.”

Moore warns investors about the dangers of certain investments, even if they are popular, such as investing in apartments.

“We try to remind people that an apartment has an effective yield of around one per cent after costs, if you are lucky, and  with the Australian dollar in the high eighties, you can be buying stocks offshore with strong earnings growth potential that will also benefit from any further currency depreciation.”

Moore said it has been difficult to work out what has really been going on over the last three months when the Australian equity market has been looking very fully valued.

“Our instinct is that the overall economy is flat line, it is just going sideways,” he said. “We either need the commodity impact to wash through so that it is no longer a drag, or some external stimulus from offshore.

“Valuations relative to the earnings growth and economy outlook provides a very average risk/reward, which is why we are telling investors to go offshore.”

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