Searching for growth in volatile markets with Antares Dividend Builder

Funds Management

by Carolyn Herbert

Transcription of Finance News Network with Antares Dividend Builder Fund Deputy Portfolio Manager, Brett McNeill
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from the Antares Dividend Builder Fund is Deputy Portfolio Manager, Brett McNeill. Brett, welcome back.
Brett McNeill: Thank you, it’s great to be back.
Carolyn Herbert: Can you start by giving us an introduction to the Fund and what’s its objective?
Brett McNeill: The Antares Dividend Builder is primarily an income focused Australian share Fund, and it has three key objectives. One is to deliver investors a very attractive income return from a share portfolio, one that’s better than the income return of the rest of the market, so a higher yield. Secondly, we also aim to deliver a better total return over the long term. And thirdly, to do all that in a very tax effective manner for investors, so they’re the objectives.
Carolyn Herbert: Yield stocks have had a tough time over the past year. Why the weakness and do you think it’s justified?
Brett McNeill: The Australian share market peaked in May 2015 and since then, it’s fallen a fair way since then. So the one-year total return from the market’s now running at about, minus seven per cent. And a key reason for that has been the weakness of the bank stocks. So that’s definitely impacted a yield portfolio. With a lot of negative sentiment around, the banking sector in particular, as well as some downgrades in other parts of the industrial markets. So we think that’s partly overdone, certainly as we sit here today.
Carolyn Herbert: How does Antares identify stocks or sectors that are essentially going to be the dividend stars of tomorrow?
Brett McNeill: In building a portfolio of stocks that can deliver a good income for investors that’ll grow over time, we rely on our fundamental research. So we’ve got a large investment team at Antares and we rely on our own proprietary research. And particularly for identifying stocks that can fulfil the dividend and income objectives, of the Fund.
The key factors that we look at in our fundamental research are gearing levels. So the balance sheets of companies to make sure they’re sustainable, the payout ratios to check that they’re not too stretched. As well as a host of other very important fundamental factors, such as management quality, business structure, industry structure, corporate governance levels is a big one as well. So it’s a combination of those fundamental research factors.
Carolyn Herbert: How has the Fund performed over the last quarter and further back?
Brett McNeill: The last quarter to March 2016 has certainly been a tough one for share markets, and the Fund is down about three per cent in the total return perspective, net of fees. That’s slightly ahead of benchmark, which is nice I suppose. The benchmark index is down more than that, but still a negative return for the quarter, reflecting the tough times in the start to 2016. Longer term, the Fund has delivered a really good return. So just in the income return of six per cent per annum, since the Fund’s inception back in 2005, so the Fund’s got a long-term track record. So a really good income return of six per cent and a total return of about 7.5 per cent, over the same timeframe per annum.
Carolyn Herbert: What are some of the Fund’s larger positions and what are the sector tilts?
Brett McNeill: The Fund’s got exposure to a broad array of industries and stocks. So we run quite a concentrated portfolio, typically between 15 to 20 stocks, but importantly diversified across sectors as well. So at the moment, the current portfolio has a large exposure to the Australian banks that we think represent very good value, amongst the negative sentiment that’s hit the sector. The two key exposures for us are Westpac Banking Corp (ASX:WBC) and ANZ Banking Group (ASX:ANZ).
And as well as that a broader array of industrial stocks, particularly Wesfarmers Limited (ASX:WES), JB Hi-Fi Limited (ASX:JBH), Telstra Corporation Limited (ASX:TLS). And we’ve added a couple of new stocks recently, being Aurizon Holdings Limited (ASX:AZJ) and Medibank Private Limited (ASX:MPL). So that adds to some other financial holdings, such as Perpetual Limited (ASX:PPT) and AMP Limited (ASX:AMP). And we’ve also got some exposure in the listed real estate in the infrastructure sectors. And the two key stocks we own there are Stockland Corporation Limited (ASX:SGP) and Sydney Airport Holdings Limited (ASX:SYD).
Carolyn Herbert: Finally Brett. What are your expectations for the market for the second half of the year?
Brett McNeill: After a rocky start to 2016 for the equity market, there’s still a lot of negative news flow and noise around the economy, around the equity market and even more so now, with the expectation of an early Federal election. So that clearly will have negative implications for consumer confidence and I guess, spending by companies in general. So there’s a lot of volatility and unpredictability there.
But putting all that to one side, we think certainly for the long term, things are looking pretty good for income and growth returns, from a good quality Australian share portfolio. We see fundamental factors really sound at the moment. Balance sheets are still in very good shape, valuations are reasonable and payout ratios are also reasonable. So from a dividend income perspective, we think things are looking quite positive for the long term.
Carolyn Herbert: Brett McNeill, thanks for the update on the Antares Dividend Builder Fund.
Brett McNeill: Thanks very much.