Hunter Hall International (ASX:HHL) talks about finding value and staying the course


by Carolyn Herbert

Transcription of Finance News Network Interview with Hunter Hall International Limited (ASX:HHL) Chairman and Chief Investment Officer, Peter Hall
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from Hunter Hall International Limited (ASX:HHL) is Chairman and Chief Investment Officer, Peter Hall. Peter, welcome back.
Peter Hall: Hello Carolyn.
Carolyn Herbert: You’re currently running investor lunches around Australia for your clients. What are the key messages there?
Peter Hall: I think that it’s a time to be a bit cautious; we’ve seen some negative macro developments. We’re at an extreme place in terms of zero interest rates, negative interest rates. Some governments have got very serious financial problems. Japan is functionally bankrupt in my view. Italy and Greece are under great pressure and I just think it’s time to be a bit cautious, about where you’re investing. We’ve adopted the barbell approach, so we’ve got about 20 to 25 per cent of our funds in cash, about 20 per cent in gold stocks. So those assets should do relatively well if there is a serious market spill. And then we’ve got 55 to 60 per cent in stocks that we think are undervalued.
Carolyn Herbert: Given the current market volatility and Hunter Hall is a value manager. Where are you currently finding value?
Peter Hall: We’re finding value in front-page disasters. We’re still very interested in the gold area, because we do like gold and some of those gold companies are relatively undervalued. A front-page disaster we’ve just bought into is Office Depot Inc. (NASDAQ:ODP), which is an office supplies company in America. That there was a failed merger with Staples Group (NASDAQ:SPLS), the stock fell 40 per cent and we’ve bought a bit of a toe hole position there, and we’ll research that more.
The company’s a huge company, but it’s been threatened and challenged by Inc. (NASDAQ:AMZN) and people like that, who are going into office supplies. But that’s the kind of situation we really like, a front-page disaster with a very substantial business, revenues, profits, but the market hates it. Maybe that’s an opportunity to make some money.
Carolyn Herbert: How are you finding other opportunities in the market?
Peter Hall: It’s very difficult. We’re very particular, I mean I tend to think that most stocks, 90-95 per cent of stocks are fully valued or overvalued. So we’re very much a rifle investor, so we just keep on looking. We do Bloomberg screens etc.looking for investing in interesting opportunities.
Carolyn Herbert: Your investment company Hunter Hall Global Value Limited (ASX:HHV) has been paying six monthly dividends. Is this likely to continue?
Peter Hall: Yes, we have a bank of profits and unrealised profits, and we’re very committed to paying a consistent and regular stream of dividends. So I think we’ve had a three-cent fully franked dividend at the last half yearly resolve. And we’d like to try and replicate that and keep that going into the future.
Carolyn Herbert: Can you tell us about the new Funds, the Hunter Hall High Conviction Equities Trust that you launched just over a year ago?
Peter Hall: That’s going very well. I think over the last six months or something, we’ve achieved a 30 per cent return in that Fund. It’s got a bit of cash in it - about 25 per cent of the portfolio is in cash, but we are starting to find some very interesting opportunities there. So I’m reasonably confident about its future.
Carolyn Herbert: The performance of the underlying investment portfolio continues to outperform the benchmark, over most periods. So can you tell us a little bit more about this?
Peter Hall: We have really benefited from our investment in gold stocks. Gold has been doing very well. So it seems to have turned the corner in terms of the price of gold, and that’s doing very well in Australian dollar terms. And the companies that we have have very low operating costs, in terms of the gold production. So their margins are going up and they’re generating enormous amounts of cash flow. So that’s done well. We’ve also got cash. So I think we’re up about 10 per cent and the markets are down a bit. So we’ve done relatively well because of that positioning.
Carolyn Herbert: Unlike many international equity LICs, the Hunter Hall Global Value Fund has been trading at a discount to NTA. What steps are you taking to reduce the discount?
Peter Hall: The discount is narrowing as people are starting to see the performance come through, so more and more people are interested in the Fund. We want to communicate our success. So we’re going to make a much more professional and aggressive attempt to explain what we’re doing, and how we’re doing it. It’s entirely my fault, I just like investing money. I don’t like actually telling people how good we have been at investing money, but I’ve got to get out there and tell the story. And I think the dividend policy is going to help us. If we can start paying a really good stream of regular consistent dividends, people will be more attracted to holding the shares.
Carolyn Herbert: Peter Hall thanks for the update.
Peter Hall: Thank you very much.