Transcription of Finance News Network with Hunter Hall Global Value Limited (ASX:HHV) Deputy Chief Investment Officer, James McDonald
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from Hunter Hall Global Value Limited (ASX:HHV) is Deputy Chief Investment Officer, James McDonald. James welcome to FNN.
James McDonald: Thanks Carolyn.
Carolyn Herbert: Can you start by giving us an introduction to the Fund?
James McDonald: Hunter Hall was established in 1993, we’ve been around for awhile. The listed investment company, Hunter Hall Global Value Limited was established in 2004. We’re a global fund manager, so we look all around the world for attractively valued companies. Mostly small and midcap companies, where we meet the management and we hope we can understand the businesses, better than the market.
Carolyn Herbert: You’ve posted some impressive results with an after tax profit of around $30 million. What do you attribute this success to?
James McDonald: We were very pleased with our results, as you said $30 million. And we delivered a total return to our shareholders of around 20 per cent, and that really came from three factors. Firstly, the underlying portfolio returned a return of around 12 per cent, which we were very pleased with, because the MSCI World Index was flat over the period. We narrowed the discount the shares are trading at to the net tangible assets, from around 15 per cent to around five per cent. And we paid a 6.5 cent fully franked dividend.
Carolyn Herbert: Taking a look at your dividend, as you say 6.5 cents. Do you expect this level of income to continue?
James McDonald: While the profits are there and the reserves are there, we hope to continue to pay out 6.5 cents in future. We paid out 3 cents in the first half and there was a small increase to 3.5 cents in the second half.
Carolyn Herbert: Taking a look at the global markets more generally, there is a lot of uncertainty at the moment. So how do you manage this?
James McDonald: It is interesting because if you just step back, we’ve got these three huge deflationary forces in the world. We’ve got technology change, aging populations and the rise of China with lots of cheap industrial products being pumped out, all across the world. As a result of that, interest rates have been falling everywhere, there’s been huge increases in debt, both government debt and private debt. We’ve now got 40 per cent of the world’s bond markets with negative yields as a result of all of that, which we think is quite worrying. So our strategy is to have a sort of barbell approach where we’ve got 20 per cent in cash, 20 per cent in cheap goldminers and then 60 per cent of the portfolio in undervalued global shares.
Carolyn Herbert: Taking a look at the Fund’s position in gold stocks. Why do like this sector and what sort of themes are you seeing play out?
James McDonald: As I mentioned before, we’ve got 40 per cent of the world’s bonds with negative yields. So it’s a very troubling backdrop. Central banks don’t really have a lot of room to manoeuvre and they keep basically printing money. So we think that’s an attractive backdrop to own gold. Once the argument about not to own gold, was it didn’t generate any yield. Well that argument’s disappeared now and people all around the world are investing heavily in gold. The sort of goldminers we’re attracted to are these companies with very low cost to production. They’re quite cheap, all of our holdings are trading on single digit PE’s and we’ve taken a portfolio approach there, with four names. St Barbara Limited (ASX:SBM), Doray Minerals Limited (ASX:DRM), Beadell Resources Limited (ASX:BDR) and Blackham Resources (ASX:BLK).
Carolyn Herbert: Finally James, taking a look at the strength of the market at the moment. Where do you think the opportunities lie in the future?
James McDonald: As I said, we’re a global fund manager, there’s always interesting ideas all around the world. In Australia, another name we like is Sirtex Medical Limited (ASX:SRX), which has three very large clinical trials reporting over the next 12 months, which we think will be a strong catalyst for the company. They have about two per cent penetration of the world liver cancer market, and we think these trials will really allow them to step up that level of penetration.
In America, a company we like is Elementum.com, Inc. and that makes optical components for telecom networks. There’s very strong drivers in the optical market at the moment, China’s building out fibre networks to link up houses. In the US, Verizon Communications Inc. (NYSE:VZ) is doing a similar thing. Then you’ve got Google Inc. (NASDAQ:GOOAV), Facebook (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN) building out data centres and connecting them with optical networks. So three drivers and this company Elementum, we think is very well positioned to capture that growth.
Carolyn Herbert: James McDonald, thanks for the update.
James McDonald: Thanks Carolyn.