Hunter Hall Global Value Ltd (ASX:HHV) CEO Peter Hall, discusses the fund’s performance and the medium-term outlook for global equity markets.
Carolyn Herbert: Hello. I'm Carolyn Herbert from the Finance News Network, and joining me from ethical global equities manager Hunter Hall International is CEO Peter Hall. Peter, welcome back.
Peter Hall: It's a delight to be here, Carolyn.
Carolyn Herbert: Now, Peter, there's been a lot of negative sentiment relating to the market over the past few months. Why do you think the investment environment's been so challenging?
Peter Hall: I think there's been a lot of political change actually happening and being threatened to happen -- so, Mrs Merkel in Germany's lost a lot of ground politically, we had Brexit in the UK, and the other important thing that's been going on is that interest rates look like they've bottomed and are starting to go up. There are a few indicators -- like the German Bund, Libor, maybe even some Chinese interest rates are starting to go up and people are starting to worry about maybe inflation is coming back, believe it or not.
Carolyn Herbert: So, despite the uncertainty we've seen, Peter, Hunter Hall has had strong relative returns over the past year, so how have you achieved this?
Peter Hall: We've been structuring the portfolio basically planning for the worst, hoping for the best; and we've had a barbell approach, so we've had about 40% of the assets in defensive assets. So we've had cash 20-25%, gold stocks 15-20%, and then the rest in equities. And that's sort of delivered us about a 5.5% return over the year to the end of October, which is a bit miserable, but it is about 10.5 percentage points better than the overall market, so we have to be pleased with that.
Carolyn Herbert: So do you see any opportunities for the portfolio at the moment?
Peter Hall: Yeah, we piled into British stock after Brexit happened. The markets were very surprised by Brexit. We thought that there was a good chance that Brexit would actually happen, and we bought aggressively. We bought a London real estate agent called Foxtons, where we now own about 7.5% of that company, a British thread manufacturer, Coats, which will benefit from the weaker pound. It's an exporter. And I'm also interested in the small- and mid-cap gold area in Australia, because I think the macro tailwinds of ever-continuing fiscal deficits and money printing should mean that the relativities between gold, physical gold, which you can't... it's very hard to manufacture, and paper money, which you can manufacture at the press of a button, should be very much in gold's favour. And the other thing I like about the Australian gold stocks is they're actually relatively cheap. If you've got those small and mid-cap companies, they're on P/Es of six, seven, eight, nine times, which is quite cheap compared to the rest of the market. And I think there's also going to be a wave of consolidation in that industry, as people try to go from having small producers of 100,000 or 200,000 ounces, and someone's going to try and build a million-ounce-a-year producer, as Robert de Crespigny did a couple of decades ago, and that will lead to big kicks in the valuation of gold stocks.
Carolyn Herbert: So your listed investment company, Hunter Hall Global Value, has also delivered a strong half-year dividend. So, for investors looking for yield, what can they expect in terms of dividend income going forward?
Peter Hall: We are now committed to paying a regular, consistent stream of fully franked dividends. In the past year, we've paid 6.5 cents fully franked, and we're hoping to be able to repeat that in, you know, the next 2 or 3 years at least. And at current prices, that gives you about a 5% yield, cash yield, which is not bad, plus you get the exposure to international equities. So, it's quite a nice diversifier for people's superannuation funds if they want to have a cash income, a regular cash income, and that international exposure.
Carolyn Herbert: And finally, Peter, what's the fund's discount to NTA, and how has this changed over the past year?
Peter Hall: I think the discount is about 3 or 4%, so it's still a little bit of a discount. I would expect that discount to disappear over the next couple of years as we build that track record of paying fully franked dividends. At the beginning, about a year ago, the discount was at 15%, so there's been a significant movement there from 15 to about 3 or 4, and some days it's actually traded at par.
Carolyn Herbert: Peter Hall, thanks for the update.
Peter Hall: Thank you, Carolyn.