Ausbil Investment Management, Portfolio Manager, Michael Price introduces the fund, its objectives and its approach to investing and key features including monthly distributions.
Jessica Amir: Hi I’m Jessica Amir for the Finance News Network. Today I’m with Ausbil Investment Management, Portfolio Manager, Michael Price. Hello Michael and welcome to the Network.
Michael Price: Thank you.
Jessica Amir: Today we’re talking about Ausbil’s newly created Ausbil Active Dividend Income Fund. Just give us an introduction to the Fund?
Michael Price: The Fund was created for retirees and those approaching retirement who want a high income, but also some capital growth on top of that income. So specifically the Fund aims to provide 25 per cent higher dividend income, than the market and also outperform the market, over time. Because the Fund’s created for retirees, we include franking credits in our assessment of how we invest in companies and also in our returns. In order to achieve this, we start with a core portfolio of companies that provide strong and growing dividends. And then we actively enhance the dividend income, through tactical overweights, to companies that provide shorter-term dividend opportunities.
Jessica Amir: Before we talk about the Fund in a little more detail, let’s just pause for a second. Dividends hold a pretty special place in Australian investors minds. Is this justified?
Michael Price: It is actually. For a number of years, Australian shares have provided the highest income of really any investment opportunity, available to Australian investors. And within the Australian market, dividends provide a very substantial proportion of the total return. It’s actually also true that on average, high dividend paying companies do outperform the broader market. What’s important though is that you don’t sacrifice growth and total return, in order to get that income. In fact, what we have found is that companies that provide strong and growing dividends, actually are the best performing securities. And provide the best possible outcomes for investors.
Jessica Amir: Now to the Fund in more detail. Just tell us about the investment style?
Michael Price: At Ausbil we’re a core investor. So rather than value or growth investing, we want to exploit all its inefficiencies across the market, and across different stages in the cycle. We believe earnings and earnings revisions are what ultimately drive share prices. So for this Fund, we start by populating the portfolio with companies that provide strong and growing dividends. And then we tactically overweight the companies, around the time that they’re paying their dividends. We believe that companies generally outperform over that period, when they’re paying their dividends.
Jessica Amir: Now can you tell us about the sector composition and the largest holdings in the Fund?
Michael Price: So because of the core nature of the portfolio, it doesn’t exhibit any strong sector biases over time. Currently we’re overweight offshore earners and in particular, the energy sector and metal and mining securities. We’re underweight companies that are exposed to the domestic economy, such as banks and discretionary retail. At the stock level, our largest positions are Rio Tinto Limited (ASX:RIO), CSL Limited (ASX:CSL), Woolworths Group Limited (ASX:WOW) and Woodside Petroleum Limited (ASX:WPL). You can see it’s quite a wide range of securities and that’s one of the benefits of this investment process.
Jessica Amir: Now can you tell us about performance post reporting season?
Michael Price: Since the Fund has been launched; performance has been very strong and is well ahead of the market return. And we’re also delivering very strong levels of income. In particular, we have taken advantage of the special dividends that have been paid by a number of companies. And also participated in some of the off-market buybacks.
Jessica Amir: Another unique feature about the Fund is that it pays monthly distributions. Just tell us about that?
Michael Price: The Fund is designed for people who have some spending needs, which they wish to meet from the income on their investments, rather than drawing down their capital. And because these spending needs occur on a regular basis, we believe that regular monthly income, far better meets the needs of these investors, than the series of irregular lumpy payments. If you invest directly into the stock market, most of the payments come just a couple of times a year, which really isn’t suitable for paying those regular bills.
Currently we’re paying 0.45 per cent in cash each month to our investors, and those payments have franking credits attached to them as well. We expect to be able to pay this amount for the rest of this year. And by the end of the year, we expect to be able to distribute over eight per cent in dividend income to our clients. That’s cash and including the franking credits.
Jessica Amir: Now just lastly. What’s your outlook for the second half of the year?
Michael Price: We think the global economy will remain steady for the second half of this year, and that’s a good environment for growth assets. We expect interest rates to remain on hold and if they do increase, it’s because we’ve seen some surprising signs of strength in pockets of the economy. And that’s not a bad thing for Australian shares. We do expect markets to remain volatile; there is a lot of geopolitical uncertainty at the moment. But as long as we can hold our positions through the cycle, we’re comfortable that companies that provide strong and growing dividends should continue to outperform.
Jessica Amir: Michael Price from Ausbil Investment Management, thank you for the introduction.
Michael Price: You’re most welcome.