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LIC delivers amid turbulent equities market

Listed investment company (LIC) WAM Leaders has performed well despite a bumpy period in the equity market, however, there are expectations of moderate earnings growth from Australian listed companies going forward.

Following the $394.3 million capital raising in May last year, the LIC commenced deploying the capital under its research and market-driven investment processes, achieving full investment in August, Wilson Asset Management portfolio manager Matthew Haupt said.

“Towards the end of 2016 we made significant changes to the portfolio, reducing our exposure to mid-cap holdings and consolidating our large-cap positions,” Haupt revealed.

“Notably, we invested in the four major banks as we gained comfort with the short-term negative sectoral headwinds, particularly capital requirements and falling interest rates.

“Similarly, increasing global bond yields saw us focus on other diversified financial and insurance companies, including QBE Insurance Group, Computershare and Suncorp Group. These companies promptly rerated as the outlook for global yields significantly changed during the period.”

The company also established positions in BHP Billiton and Rio Tinto as global economic growth, particularly in China, continues to make the resources sector attractive for investment.

However, Haupt said his outlook for the equity market for the 2017 calendar year was mixed.

“We expect domestic monetary policy to remain accommodative and economic growth to remain stable,” he noted.

“For the Australian equity market to continue to rise, we need to see stronger company earnings growth and the continuation of improvement in the global economic environment.

“On average, we expect moderate earnings growth from Australian listed companies during the upcoming reporting season.

“The domestic stock market is expensive compared to historical averages and we expect this to remain the case.”

He added that was amid being in the mature stages of an eight-year bull market, which was showing signs of fatigue.

“Potential hazards for global growth in 2017 include the execution of the Trump administration’s policies, the French general and presidential elections, Italian elections and the triggering of Article 50 in the United Kingdom,” he warned.

His comments come as WAM Leaders today announced its maiden interim results, reporting an operating profit before tax of $24.2 million and an operating profit after tax of $17.8 million for the period since commencement of operations on 23 May 2016 to 31 December 2016.

“As we have deployed $394.3 million of shareholders’ capital, our focus has remained firmly on our investment objectives – providing a stream of fully franked dividends to shareholders while preserving their capital and delivering capital growth,” WAM Leaders chairman Geoff Wilson said.

“We are pleased to announce a one cent per share maiden fully franked dividend and the board currently anticipates a larger final dividend given the capital growth delivered since listing.”

WAM Leaders is managed by Wilson Asset Management and was listed on 20 May 2016.

The LIC provides investors with diversified exposure to a portfolio of undervalued growth companies within the S&P/ASX 200 Index and exposure to market mispricing opportunities in large-cap companies.

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