Independent Investment Research

Switzer Dividend Growth Fund (Managed Fund) (ASX: SWTZ) (“SWTZ” or the “Fund”) is an exchange traded managed fund (ETMF) that seeks to provide an income stream that exceeds the S&P/ASX 100 Accumulation Index (“benchmark”) over rolling 12-month periods with the potential for capital growth over the long-term. The Fund is targeted towards retirees, with the Fund paying a monthly distribution franked to a material extent. In addition to an above market yield, the Fund seeks to provide lower volatility and downside protection in down markets. The Fund seeks to achieve this through investing in a concentrated portfolio of domestic equities with the portfolio typically comprising 20-40 securities. In addition to the dividend/distribution income received from the underlying investments in the portfolio, the Fund will seek to generate additional income by writing options and through a dividend capture strategy. The Responsible Entity (RE) for the Fund is AGP Investment Management Limited, a wholly owned subsidiary of Associate Global Partners Limited, an ASX listed multi-boutique asset management company. The RE announced it had appointed Vertium Asset Management Pty Ltd (the “Manager”) as the Manager of the portfolio, effective 28 March 2024. The change in Manager was aimed at improving the performance of the Fund, both from an income and capital growth perspective, with the Fund not consistently delivering on its investment objectives prior to the appointment of the new Manager. Vertium is a specialist domestic asset manager that was established in 2017 and currently manages a single strategy, the Vertium Equity Income Fund (VEIF). VEIF is an equity strategy designed to deliver an above market distribution yield with lower volatility than the market and preserve capital in negative markets. While there are some differences in the VEIF and SWTZ mandates, Vertium will be employing the same strategy and philosophy that is employed for VEIF. The fees remain unchanged with the Manager paid a fee of 0.89% p.a. (including GST and RITC). No performance fee is applicable.

Coverage stock MTM Critical Metals (ASX: MTM) (coverage initiated @ $0.036 in Oct 2023) is going from strength to strength in terms of its both its technical and sharemarket performance. The company's strong technological progress has seen it put away an $8M capital raising to new and existing sophisticated investors, which will provide it with the funding to enable accelerated development of its innovative Flash Joule Heating (FJH) technology. On the operational front things are advancing strongly, with MTM making progress on its 1-ton-per-day Demonstration Plant, which will showcase the scalability and commercial viability of FJH across multiple applications - including gallium recovery from semiconductor waste, lithium extraction from spodumene ore and a broader e-waste recycling program. Collaborations with industry leaders are already underway, with additional partnerships expected as the company continues to grow, enabling the onshoring of critical mineral supply. #commodities #resources #mining #technology #ausbiz #equities

The Pharma & Biotech market had a relatively positive month with 41.5% of the coverage universe posting positive share price movements for the month of September. Over the 12-months to 30 September 2024 there has been some strong movements in the Pharma & Biotech universe with the share prices of 18 companies increasing by 100%+ with the best performer being Clarity Pharmaceuticals, whose share price has increased 618.5% over the 12-month period. Cannabis companies saw a renaissance during the month with the two biggest gainers in September both operating in the cannabis market. In this edition of Movers & Shakers we take a look at 5 Pharma & Biotech companies whose share prices rallied in September.

With the FY24 results season all wrapped up in the attached report we take a look at the key news flow for the September as well as provide a review of results for LICs and LITs for the FY24 period. For each of the categories we take a look at the NTA/NAV and share/unit price performance as well as the dividend/distributions declared. Equity markets had another strong year in FY24, driven by the global market with the MSCI World Index, Net, AUD rising 19.8%, following on from the 22.4% increase in the FY23 period. The local market (ASX All Ordinaries Accumulation Index) was up 12.5% with large cap stocks leading the way. Small cap stocks were up 9.3% while micro cap stocks (represented by the ASX Emerging Companies Accumulation Index) lagged its large and small cap counterparts returning 5.3%. The positive markets saw returns across the LIC and LIT market as a whole improve, with an average NTA/NAV return of 8.0%, up from 7.6% in FY23. From a dividend/distribution perspective, investors fared well, with more than 50% of LICs and LITs increasing the ordinary dividend/distribution for the FY24 period and 72% of vehicles either maintaining or increasing their ordinary dividend/distribution on the prior year. Further to this, by and large LICs had a healthy level of dividend coverage providing the ability for many LICs to maintain the dividend in the event of a period of market weakness. The number of LICs and LITs declined in the FY24 period, through consolidation and the restructure of some vehicles as investors became impatient with underperforming vehicles. As at 30 June 2024, there were 87 LICs and LITs on the ASX, down from 90 as at 30 June 2023. While the number of LICs and LITs was down, the total market cap actually increased over the period.  

We recently completed a review of BKI Investments Limited (ASX: BKI). BKI is a listed investment company (LIC) with a track record of over 20 years. Since listing, the Company has grown from a market capitalisation of $171 million to $1.4 billion as at 31 August 2024. As the Company has grown so has liquidity, which has been a key component to the narrowing of the discount over time. The portfolio is managed by Contact Asset Management (the “Manager”) who were appointed as the Manager of the portfolio in 2016. The Manager is 100% employee owned with the founders, Tom Millner and Will Culbert, involved in the investment team of BKI prior to taking over the management of the portfolio. The Company seeks to deliver an increasing fully franked income stream and capital growth over the long term. The Company seeks to achieve this through a long only portfolio of quality ASX-listed securities with a focus on companies paying regular and sustainable dividends. The Manager has a research driven, bottom-up, fundamental investment approach with the portfolio typically having 40-50 positions. The portfolio is concentrated to the top 20 positions, which generate the majority of the portfolio’s income. While the Company can invest in companies of all sizes, the portfolio is typically concentrated to large cap (ASX 50) stocks. This reflects the concentration of the domestic market to large cap stocks with the Manager needing to take sizable positions in large cap stocks to show a level of conviction. While there are limited formal limitations with regards to portfolio diversification the Company seeks to provide exposure to a portfolio that is diversified by both company and sector. The Manager is aware of the benchmark with regards to position sizing, however the portfolio is managed in a benchmark unaware manner with no individual stock or sector limitations. The Manager has a long-term investment horizon, which is reflected by a low level of annual portfolio turnover, and will remain largely invested at all times with a 10% limit on cash holdings. The fee structure is competitive with the Company paying a management fee of 0.10% p.a and no performance fee.

We recently completed a review of the KKR Credit Income Fund (ASX: KKC). KKC is structured as a listed investment trust (LIT) and seeks to offer investors exposure to a fixed income investment offering a regular monthly income stream and long-term capital appreciation over a full market cycle through an investment in two credit investment strategies: (1) the Global Credit Opportunities strategy (“GCO strategy”); and (2) the European Direct Lending (EDL) strategy. The Fund initially had a long term target of 50% to the GCO strategy and 50% to the EDL strategy, which the Fund met after becoming fully invested in the EDL strategy. However, moving forward the allocation is likely to be closer to 60% GCO strategy and 40% EDL strategy. KKC has a total return target of 6%-8%p.a. on average over the medium-term. The target distribution is set prior to the commencement of the financial year and will reflect the forecast cashflow for the Fund over the financial year period. The Fund has announced a target distribution of 20 cents per unit for FY25, which is equivalent to 1.67 cents per unit per month and represented a yield of 8.5% based on the NAV as at 30 June 2024. Distributions were initially paid quarterly with the distribution frequency increased to monthly from July 2021. The Manager is paid a fee of 0.88% p.a. (plus GST) of the NAV of the Fund and is eligible for a performance fee of 5.125% of the net return above the hurdle rate (RBA Cash Rate + 4.0%), subject to a High Water Mark. Fees are only charged at the Fund level with no fees charged in respect of the direct investment in KKR funds. An investment in KKC is suitable for investors seeking to generate an enhanced income through a portfolio offering a different exposure and risk profile to other fixed income LITs on the ASX. Given the nature of the underlying investments, we view the Fund to be at the high-end of the risk spectrum for fixed income with exposure to predominantly sub-investment grade securities. While the Fund listed in November 2019, the Manager has a long history and substantial experience in credit markets across the fixed income spectrum. The exposure of the Fund has changed over time as the capital was called for the EDL strategy. The addition of the EDL strategy to the portfolio was designed to lower the volatility associated with the overall portfolio and diversifies the portfolio from both a geographic and asset perspective. The GCO strategy is a traded credit strategy which means the portfolio will experience volatility in line with daily mark-to-market valuations. The distinction between traded credit and private credit (direct lending) is an important one and one that investors should ensure they understand.

The market was up slightly in August with the ASX All Ordinaries Accumulation Index up 0.4%, however the story was mixed between sectors. Energy was the worst performing sector with the ASX 300 Energy Accumulation Index down 6.2% for the month, while Financials was the best performer with the ASX 300 Financial Accumulation Index up 7.2% largely driven by the banks. The ASX 300 Health Care Accumulation Index was down 0.9% with the largest stock in the index, CSL, falling 0.8%. For the Pharma & Biotech coverage universe, there were some significant gainers with 11 stocks in the universe increasing by more than 30% in August and 57 of the 149 stocks delivering a positive share price performance. In this edition of Movers & Shakers for Pharma & Biotech we take a look at 5 companies whose share prices rallied in August.

We recently published a review of the Perpetual Credit Income Trust (ASX: PCI). PCI is designed to provide investors with regular monthly income through an actively managed portfolio of diversified credit exposures by asset type, issuers, credit quality, maturities, and capital structure. Listed in May 2019, the Trust is managed by Perpetual Investment Management Limited (the “Manager”) and its highly experienced nine person specialist credit and fixed income team led by Michael Korber. PCI is based on a ‘core/plus’ strategy, with a core of at least 30% investment grade and a maximum 70% in high yield and loans. PCI utilises an unconstrained credit strategy that seeks to generate a monthly income of RBA Cash Rate + 3.25% p.a. (net of fees), the equivalent of 7.6% p.a. based on the RBA Cash Rate of 4.35% as at the date of this report. The Manager endeavours to do so through a flexible investment approach that allows active portfolio positioning in order to focus on the most attractive credit and fixed income opportunity set of Australian securities and securities issued by global participants in the Australian market. While the unconstrained nature of the strategy may, on the surface, appear to introduce greater risk, the intention is quite the contrary – it is designed to mitigate risk and be conducive to a more consistent income profile over time with limited downside risk.

In this edition of the LMI Monthly Update we take a look at the key news in August, which included increases to dividend guidance, capital raisings, structural reviews and a new LIT.

Coverage stock Trigg Minerals Limited (ASX: TMG) has advised of the wider evaluation of the antimony potential of its Drummond Basin projects in northern Queensland. Trigg's projects lie between several multi-million-ounce intrusion-related and orogenic gold deposits, totalling than 20 Moz in the region. These include Ravenswood (7Moz Au), Mt Leyshon (3.5Moz Au), Mt Wright (1.5Moz Au) and Charters Towers (6.8Moz Au). Economic grades of antimony (up to 2.3% Sb) have been discovered in the epithermal gold and polymetallic mineralisation at Police Creek, near Mt Coolan in the Drummond Basin. Additionally, a historical epizonal antimony-gold mine, the Antimony Mine, was identified near the Mt Wright deposit within the Charters Towers Province. Trigg's data review has revealed significant potential for intrusive-related and orogenic gold systems in this historically rich mining area, where more than 70 intrusion-related gold systems are located. The geological setting at Trigg's Bosworth and West Ravenswood projects is considered highly favourable for hosting the large, high-grade gold deposit often associated with an IRGS, and antimony is commonly associated with this deposit type. #gold #antimony #commodities #resources #exploration #equities #ausbiz