For the most part, it was a solid start to the new financial year. Except perhaps for the Long Term Income Builder, which had a blinder of a quarter, in keeping with the heady uplift in the Australian stock market.
Of course, as we tend to blather ad nauseum, the LTIB is not about short term gains, which are notoriously transitory and hard to pin down. It’s about income – attractive, reliable, growing income for the long term buy-and-hold investor. So we shouldn’t get too excited when things jump up in one quarter, but rather should aim to understand where the income comes from.
In the last issue we had a brief look at how the LTIB goes about its business. At its core is a spread of Listed Investment Companies (“LICs”), which themselves are essentially managed share portfolios that you can buy and sell lock, stock and barrel on the Stock Exchange.
Over half the portfolio is invested in large, longstanding “traditional” LICs like Australian Foundation, Argo, Djerriwarrh. Been around for years, won’t dish up any surprises one way or the other. Quoting from AFICs website, the primary aim is:
“to provide shareholders with long-term returns and to pay stable to growing dividends over time”.
Between them these core holdings average a steady annual income stream close to the portfolio’s target of 5% gross.
With the remainder of the portfolio we can look a bit left field for some added spice. A good example at the moment is Sandon Capital (SNC), which makes up about 13% of the LTIB. Sandon is an “activist” manager – it looks for companies that for some reason are unloved by the market and/or seen to be underperforming their potential. SNC then aims to influence the company in various ways as a shareholder activist, to assist it to extract true value and better realise its potential.
We also mentioned how if you can buy these LICs on the cheap, because the market is not alert to their true value, that improves the return outlook, including the immediate income yield. So at the start of the financial year, SNC was trading at around $0.69 per share, a discount of over 10%. For the year it paid dividends totalling around $0.077 per share including franking credits, meaning an income yield of about 10.5%.
Not one to bet the whole farm on, but at current prices with such a healthy dividend outlook it’s an excellent fit for this portfolio.
In other news….
And because one does not live by financial planning alone, here is our lovely Lewina doing her bit for work-life balance. She was married to Javed on August 31, and is back now after a honeymoon in Koh Samui.
Still smiling.
So, who’s got what?
The table below shows the ARAIF’s investments at the time of writing. Please note, the percentages refer to the proportion of each portfolio allocated to that investment, not its rate of return.
Major Holdings – diversified portfolios
Apart from bank deposits and other interest-bearing accounts, Defensive, Growth and Equities portfolios invest in a range of assets through the fund managers listed in the table above. If we drill through to the assets selected and overseen by those managers, there are in fact over a hundred individual securities providing diversification of risk and exposure to a wide range of opportunities.
The table below shows the 20 largest individual holdings and what proportion of each portfolio they represent. These are the investments that will have the biggest impact on the portfolios’ returns.
Returns quoted in this report are after all costs, and before the application of management fee rebates. Return figures are pre-tax, and include the value of franking credits from franked dividends. Total return figures assume the re-investment of gross distributions including franking credits. 3-month return figures are for the period to 30 September 2024 and are not annualised.
ARA Consultants Limited provides this update for the information of its clients and associates. If you do not wish to receive this or other information about ARA in future, please contact us on (03) 9853 1688.
This document has been issued by ARA Consultants Limited for its own use and the use of its clients. Fundhost Limited (ABN 69 092 517 087) (AFSL No: 233045) (Fundhost) is the issuer of the ARA Investment Fund (ARSN:104 232 448). Information contained in this document is general information and is not intended to constitute nor does it purport to offer any specific or individual investment advice. Whilst every effort has been made to ensure the accuracy of the information contained in this document, neither ARA nor Fundhost accept any liability in relation to anyone who makes and acts upon a decision based upon that information. No person should make a decision based upon the information contained in this document without first seeking and obtaining the appropriate professional advice relevant to their own individual circumstances and financial needs. You should consider the Product Disclosure Statement in deciding whether to acquire, or continue to hold the product. The PDS and applicable Target Market Determinations are available at www.araconsultants.com.au or by contacting ARA by phone on (03) 9853 1688 or by email at info@araconsultants.com.au. We also caution that past returns are just that, and the fact that they have been achieved previously does not guarantee or imply that they will be achieved again.
If you would like a pdf version of this update for your files you can download it here: September 2024 Quarter Investment Update.
