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Market Commentary

These articles provide commentary on specific aspects of the market both local and international. 

Managing a diversified equity portfolio is sometimes similar to being a farmer in that at any stage you are likely to be "harvesting" or selling good stocks that are now over-valued and "planting" or buying companies that appear undervalued.

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Over the last few weeks Philo Research have been busy meeting with the management teams of the trusts in the Core Property Portfolio and doing a few tours of some of the assets owned by the portfolio. The highlight of these tours was the top floor of Deutsche Bank Place on Phillip Street; very salubrious office space with great views over the Botanical Gardens and down the harbour at only $1,450 per m² per annum! If anyone needs some flashy office space, we will be delighted to put them in touch with the building's leasing manager. In this note we will look at what we have learned from the recently concluded reporting season, our positioning in the various property sectors and the strategy being used to manage the Core Property Portfolio.

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A key part of the investment process is that the Philo Research team meet with the management teams of the portfolio companies at least once every six months. Generally we seek to meet with management teams just after they have released their semi-annual profit results and at other times during the year when we have specific issues or concerns that we feel need to be addressed. The content and tone of these meetings varies widely depending on the nature of the company and how far the results that the management team has delivered deviates from our expectations. The Philo Research team have been very busy over the month meeting with management teams from huge (BHP) to small (Investa Office Fund).  In this piece we are looking to shed some light into the role that these meetings play in the investment process. As the portfolio has had no unpleasant surprises this month, these meetings were all pretty cordial.

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During the months of February and August the majority of Australian listed companies reveal their profit results and most provide guidance as to how they expect their businesses to perform in the upcoming year. As the financial noise reaches a crescendo during these months, in this note we are going to run through the key themes we have seen so far after 65% of companies have reported their results.

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During the months of February and August the majority of Australian listed companies reveal their profit results. Many companies also provide guidance as to how they expect to perform in the upcoming year. This can be a stressful time for a fund manager. When companies reveal unpleasant surprises the company’s stock price tends to get sold down hard. Alternatively, it can be very pleasant when the company benefits from factors that were behind the investment case for originally owning their shares. In this piece we are going to go through how Philo Research approaches each day during reporting season and relate our actions yesterday when portfolio companies Telstra, GPT, Transurban and Rio Tinto reported their results.

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Last week investors in Treasury Wine Estates (which we don't own), a global wine company with iconic brands such as Penfolds and Wolf Blass faced a 20% fall in the company's share price after the company downgraded estimates for future earnings. In this piece we are going to look at the mechanisms we use to filter out companies (including Treasury Wine) that are more likely to have a higher chance of issues in the future.

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A falling Australian dollar is often presented in the media as a negative event, raising the cost of purchases on Amazon, holidays in Europe and indeed sometimes as a declining vote of confidence in Australia by the rest of the world. Over 2013 the Australian dollar has fallen against all major currencies (except for the Yen and the Rupiah), most notably by 14% against the USD. Whilst this move is negative for consumers wanting to buy hand-made French road bikes, the fall benefits our investors, as both our asset allocation (un-hedged International equities) and Australian equity portfolio construction decisions have been geared towards a falling AUD.

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Investors buy shares or small portions of a company with the notion that at some stage in the future others will view the intrinsic value of the company more highly than it is today. This increase in the value of a company can either come gradually via the share market or suddenly via another company launching a takeover. Currently in the Core Property Portfolio (CPP) we are fortunate to have both GPT and a consortium made up of Dexus (DXS) and the Canada Pension Plan (CPPIB) in a bidding war for our holding in Commonwealth Property Office Fund (CPA).

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Earlier this week Westfield Group (WDC) and Westfield Retail Trust (WRT) announced a proposal whereby their combined assets will be restructured along geographical lines.  Westfield's Australian/NZ businesses will be held in a newly formed entity to be known as Scentre Group and their US and UK assets, including Westfield World Trade Center in New York, Century City in Los Angeles and Westfield London will be retained in WDC - renamed as Westfield Corporation. The investment thesis behind this quite costly move is that the market will rate the two separate companies more highly as they will be more focused.

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The Listed Securities team at Philo Capital are constantly reviewing investments in the hunt to deliver investment returns. In this piece we are going to run through the steps taken in analysing Echo Entertainment (EGP) from a nascent idea to a concrete view on whether the security should be added to the portfolio. EGP is an Australian casino operator that includes The Star Casino in Sydney, Treasury Casino in Brisbane and Jupiter's on the Gold Coast.

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Privacy Officer

Attention: the Privacy Officer
Philo Group

Level 11

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Tel: 1300 303 323

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