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Blog posts tagged in Financial Sector

In part A of this article (available on the Philo website) we provided an overview of the key characteristics of managed accounts and the different forms of managed accounts in the market. In this article we pose some questions that, when answered, should assist planning firms to select the right managed account for them. We also provide a link to Part B of our more detailed paper called Understanding and Selecting Managed accounts. The detailed paper provides more education on the legal framework surrounding managed accounts and identifies scenarios where managed accounts and unit trusts can complement each other.

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Managed Accounts have been accelerating in popularity in the past few years with FUM estimated at over $15 billion and there is much industry anticipation that their rate of growth will accelerate further. Despite this increasing popularity and anticipation, general industry knowledge levels around managed accounts are relatively low.  In this brief article we provide an overview of what managed accounts are and where different forms of managed account sit in the regulatory framework.  We also provide a link to Part A of a more detailed paper we have produced called Understanding & Selecting Managed Accounts.

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In forecasting the future, especially the future direction of the equity markets, one prediction is sure to come true: that all predictions will be wrong.  As part of the quarterly asset allocation process, the Philo Listed Research team provides a view of how we expect the Australian equity markets to perform over the coming year. This does not involve peering into a crystal ball or gazing at tea leaves or chicken entrails, but rather is derived from analysing the ASX on a "bottom up" or stock by stock basis.  Whilst recognising the limitations of all forecasts, in this week's piece we are going to run through our current view on the returns we expect the market to provide investors over the next 12 months.

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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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Currently investors are being deluged by new IPOs (initial public offerings), as the sponsoring investment banks and their predominantly private equity owners look to capitalise on the current strength of the Australian equity market and have these placements done before Christmas. As every day seems to bring a new thick IPO prospectus (and sometimes three!) and glowing broker research on the new company about to be floated, this week’s piece is going to look at the hot topic of the moment: IPOs!

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This week marked the end of the reporting season for Australia’s banks with the four major banks delivering a combined $27.3B in profit for the 2013 financial year. In this piece we are going to look at the common themes coming out of the results and hand out our reporting season awards.

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Term deposits (TD) are often considered relatively straightforward investments that investors believe they can effectively manage on their own.  For most people, this is choosing the highest rate from a bank they are comfortable with. Unlike stocks, the face value of a TD does not change during the life of the deposit, as there is no 'mark-to-market' or revaluations unlike other fixed income securities like bonds which trade on markets. As we saw during the GFC, even high-grade fixed income securities can experience high price volatility. TDs experience no such observable volatility. This encourages investors to treat them as passive 'set and forget' investments.

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Last night in Chicago the CEO of US agricultural company Archer Daniels Midland (ADM) said that she expects that the company's $3.2 billion dollar takeover of Australian grain handler GrainCorp will be completed by the end of 2013. This implies that ADM expects the Foreign Investment Review Board will approve the deal; after it had been held up by both the election and opposition from the National Party. In this note we look at the extent to which opportunities for investors to get exposure to listed agricultural companies has been diminished by recent takeovers and the breath of foreign interest in ASX-listed agricultural companies.

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When you look at the collection of stocks in any portfolio; it is statistically improbable that all the stocks in any portfolio at one point in time will be outperforming the benchmark. In the Core Equity Portfolio we focus on buying quality companies stocks that we believe are undervalued by the market. Consequently we accept that some stocks we own may underperform for a time, before a catalyst occurs that causes the stock to re-rate upwards. Whilst investors should primarily focus on their overall portfolio return (+15.1% in 2013!), in this piece we are going to run through the securities that are performing well in 2013 and those that are lagging.

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Every day investors face a range of news and noise, with market commentators and stockbrokers telling you to buy this stock and sell that. Normally this is a mass of well-crafted advice; all designed to encourage the investor to turn over their portfolio. Increased trading is profitable for stockbrokers, but normally less so investors. In order to focus our research efforts, we have developed a few tools in Philo Capital Research Department designed to help us block out the incessant chatter of the market and focus on ideas that can make our investors money. In this note, we are looking to give our investors some insight into the work that is done on their portfolios every morning.

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During the months of February and August the majority of Australian listed companies reveal their profit results and mostly give us guidance as to how they expect their businesses to perform in the upcoming year. This can be a stressful time as when companies open up their financial closets and reveal unexpected unpleasant surprises, the company's share price tends to get sold down hard. In this note we are going to run through the key themes we have seen so far after 90% of companies have reported their results.

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This week has been a very eventful one for listed property.  We have also been busy meeting with a few companies and a global commercial leasing agent to test our thoughts on how the portfolio should be positioned. In this note we will look at our positioning in the various property sectors,  along with the strategy being used to manage the portfolio.

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As our largest sector tilt in the portfolio and the biggest sector in the ASX after the banks, we spend a large amount of time looking at the resources sector and testing our assumptions. Indeed over the last year, research has travelled to both the hot and dusty mines of the Pilbara and to the gritty Dickensian steel mills of North and Western China. In the press there has been much written about the end of the mining boom, and whilst we see that the boom days are over where marginal mines were making supernormal profits, we don't see that the wholesale dumping of mining stocks is the right move for investors.

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As investors we allocate our capital to superior companies, with the expectation that we will be rewarded by higher dividends and capital returns when that capital is invested sucessfully.  Furthermore when assessing management teams, one of the key factors that we look at is their willingness to return excess capital to shareholders, rather than hold onto it. Often management finds this excess cash burning a hole in their pockets and listens to the siren calls of investment bankers pitching acquisition ideas to absorb cash on their "lazy" balance sheets.

Hits: 2012

Over the last five years one of most unpleasant feelings for an analyst or fund manager is when a portfolio company posts a notice on the ASX of a "Trading Update". Since 2008 this has almost always been a downgrade of a company's expected profits which then results in a sharp price fall, gnashing of teeth and tears from the analyst responsible for the stock. In recent memory the only profit upgrade we have seen was CSL's lift in November last year, so when I see "Trading Update", I expect the worst.

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In recent times News Corporation (NWS) has generated a great deal of media intrigue itself. The News of the World scandal, Murdoch's level of control, and more recently the proposal to split the company have ironically been major media stories. In this piece we will run through what the spin out of News Corp will mean for investors.

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On a weekly basis Listed Securities fields offers from the stockbroking community for exciting new Initial Public Offerings (IPOs), and large placements from companies seeking to buy other assets or retire debt. As you can probably imagine these offers are couched in the most positive terms and are dressed up to lure investors to part with their capital. The investment banks don't offer us these opportunities from the kindness of their hearts, new security issues are an extremely lucrative fee earner; with the banks earning from 1-5% of the total amount raised! Over the last 18 months in our investible universe (excluding small capitalisation companies), A$30.3B has been raised in the 48 different issues that have been presented to us. Of these 48 issues our Approved Investment Committee has approved only seven. In this piece we are going to run through our hits, misses and fish rejected.

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Over the last 5 years we have seen the AUD/USD break significantly away from its post free float (1983) average of 0.75. This move has put significant pressure on a range of businesses from manufacturing, exporters, tourism to retailers. In May 2013 we have seen a steady erosion of the AUD/USD from 1.04 to 0.96. This move has benefited our investors as both our asset allocation (un-hedged International equities) and Australian equity portfolio construction decisions have been geared towards a falling AUD. This piece goes through the winners and losers from a declining AUD along with how we have positioned the Core Equity Portfolio.

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Reporting season for the Australian banks (excluding CBA who have a June year end) has just finished and the following themes stood out to us:

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WBC released its financial results for the first half of the 2013 financial year today. The major news was a special dividend for shareholders.

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