Why local investors should look offshore
PHILIP BAKER – Australian Financial Review – June 3, 2014
Australians have a reputation for being global travellers but when it comes to investing they still call Australia home.
There are some very good reasons for that but the heavy weighting of the banks and resource stocks in the local sharemarket means investors might not be as diversified as they think.
For that reason there are plenty of experts who think it’s time for local investors to be more adventurous. And with that trend comes the launch of funds that invest in offshore markets.
The latest is a listed investment company with links to Wilson Asset Management called the Global Value Fund.
The fund will have wealth management veteran Chris Cuffe on the board, has lodged a prospectus with the Australian Securities and Investments Commission, is trying to raise $100 million and will be listed on the Australian Securities Exchange.
Managing the money will be Metage Capital, a London-based fund manager with – as it happens – an Australian, Miles Staude, in charge.
Staude will divide his time between London and Australia and also sit on the board along with Geoff Wilson and chairman Jonathan Trollip, a lawyer and former partner at Freehills.
Metage doesn’t pick stocks like a traditional fund manager but instead has a strategy which involves buying stocks around the world that trade at a discount to their “break up” value and then using whatever techniques it can to capture the underlying value of these securities for investors.
Metage has been unlocking the value in these sorts of companies for 15 years with some success, an annual return of almost 19 per cent before fees and expenses, and has around $250 million under management.
The fund deals in listed stocks, credit, fixed income, infrastructure, private equity and real estate.
Given the strength in the Australian dollar some experts are also encouraging investors to buy more foreign stocks.
The theory is that the Aussie can’t possibly stay this high, and that at some point the US economy will recover and we will move back to an exchange rate at the level we’ve been more familiar with over the past 30 years. Under this scenario, it’s a great time to buy international assets – if the $A does fall again, then your overseas holdings will increase in value in $A terms.
“During the process Metage was able to exit most of its holding at around net asset value,” he points out, which is a dry way of saying Metage had a significant win against one of the canniest bunches of investors ever to come out of Australia.
It’s not always so easy, he indicates, noting that the mere appearance of Metage on the register of some US closed-end funds causes them to decide suddenly to incorporate in Delaware, the state whose corporate laws are kindest to incumbent boards. “In certain circumstances the board has the right to ignore a shareholder vote,” he says, although US federal law takes a different view.
A clue to his visit to Australia is the note in a presentation that Metage “has a position” in an Australian listed equity fund bought at a discount to NAV of between 25 per cent and 30 per cent.
He’s under no obligation to report a holding of less than 5 per cent and he’s giving nothing away except to say, “The portfolio comprises blue-chip overseas shares and the NAV risk can be readily hedged with similar ETFs, which typically trade at a premium to NAV.” Which is to say, he’s got the bases covered.
Miles Staude of Staude Capital Limited in London is the Portfolio Manager at the Global Value Fund (ASX:GVF). This article is the opinion of the writer and does not consider the circumstances of any individual. Mirabella Financial Services LLP is the investment manager of the Global Value Fund and has seconded the investment team at Staude Capital to manage the Global Value Fund.
