Julian Beaumont from Bennelong Australian Equity Partners presented a webinar session on how to invest outside of the top 20 ASX stocks, for Netwealth on May 26, 2016.
3. Bennelong Australian Equity Partners
The concentration of the Australian market and how to
properly diversify
May 2016
4. About the speaker
Julian Beaumont is the Investment Director at Bennelong Australian Equity Partners
He has been in the investment industry for 13 years, previously at Investors Mutual Limited
as an equity analyst and portfolio manager for seven years, and before then, as a fund
manager at Montpelier Group in London
Previously, he was an investment banker in Sydney and Singapore, and a lawyer at a large
Australian law firm
He holds a combined Bachelor of Laws (with Honours) / Bachelor of Science degree
He is also a CFA Charterholder and he now lectures in the CFA Program for the Sydney
Branch of the CFA Society
5. About Bennelong Australian Equity Partners
Boutique Australian equities focused fund manager, founded in 2008.
The interests of clients and BAEP are aligned around investment success, including through
the investment team’s majority ownership of the firm
Investment approach is research-intensive and focused on business fundamentals
~$5 billion in Funds Under Management for retail, institutional and charitable clients
6. Agenda
Why ex-20?
― Understanding concentration risk in the Australian market
― Understanding the benefits of investing in the ex-20?
How BAEP invests in the ex-20?
Stock examples
7. Why ASX ex-20? Diversification & Opportunity
ASX 20
60%
Ex-20
40%
Source: BAEP, IRESS, as at 12 May 2016.
Percentages are to the S&P/ASX 300.
8. The ASX top 20
Financials
AMP
ANZ
CBA
IAG
MQC
NAB
QBE
SUN
WBC
Property, Telco
& Infrastructure
SCG
TCL
TLS
WFD
Commodities
Mass
Retailers
Healthcare
Industrials
BHP
RIO
WPL
WES
WOW
CSL
BXB
9. Concentration Risk & Diversification
Source: BAEP, IRESS, as at 31 December 2015
ASX top 20 Index Breakdown ASX ex-20 Index Breakdown
10. Investment returns
Growth of $10,000 since 1 January 2000 to 31 December 2015
Source: Morningstar
Performance calculated for the period from 1 January 2000 to 31 December 2015.
10
11. Returns of ‘blue chips’
Index* Last 12 months
ANZ -24%
NAB -20%
BHP -32%
Woolworths -21%
Origin -48%
Top 20 -11%
ASX/S&P 300 -5%
Ex-20 +6%
Source: BAEP, as at 30 April 2016
* Top 20 = S&P/ASX 20; Ex-20 =
S&P/ASX 300 excluding the
S&P/ASX 20
Investment Returns to 30 April 2016
12. Consistent Outperformance
Outperformance of Bennelong ex-20 Fund by Half Years
-14%
-10%
-6%
-2%
2%
6%
10%
14%
18%
22%
Performance calculated for consencutive six month periods ending 30 June (with the last period ending 31 Dec 2015).
Performance figures are gross (before fees and expenses).
* The Benchmark is the S&P/ASX 300 Accumulation Index ex. S&P/ASX 20.
13. Benefits of investing in ex-20 sector
Many portfolios are heavily concentrated in the top-20 so-called ‘blue chip’ stocks
− There is considerable concentration risk
− They are relatively homogenous in their investment attributes
− They limited in the exposures they offer
− They are very well known and researched
− They are over-owned
A portfolio of ex-20 stocks complements these portfolios and mitigates some of the unappreciated concentration risk
The ex-20 market offers greater exposure to a broader range of stocks, sectors, themes and high returning
opportunities
There is greater reward in applying superior skills and effort via active management
14. How BAEP invests in ex-20 stocks
Target high quality companies with strong long-term growth outlooks (so-called long duration
companies)
Focused on earnings momentum and near-term earnings outperformance (versus market expectations)
Research-intensive process to gain differentiated insights based around company meetings, industry
contact (competitors, suppliers, customers, regulators, etc) and other primary research
Makes use of macro-economic analysis and insights for opportunities and risks
Selective stock picking leading to high conviction portfolios that diverges significantly from the index
15. TPG Telecom / Telstra
Source: BAEP, consensus estimates, Company AccountsEarnings per Share (cents)
17. Ramsay Health Care
Source: Ramsay website
Largest private hospital operator in Australia with emerging businesses overseas
Owns large, popular hospitals with protection from high barriers to entry
Opportunity to expand existing hospitals to absorb strongly growing demand
― Waverley Private (2 new operating theatres, 1 new day procedure areas, 32 new private
bedrooms)
22. BWX Limited
Manufactures Sukin and other branded
natural skin care products
Founded by current MD, John Humble, over
two decades ago
Affordable offering currently growing sales at
40%+ and with the prospect of ramping up
exports into China and elsewhere
BAEP invested pre-IPO in June 2015 and is
now the largest shareholder with a ~13%
stake
Flying off the shelf
23. Top Holdings
Top 10 Holdings
8.5%
8.2%
6.8%
6.1%
5.7%
5.2%
4.4%
4.4%
4.1%
3.5%
TPG Telecom
Ramsay Health Care
Domino's Pizza
The Star Entertainment
Aristocrat Leisure
Flight Centre Travel
IPH
Fisher & Paykel Healthcare
Eclipx
ARB
Source: BAEP, as at 30 April 2016
24. Net returns (after fees and expenses)
FYTD One year 3 years pa 5 years pa Since inception** pa
Bennelong ex-20 fund 22.18% 15.04% 13.11% 12.32% 13.56%
Benchmark*
11.19% 6.31% 8.96% 6.39% 6.56%
Value added +10.99% +8.73% +4.15% +5.93% +6.99%
Performance calculated for the period ending 30 Apr 2016. Performance figures are net (after fees and expenses).
* The Benchmark is the S&P/ASX 300 Accumulation Index ex. S&P/ASX 20. **The inception date for the Fund is 2 November 2009.
26. Fund Details
Feature Ex-20
APIR code BFL0004AU
mFund code BAE03
Benchmark S&P/ASX 300 Accumulation Index excluding S&P/ASX 20 Leaders Index
Investment objective 4% p.a. above benchmark measured over rolling 3-year periods
Investment manager Bennelong Australian Equity Partners (BAEP)
Active stock limit ± 10%
Cash limit 0-10%
Inception date 2 November 2009
Recommended investment period Long term (five years plus)
Buy/sell spread +/-0.30%
Entry/exit fees Nil
Management Fee 0.95% p.a. of Net Asset Value of the Fund
Performance Fee 15% of any amount by which the Fund's return is greater than the return generated by
the S&P/ASX 300 Accumulation Index excluding S&P/ASX 20 Leaders Index
27. Disclaimer
This information is issued by Bennelong Funds Management Limited (ABN 39 111 214 085, AFSL
296806) (BFML) in relation to the Bennelong ex-20 Australian Equities Fund, Bennelong Concentrated
Australian Equities Fund, Bennelong Australian Equities Fund, the Bennelong Twenty20 Australian
Equities Fund, and institutional mandates.
The information provided is general information only. It does not constitute financial, tax or legal advice
or an offer or solicitation to subscribe for units in any fund of which BFML is the Trustee or Responsible
Entity (Bennelong Fund). This information has been prepared without taking account of your
objectives, financial situation or needs. Before acting on the information or deciding whether to acquire
or hold a product, you should consider the appropriateness of the information based on your own
objectives, financial situation or needs or consult a professional adviser. You should also consider the
relevant Information Memorandum (IM) and or Product Disclosure Statement (PDS) which is available
on the BFML website, bennelongfunds.com, or by phoning 1800 895 388.
BFML may receive management and or performance fees from the Bennelong Funds, details of which
are also set out in the current IM and or PDS. BFML and the Bennelong Funds, their affiliates and
associates accept no liability for any inaccurate, incomplete or omitted information of any kind or any
losses caused by using this information. All investments carry risks. There can be no assurance that
any Bennelong Fund will achieve its targeted rate of return and no guarantee against loss resulting
from an investment in any Bennelong Fund. Past fund performance is not indicative of future
performance. Information is current as at May 2015. Bennelong Australian Equities Partners (ABN 69
131 665 122) is a Corporate Authorised Representative of Bennelong Funds Management Limited
(BFML), ABN 39 111 214 085, Australian Financial Services Licence No. 296806.