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Australian Leaders Fund Limited (ALF)
is a publicly listed company on the Australian Securities Exchange (ASX).
About Australian Leaders Fund Limited
As a listed investment company, ALF comprises a portfolio of publicly traded Australian shares. The fund looks to invest in leading Australian companies, with strong business fundamentals on attractive terms. By constructing a portfolio of these undervalued shares ALF hope to deliver superior returns to their shareholders over time.
ALF's investment process is similar to other funds with a primary goal of identifying mispriced securities. They look to buy good companies on occasions when they are undervalued by the market. However, ALF is different to a traditional fund in taking this process to the next logical step and selling (short) the shares of businesses that are fundamentally challenged, where these shares can be sold for more than they are worth. The proceeds raised from selling these shares are an additional source of funding for the company’s balance sheet. These funds are either retained in cash or re-invested into the investment portfolio of shares we expect to outperform.
This is a more active approach to portfolio construction and balance sheet management than a traditional fund. It allows shareholders to profit from mispricing in all segments of the market, not just from buying undervalued shares but from short selling expensive ones as well. It also provides greater flexibility in managing portfolio risk through the cycle as short positions are a natural hedge for the company’s assets if shares fall in value.
ALF has a long standing agreement with Watermark Funds Management Pty Ltd as external manager of the investment portfolio.
The Company’s investment objective is to deliver superior returns with reduced market risk while returning a consistent stream of fully franked dividends to Shareholders.
The Manager believes successful investing requires the following skills:
- An ability to evaluate the true worth of a business and the management charged with running it;
- An understanding of how and why a company’s shares come to be mispriced; and
- An appreciation of the risks that may undermine the investment case.
Employing these skills, the Manager believes the best investment opportunities arise when shares in strong, well managed companies can be purchased on attractive terms. These companies typically exhibit the following characteristics:
- A history of superior returns through the economic cycle;
- Management with a track record of creating and distributing value to shareholders; and
- Businesses with a capacity to grow.
Consistent with these same principles, in selecting shares to short sell the Manager looks to sell the shares of companies with weak fundamentals on occasions when they become overvalued.
The Manager's investment process is a fundamentally driven, security selection process based on sound investment ideas taken from the investment universe of listed Australian securities. A summary of the investment process is set out below.
Investment ideas come from monitoring economic and industry trends as well as extensive contact with company management and industry sources. Once identified, investment opportunities are screened to ensure they are of an investment grade. A full qualitative assessment of the proposed investment is completed to establish whether the business is of a suitable quality and attractively priced.
Once a suitable investment opportunity has been identified, a full review of financial performance will be completed. This is usually followed by a meeting with management to further develop an understanding of the business and the management philosophy. Where possible, representatives of the Manager will also meet with suppliers, regulators, competitors and customers to gauge the competitive environment.
Short selling is an important part of the investment strategy employed by the Manager. It is intended that approximately 40 - 60% of the Company’s balance sheet will be funded from the proceeds of short sales. The Manager employs a similar security selection process as above, but is looking for the opposite qualities in companies to borrow and sell. The Manager believes the best "shorting" opportunities are found in poorly managed companies with weak fundamentals where the shares in those companies can be sold for more than they are worth.
When targeting companies to borrow and sell (short), the Manager will target:
- A history of inferior returns.
- Management with a poor track record.
- Businesses operating in highly competitive industries that are struggling to grow.
- Securities which are expensive on a range of valuation measures.
Australian Leaders Fund Limited
139 Macquarie Street
+61 2 9252 0225
Fax: +61 2 9252 1220
The General Overview, Services, Products and Projects information for this profile was last edited on 05 Jun 2015.