There are only 4 Copper Producers left on the ASX - only one is below      Intrinsic Value 

Romano Sala Tenna, Katana Asset Management

May 2021

Funds operated by this manager:

Katana Capital Ltd, Katana Australian Equity Fund

The changing landscape in China and its implications for iron one

Tama Willis, Portfolio Manager, Devon Fund Management

May 2021

Funds operated by this manager:

Devon Trans-Tasman Fund, Devon Alpha Fund, Devon Australian Fund, Devon Diversified Income Fund, Devon Dividend Yield Fund, Devon Sustainability Fund

Vantage Asset Management's portfolio of Private Equity Growth Funds provide wholesale or sophisticated investors the ability to invest in private equity opportunities that are normally only available to large institutional investors.

Vantage design their private equity funds specifically for sophisticated investors, SMSF's and family offices to gain access to these opportunities by investing in selected private equity funds which are only open to institutional investors. Vantage's underlying funds ultimately invest in profitable private companies in the lower to mid-market segment, with an enterprise value between $25m to $250m at the time of investment.

Vantage Private Equity Growth 4 (VPEG4) provides investors with access to a diversified portfolio of Australian private equity investments that are ultimately managed by a selection of top tier private equity fund managers in Australia who have historically and consistently delivered superior returns to investors.

VPEG4 implements the same investment strategy as Vantage's previous Private Equity Growth funds, VPEG, VPEG2 and VPEG3. Each of these invest in up to 8, closed end, private equity funds which in turn each invest into a portfolio of 6 to 8 profitable private companies. Ultimately Vantage are seeking to build a highly diversified portfolio of up to 50 underlying companies managed by the top tier private equity fund managers in Australia that are normally only accessible to institutional investors.

Since establishment in 2006, Vantage has invested across 25 private equity funds, which have in turn invested in 136 companies which have, as at 31 March 2021, completed 60 exits (or sales) from their portfolios. The gross proceeds from these exits have resulted in a 2.7 X return on invested capital, delivering an average Internal Rate of Return of 31.7% p.a. to Vantage's funds.

VPEG4's predecessor funds VPEG2 and VPEG3 have delivered net returns to their investors since their inception of 19.95% p.a. and 21.59% p.a. respectively to 31 March 2021. This ranks each fund in the top quartile of private equity fund of funds globally for each of their respective vintage years.

VPEG4 has a target return of 20% p.a. and Vantage believe that VPEG4 is particularly suited to investors who are looking for superior returns in an asset class that is difficult to access and has consistently outperformed most other asset classes over the medium and long term with a low correlation to listed equities, bonds and property.

SPECIAL OFFER

Vantage are providing the ability to invest in VPEG4 with a reduced minimum investment commitment amount of AU$50,000 compared with the standard Institutional Offer requiring a minimum commitment of AU$1,000,000 per investor.

This offer also allows investors to pay for their investment via an initial payment of 15%, followed by progressive calls (averaging 25% of the investment commitment) each year, as opposed to paying the entire investment amount on application.

VPEG4 will be accepting applications and issuing interests on a monthly basis through to 30 September 2021. To participate in this offer please click the OLIVIA123 link below or for further information please click the link to the VPEG4 Fund Profile which includes a link to contact Vantage directly.

Disclaimer:

Neither Vantage nor any other person or entity guarantees any income or capital return from the Fund. There can be no assurance that the Fund will achieve results that are consistent with the investment performance of previous investments or that the investment objectives for the Fund will be achieved.

In considering past performance information, prospective investors should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that the Fund will achieve comparable results, that unrealized returns will be met, or that the Fund will be able to make investments similar to the historical investments as described in the Information Memorandum.

Investments in Private Equity are generally illiquid. However, the minimum term of an investment in VPEG4 is four (4) after which investors can redeem their investment. Please refer to section 8 of the Information Memorandum for further information. Distributions are made to participating investors on an ongoing basis with distributions (from exits) generally occurring from year two onwards.

Australian Fund Monitors Pty Ltd, holds AFS Licence number 324476. The information contained herein is general in its nature only and does not and cannot take into account an investor's financial position or requirements. Investors should therefore seek appropriate advice prior to making any decisions to invest in any product contained herein. Australian Fund Monitors Pty Ltd is not, and will not be held responsible for investment decisions made by investors, and is not responsible for the performance of any investment made by any investor, notwithstanding that it may be providing information and or monitoring services to that investor. This information is collated from a variety of sources and we cannot be held responsible for any errors or omissions. Australian Fund Monitors Pty Ltd, A.C.N. 122 226 724

Why equities are still king

Ophir Asset Management

12th April 2021

Even before the onset of the Covid-19 Pandemic, investors faced significant challenges building long-term wealth. 

With a muted outlook for economic growth and inflation, investors were unlikely to earn the double-digit percentage annual returns that they had become accustomed to.

At the time many analysts believed that risk-adjusted returns over the next decade are likely to be half of those achieved in the past 20 years, an outlook that may have forced investors to revise their portfolio strategy.

But despite that outlook, and despite concerns that equities are now 'overvalued' after strong post-Covid rallies, investors' asset allocation decision hasn't changed drastically.

That's because, compared with other asset classes, equities are still offering investors the most compelling investment case in our opinion, and the most compelling chance to build long-term wealth and maximise their lifestyle in retirement.

Clear and unequivocal outperformance

Through the decades, equities have by far and away been the top-performing asset class. The charts below show the cumulative total returns in the US market over the last 121 years from stocks, bonds, bills (i.e., cash), and inflation.  Equities performed best, returning 9.7% per year versus 5.0% on bonds, 3.7% on cash, and inflation of 2.9% per year.

The extent to which equities outperformed the other asset classes is clear and unequivocal. Furthermore, this study captures some notable setbacks: two world wars, the great depression, an OPEC oil shock, the GFC and COVID-19. In each case, equities eventually recovered and reached new highs.

Why fixed income and cash now do nothing for wealth creation

When thinking about future asset class returns, we must acknowledge how exceptionally low interest rates now are.

Short-term interest rates in Australia, the US and most other developed economies are near zero, or in some cases negative! Central banks seem intent on maintaining this support, with interest rate futures factoring low rates to remain for at least the next four years.

Although inflation is soft and likely to be contained, it still sits at a level above both short- and long-term interest rates. Because of this, rates in Australia are negative in real terms.

This means that investment dollars sitting in these cash and fixed income asset classes are generally losing value after inflation.

For investors seeking long-term wealth creation, government bonds offer nothing to an investor, and should only be considered in a portfolio for diversification purposes.  Meanwhile, cash holding should be kept to the bare minimum, purely as a means to facilitate liquidity.

The shrinking equity risk premium

So what does this mean for equities? The answer is: a lot. The return investors seek on equities need to be related to the returns on such supposedly 'safe' assets such as Government bonds.

Because they are riskier (more volatile) than Government bonds, investors demand to earn more from equities to justify owning them. This relationship is known as the 'equity risk premium' -- the excess return investors expect from equities over the returns on risk-free government bonds.

Although this premium cannot be measured directly, since it only exists in investors' minds, it can be inferred from historical experience.

Elroy Dimson of the London Business School estimates the excess return on world stocks over bonds at 3.2 percentage points between 1900 and 2020. The excess is estimated at 4.8 percentage points for Australia; and for the US, at 4.4 percentage points.

There are reasons to believe, however, that the risk premium demanded by equity investors may now be lower than the historical average. Corporate governance has improved dramatically over the last 50 years, while policymakers have smoothed the business cycle through shrewd inflation targeting.

Still beating bonds

But with interest rates cemented close to zero, equity returns need not be outstanding to maintain their relative appeal.

The most striking way to illustrate superiority of equities as an investment class is to compare its earnings yield with the yield on government bonds. Even following their 40% rally since late March, the chart below shows this yield premium on offer from equities at still-near-record levels.

The same point can be made by flipping this comparison into price-earnings multiples. The Australian equity market's current PE of around 20x is often pointed out as expensive and a sign of poor future returns. But this 20x multiple - which implies a yield of 5% -- looks cheap compared against the 55x multiple investors are effectively paying when buying Australia's government bonds that currently yield just 1.8%.

So, although traditional PE measures show equities to be expensive versus their own history, they are still cheap versus bonds.

This is what sets our overall asset allocation preference so firmly in favour of equities. At the same time, it is conceivable that equity multiples could expand further. For example, the heavily quoted cyclically adjusted PE, or CAPE, of the ASX top 200 is not expensive on long-run measures.

Returns that build real wealth

If we accept that equities are one of the few asset class that offers investors scope to grow real wealth going forward, what sort of returns can be expected? 

In our opinion, when you combine earnings growth, dividends, and the boost from franking credits, a 10% annual return from the Australian share market overall should be achievable over the long term. We acknowledge though that over the next few years it might be lower than this.

In terms of raw returns, international equities markets probably will not outpace Australian equities once franking credits are taken into account domestically. Global stocks do, however become competitive on risk-adjusted measures once market diversification and currency impacts are considered.

Some investors may be worrying that equities are overpriced given they are hitting fresh highs. But even though many equity markets are at, or near, all-time highs, we do not see this as an obstacle to further share market gains. Even after record highs, subsequent 12-month returns from equities have generally been strong.

Furthermore, while buying into the market slowly in dribs and drabs (dollar-cost averaging), can help mitigate investors' fears of bad market timing, history suggests that investing all at once into the sharemarket generates higher returns than dollar-cost averaging on average.

Outperforming with stock selection

While equities are still promising strong returns, it is important to remember that at Ophir, internally we target 15% per annum total returns over the long term (5+ years) across all our equity strategies.

That means our investment team is seeking to outperform the market benchmark for each of our funds through stock selection.

This is a hurdle we have more than achieved historically and one we hope that means we can continue to under promise and over deliver.

Funds operated by this manager:

Ophir Opportunities Fund, Ophir High Conviction Fund (ASX: OPH), Ophir Global Opportunities Fund