Cadence and Magellan struggle while WAM and ALF power ahead

Readers of this blog will know that I’m highly sceptical of the ability of most Australian fund managers. However, a few that I do like are Geoff Wilson of Wilson Asset Management, Justin Braitling and his team at Watermark Funds Management and Karl Siegling at Cadence Capital.

Below is a chart of the relative share price performance of WAM.AX, ALF.AX, CDM.AX and MFF.AX (the last being the Magellan Flagship Fund).

 

As can be seen the best performer was WAM, however, the performance of ALF (the Australian Leaders Fund managed by Watermark) is really the stand out performer.

The reason I say this is because unlike all the other funds mentioned, ALF has a very low net exposure to equity markets because it generally has an almost equal exposure on the long and short side (although this does fluctuate over time).

To have achieved an 11% share price increase while paying out an approximate 6.7% fully franked dividend is very impressive, it’s even more impressive when you consider the significant “insurance” ALF has in place for investors through its short exposure.

ALF has out-performed the All Ords Accumulation Index over one, three, five and seven year periods. And it has done it with far less volatility than the other funds.

Cadence Capital’s performance over the last year has been poor. However, if we were to factor in Cadence’s very high dividend, the overall performance would be better, but still negative. What is probably more worrying that the last year’s performance is the under-performance (against the All Ords) over the last three and five year periods.

Looking through Cadence’s top portfolio positions, we see a 14% exposure to Macquarie Group and also exposure to some of the more crowded American hedge fund picks – Google (Alphabet), Facebook and Gilead Sciences. (I must admit that I had an exposure to Gilead that I was very fortunate to exit with a profit, it’s a truly incredible company, but there appears to be no immediate catalyst to take its share price higher).

A 14% exposure to Macquarie is too much for me, I wouldn’t dream of putting 14% of my own funds into Macquarie.

A look at WAM Capital’s top exposures shows that the very canny Geoff Wilson tends to diversify more than Cadence, his top exposure is only 4% (to Hunter Hall Global Value Ltd).

WAM is also getting a boost on the chart above because it trades at a significant premium to its net tangible assets (NTA) whereas the share prices of CDM and ALF are much closer to their NTAs.

The Magellan Flagship Fund (MFF) has easily been the worst performer out of the four. As it only pays an approximate 1% dividend, it would still have a double digit reduction in value with the dividend factored in.

As I said in a previous article, Magellan benefitted enormously from the devaluation of the Australian dollar from above parity with the US dollar to its current level. It has also benefitted greatly from the US bull market. In the absence of these two factors pushing the share price, MFF should continue to under-perform.

I will continue to watch with interest!