H&G High Conviction (ASX:HCF) - December 2023 Report
Highlights 8.0% pre-tax total return for the first six months of FY24 Sold stake in Kiland to crystallise a 29% return for investment...
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Investment Philosophy
H&G High Conviction invests on a multi-year horizon in a concentrated portfolio of ASX-listed microcap companies, a niche segment of the market.
Microcaps are a segment of the market that is overlooked by the majority of institutions due to size, meaning frequent inefficiencies in security prices and opportunities to buy stakes in businesses at attractive valuations.
By insisting on paying low prices for good value in companies with aligned management and creating a margin of safety via thorough research and informational edge, HCF targets double digit risk-adjusted returns over the market cycle.
As a key differentiator, HCF actively engages with investee companies. This is crucial for microcaps, where success is heavily reliant on a small group of key people. We leverage this strategic approach to help unlock the full value of management teams and core assets.
Our primary goals are to minimise capital loss and focus on long-term capital growth and income from portfolio companies.
Includes the original vehicle since inception, H&G High Conviction Fund, launched in November 2007, and the pre-tax performance of H&G High Conviction Limited from 23 June 2022. The strategy of investing in micro capitalisation listed equities has remained consistent.
Investment Team
Our History
In June 2022, H&G High Conviction Limited was formed and acquired its initial investment portfolio of cash and ASX-listed securities in exchange for shares in H&G High Conviction Limited.
H&G High Conviction Limited has appointed H&G Investment Management Ltd as its investment manager and adopted the investment strategy described below.
Approximately 75% in value of the initial investment portfolio was acquired from the H&G High Conviction Fund. The H&G High Conviction Fund was launched in November 2007 by the Manager (then named 'Supervised Investments Australia Limited').
H&G Investment Management Ltd has been the investment manager of the H&G High Conviction Fund since its inception and over this period has adopted a fundamentals-based investment strategy focused on investment in micro capitalisation companies, which is consistent with the company's investment strategy described below.
Historical Performance
Performance to 31 December 2023 | 3 Months | 6 Months | 12 Months | Since IPO pa | 3 Years pa | 10 Years pa | Since Inception pa |
|---|---|---|---|---|---|---|---|
H&G High Conviction Pre-Tax Return, Net Of Fees | 6.5% | 8.0% | 13.9% | 18.9% | 13.6% | 9.5% | 7.8% |
ASX Small Ordinaries Accumulation Index | 8.5% | 6.4% | 7.8% | 7.6% | 0.9% | 6.0% | 1.2% |
Outperformance | -2.0% | 1.6% | 6.1% | 11.3% | 12.7% | 3.5% | 6.6% |
Historical performance is not a guide to future performance. Performance data is pre tex, after all fees, as applicable, includes the original vehicle, H&G High Conviction Fund, launched in November 2007, until 23 June 2022, and the performance of H&G High Conviction Limited since 23 June 2022. Performance of H&G High Conviction Limited is calculated monthly as profit before taxation divided by opening net assets (adjusted for capital movements and dividends during the month, if any). IPO returns calculated from 31 October 2022, the closest balance date to listing. Past performance is no guarantee of future returns.
Have any questions about the company's holdings, strategy & policies?
We encourage new, existing and prospective investors to book an appointment to access the portfolio management team.
Our Strategy
The company invests its capital in companies with a significant discount in the share price relative to perceived inherent value.
These companies have superior fundamental prospects, yet negative external events have attracted a flight of investors.
The company seeks to assist investee companies to demonstrate, grow and realise their inherent value.
What We Look For
Conservative
Balance
Sheet
Trading
Below Intrinsic Value
Sub
$300M
Market Cap
Board and Management
Own > 10%
Catalysts to Realise Inherent Value
Dividend/Distribution Policy
The Company intends to pay dividends to Shareholders, where and when available, from the dividends received from underlying Portfolio Companies, and a portion of realised profits from the sale of securities in Portfolio Companies, provided that the Company has sufficient profit reserves and franking credits, and it is within prudent business practices to do so.
As the investment strategy of the Company includes long term capital growth through investments in ASX-listed companies with a market capitalisation of up to $300 million, it is possible that dividends may be low (or nil) in any given period. In particular, there is a risk that dividends received from underlying Portfolio Companies may be low (or nil) during initial investment years due to the nature of the Portfolio Companies and their stage of commercialisation, which may impact on the Company's ability to pay dividends to Shareholders and the size and level of franking on any such dividend.
However, the amount of any dividend will be at the complete discretion of the Board and will depend on a number of factors, including expectations of future earnings, capital requirements, financial conditions, future prospects, laws relating to dividends and other factors that the Board deem relevant. It is the current policy of the Board that all dividends paid to Shareholders will be franked to 100% (or to the maximum extent possible without incurring liability to franking deficit tax). However, no assurances can be given by any person, including the Directors, about the payment of any dividend and the level of franking on any such dividend.
Current Structure / Organisation
*charged by the investment manager, H&G Investment Management Limited
Fees*
Management Fee
1% of gross asset value plus GST p.a. paid monthly in arrears
Performance Fee
20% of pre-tax benchmark outperformance, with a highwater mark, paid semi-annually
Benchmark
5% P.A.
Our Goals
The company is aiming to provide its investors with access to:
-
a highly experienced and active investment manager with expertise and a strong track record in ASX-listed equities;
-
a concentrated portfolio of approximately 20 – 25 investments in ASX-listed micro capitalisation companies (with market capitalisations under $300 million at the time of the initial investment);
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an actively managed, fundamentals-based investment approach with a focus on capital preservation, long term capital growth and income from its investments; and
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targeting attractive performance of at least 10% per annum (after all fees).
Important Information & Documents
Share Registry
Registry Direct Limited
PO Box 18366
Collins Street East
Melbourne VIC 8003
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