High Conviction Fund - January 2022 Update

Updated: Mar 11




OBJECTIVE

We invest in and actively engage with companies that have superior fundamental prospects but are priced at a discount relative to inherent value, usually resulting from non-operating, external events driving a flight of investors. We have significantly outperformed the Australian share market over 14 years.


HNG investment value since 2007
*Includes the original vehicle, The Supervised Fund, launched in November 2007 by Supervised Investments Australia Limited (SIAL). SIAL was sold in March 2021 to HGL Limited (trading as Hancock & Gore), and The Supervised Fund was subsequently rebranded as H&G High Conviction Fund. The strategy of investing in micro capitalisation listed equities has remained consistent.

Performance to 31 January 2022 (after all fees)

1 Month

Last Quarter

Financial YTD

Last 12 months

Since inception (1 Nov 2007)

H&G High Conviction Fund

-0.7%

-2.5%

7.9%

15.6%

8.3% p.a.

ASX Smal Ordinaries Accumulation

-7.5%

-6.5%

-2.4%

8.1%

2.0% p.a.


Key Contributors to performance during January 2022


MONTHLY COMMENTARY

Dear unitholder,


The H&G High Conviction Fund managed to weather the storm in January 2022, a month that heralded the equity market’s worst start to a year since 2016 (based on the MSCI World Index). As we wrote about in December’s edition of The Markets in Three Charts, in the second half of 2021 we began adjusting the Fund’s portfolio to account for market risks, including implementing an S&P 500 put option hedging strategy, increasing our cash allocation, and trimming speculative stocks.


Po Valley Energy shares rose by 12% during January, despite no material news. Having joined the company’s board in late 2021, we are working closely with the existing directors and management to help Po Valley realise the inherent value of its natural gas fields in Italy while Europe faces an energy crisis.


Complii FinTech Solutions shares increased by 29% during January as the company released a positive December 2021 quarterly report, posting meaningful free cash flow for a fintech business of its size. As outlined in the January edition of the Markets in Three Charts, we believe Complii has the potential to be a significant player in the ever-growing financial compliance sector. Given its potential for long-term growth and current revenue run-rate of around $10m per annum, we believe it is attractively priced at its current enterprise value of $35m.


Bisalloy Steel Group shares fell by 8% during the month despite no material news. We believe the stock is considerably undervalued given its current price-to-earnings ratio is 8x and the company has guided for increased profitability in FY22. We have taken the opportunity presented by this market weakness to increase our position in the company’s stock.


Kiland shares fell by 7% in January, also on no material news. During the month, the company announced a positive step towards the remediation of its burnt timberland into farmland with the appointment of AAG Investment Management (AAGIM) as property manager of Kiland’s estate. AAGIM, which made a takeover bid for Kiland’s assets in May 2021, will be responsible for removing trees and stumps and preparing the land for agricultural activities.



TOP 8 STOCK POSITIONS

KEY PORTFOLIO METRICS

% OF FUND EQUITY HOLDINGS


FUND INFORMATION

Fund name

H&G High Conviction Fund

Investment Manager

H&G Investment Management Limited

Fund inception

November 2007 (relaunched April 2021)

Fund pricing

Monthly

Fund type

Open-end unit trust

Investor eligibility

Wholesale and sophisticated investors

Trustee

Equity Trustees

Custodian and sub-custodian

Mainstream Fund Services and JP Morgan

Auditor

Ernst & Young

Management fee

1% plus GST p.a. + fund costs capped at 1% plus GST p.a.

Performance fee

20% of benchmark outperformance, with a high watermark

Benchmark

5% p.a.

Buy/sell spread

0.4%


DISCLAIMER

Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Trustee for H&G High Conviction Fund. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).

This monthly performance report has been prepared by H&G Investment Management Ltd (ACN: 125 580 305; AFSL: 317155) to provide you with general information only. In preparing this report, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither H&G Investment Management Ltd, Equity Trustees nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Information Memorandum before making a decision about whether to invest in this product.