H&G High Conviction Fund - February 2022 Update

Updated: Apr 7


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.


*Includes the original vehicle, The Supervised Fund, launched in November 2007 by Supervised Investments Australia Limited (SIAL). SIAL was sold in March 2021 to Hancock & Gore Limited, and The Supervised Fund subsequently rebranded as H&G High Conviction Fund.

The strategy of investing in micro capitalisation listed equities has remained consistent.

Performance to 28 February 2022 (after all fees)

1 Month

Last Quarter

Financial YTD

Last 12 months

Since inception (1 Nov 2007)

H&G High Conviction Fund

0.1%

-2.2%

8.0%

10.0%

8.2% p.a.

ASX Small Ordinaries Accumulation Index

0.0%

-6.2%

-2.4%

6.7%

2.0% p.a.

Key Contributors to performance during February 2022


MONTHLY COMMENTARY

Dear unitholder,


Po Valley Energy shares rose by 14% during February, despite no material news. We continue to work closely with the directors and management of the company to help Po Valley realise the inherent value of its natural gas fields in Italy while Europe faces an energy crisis. The price of natural gas in Italy has increased by 946% over the last twelve months. Despite the difficult regulatory environment in Italy there is increasing political support to boost domestic production and avoid reliance on Russian gas, which accounts for 40% of local consumption.


Bisalloy Steel Group shares increased by 9% during February as the company released its half-yearly report, posting a 132% increase in earnings per share over the last year and paying the first interim dividend in the company’s history. We believe the stock remains very cheap at a trailling-twelve-month p/e ratio of 6x and dividend yield of 8%. During the month, we took advantage of the stock’s depressed prices to increase our holding in Bisalloy by 0.5% of the Fund.


iSelect shares fell by 19% during the month following a weak half-yearly report, which showed a reduction in revenues and a negative short term outlook due to the lower than usual increase in health insurance premiums this year, which will result in lower demand for policy comparisons


Hillgrove shares fell by 8% in February despite no material news. We believe the company has an exciting six months ahead as it prepares to commence underground mining in the context of soaring copper prices.


MARKETS

We are monitoring economic conditions closely as ever and believe the current market turbulence will continue to evolve over the coming months. To that end, we expect opportunities for investments in undervalued companies to present themselves as the year progresses and are happy with our 29% cash weighting. We maintain our protection against market volatility with put options on the S&P 500.


As ever, please don’t hesitate to reach out to us with any questions on the Fund.


Sincerely,


The team at H&G Investment Management



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.