Transcription of Finance News Network Interview with Ausbil Active Extension Fund Director, Equities, John Grace
Lelde Smits: Hello I’m Lelde Smits from the Finance News Network and joining me from Ausbil is Director, Equities, John Grace. John welcome back.
John Grace: Good to be here.
Lelde Smits: John, you’re the Manager of Ausbil Active Extension Fund. Can you start by introducing the Fund?
John Grace: Sure. The Active Extension Fund is in fact a long/short Fund, or typically called the 130/30 Fund. So what it really does is extenuate the Ausbil Active Equity Fund and add to the positions on the long side, funded by some short positions.
Lelde Smits: Could you outline, what is the Fund’s objective?
John Grace: The Fund’s objective is to outperform the underlying benchmark which is the S&P/ASX 200. And you do that by a greater exposure on the long side funded by some short positions, i.e. the 130/30 composition. And the objective is to outperform on the long term basis, with a slightly higher risk profile.
Lelde Smits: For people not familiar with long/short Funds, what are the benefits?
John Grace: The underlying benefits are really, you’re accentuating managers underlying stock picking skills, because you’re putting more of the cash raised from the short positions, into the manager’s best ideas. And with that benefit, you’re also getting some additional franking credits. So you’re getting better exposure to the long ideas of the underlying manager.
Lelde Smits: What are the risks of a long/short Fund?
John Grace: The risk in shorting stocks is that there is potential corporate action. So you’re short a stock, i.e. sell a stock which you don’t own and you’ve had to borrow that stock. There’s a potential corporate action, i.e. takeover on that stock which means there’s upside. And you have to buy that stock back at a higher price later, meaning loss for the Fund. So in Ausbil, we have some stock loss strategies within our portfolio construction to mitigate that risk.
Lelde Smits: John, how has the Ausbil Active Extension Fund performed over the past year?
John Grace: The Fund’s had a good year. The market’s been up about 13 per cent for the year to the end of March 2014 and the portfolio is in fact, double that performance in the market.
Lelde Smits: Congratulations, so what are some of the Fund’s biggest positions on the long side?
John Grace: The two biggest positions are Macquarie Bank [Macquarie Group (ASX:MQG)] and BlueScope Steel Limited (ASX:BSL). Macquarie Bank we really like for its leverage to improving financial conditions and the M&A cycle. And for BlueScope Steel it’s for the improving construction cycle on a global scale, particularly in Asia and Australia.
Lelde Smits: On the short side, could you list a couple of stocks you’re short and why?
John Grace: We’re short a couple of consumer staple stocks, specifically Coca Cola Amatil Limited (ASX:CCL) and Metcash Limited (ASX:MTS). The reason is that we are very bullish on the upside of the domestic economy, i.e. cyclical stocks. And we’re using consumer staples, i.e. defensives as short positions, of which Coca Cola and Metcash are those.
Lelde Smits: What were some of the Fund’s biggest contributors to your recent performance?
John Grace: On the long side, positions in Fairfax Media Limited (ASX:FXJ) and Lend Lease Group (ASX:LLC) have performed particularly well for the Fund. Fairfax is a strong cost out story and management is executing well on that strategy. And for Lend Lease, it’s a global construction infrastructure play and both of those cycles are improving.
Lelde Smits: Moving to the market John, we’ve seen the banks report some record first half results, what’s your assessment?
John Grace: The bank results have been very, very solid. We can see upside from here as the economy improves, which means bank’s will continue to write loans both at a consumer and business level, which will then drive continued earnings growth. And therefore, there is upside potential in this banking sector.
Lelde Smits: Finally John, the Australian Equity market remains close to record highs. How much room do you think there is to extend gains from here?
John Grace: Further gains from here really rely on an improving economy, both domestically and globally. And companies will respond to that with improving earnings in that growth profile. So there is upside to the market, but we really need earnings to deliver from here.
Lelde Smits: John Grace, thank you for the update and the introduction to the Ausbil Active Extension Fund.
John Grace: Thanks for your questions Lelde.
Ends
MQG Price at posting:
$60.00 Sentiment: None Disclosure: Held
(20min delay)
