Transcription of Finance News Network Interview with Northward Equity Income Fund, Fund Manager John Moore
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Northward Equity Income Fund is Fund Manager, John Moore. John welcome back to FNN.
John Moore: Thank you, great to be back.
Lelde Smits: John we’ve seen a lot of volatility over the past three months. How has this aided the Fund?
John Moore: Yes we have seen a pickup in volatility over the last few months. I think that’s actually helped us generate more option income, through our option selling. So that’s a good thing for the Fund and that helps cushion the downside. We also have in place our index hedge, which helps smooth out that increasing volatility and lower that overall.
Lelde Smits: The Fund prioritises quality names with strong earnings expectations. Now with Commonwealth Bank of Australia (ASX:CBA) sold down significantly over the quarter, have you used this as an opportunity to buy?
John Moore: Yes we did use this as an opportunity to buy stocks over the quarter and when the market did selloff, we added to our bank positions. We added to Australia and New Zealand Banking Group (ASX:ANZ) and also National Australia Bank Limited (ASX:NAB), during the selloff. We additionally also added to ResMed Incorporated (ASX:RMD), Telstra Corporation Limited (ASX:TLS) and also AMP Limited (ASX:AMP) as well.
Lelde Smits: We last spoke in the middle of August’s reporting season. With reporting season now wrapped up, what themes did you notice emerging since?
John Moore: That’s a good question because I think last time we did discuss some of those themes. And those themes were the same sort of main ones, which was capital management which played out in stocks like CSL Limited (ASX:CSL), Telstra, Wesfarmers Limited (ASX:WES), Insurance Australia Group Limited (ASX:IAG) and Suncorp Group Limited (ASX:SUN). And the other themes were domestic activities still quite subdued, the retail sectors still mixed. Stocks that were exposed to offshore earnings did fairly well, like Ansell Limited (ASX:ANN), Brambles Limited (ASX:BXB) and Amcor Limited (ASX:AMC). But the strong firms with high P/Es (price/earnings ratio) continue to do well, which is CSL and IAG. So they continue to do well.
Lelde Smits: Which stocks have performed well for you over the period, and which have you sold since?
John Moore: Lend Lease Group (ASX:LLC) was a good performer for us over the quarter. Telstra and the banks were additionally also good performers for us over the quarter. Our index hedge was also additionally a strong performer. Over the quarter, we reduced our Rio Tinto Limited (ASX:RIO) position as our total return expectations had been met. We also reduced our Ansell position as well, because our total expectations have been met.
Lelde Smits: Also when we last spoke you were overweight the telcos and underweight the banks. How have your positions changed since?
John Moore: Our Telco position still remained overweight. Our bank position as we mentioned before, we actually up weighted into the selloff and we’ve now neutralised that. So we’ve actually neutralised that into the recent rally, so it’s back to more of a neutral weight.
Lelde Smits: The Fund aims to deliver between eight to 10 per cent income per annum. How did the Fund perform over the September quarter?
John Moore: Well, pleasingly we met our income objectives and we have a running yield of 8.38 per cent. And when we include franking credits on top of that, it just gets to over 9.5 per cent. So that’s pleasing from our perspective.
Lelde Smits: Finally John as the calendar year wraps up, what major things do you think will impact the market in the year ahead?
John Moore: I think theme for 2015 is interesting as we look forward. I think we’ll focus on timing around Fed rate hikes and I think also volatility, which we’ve just touched on over the last quarter. I think the market has been somewhat complacent around volatility, and I anticipate we’ll see a pickup in volatility next year. So that will be a theme.
Additional themes I think will be around China, around the property market and how that plays out. Whether weakness continues and therefore economic growth, what happens there? Lower commodity prices and also the Aussie dollar, the Aussie dollar continues to be overvalued and capital flows continue to be quite strong. So I think that will be a theme that we’ll watch closely and we still feel that has more room to play out in 2015.
Lelde Smits: John Moore, thank you for the update from Northward Equity Income Fund.
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