Transcription of Finance News Network Interview with K2 Asset Management Holdings Limited (ASX:KAM) Head of Equities, David Poppenbeek
Carolyn Herbert: K2 Asset Management Holdings Limited (ASX:KAM) is an Australian based equity fund manager focused on delivering a strong and well-implemented investment strategy. K2’s funds are available for institutional and retail investors and can be accessed directly, or via a range of investment platforms.
I’m Carolyn Herbert and joining me at the CEO Sessions in Melbourne is the company’s Head of Australian Equities, David Poppenbeek. David, welcome back.
David Poppenbeek: Thank you for having me.
Carolyn Herbert: So for those investors who aren’t familiar with K2 Asset Management, can you tell us a bit about the company, who’s behind it and what are your areas of expertise?
David Poppenbeek: About 16 years ago, Campbell Neal and Mark Newman founded K2 Asset Management. Today we’re a listed company; the market value sits at about $150 million. And importantly, staff, directors and related parties, still own about 70 per cent of the company. Our area of expertise is that we invest in listed companies all around the world.
Since 1999, K2 portfolio managers have made about 70,000 investments in 30 different markets, all around the world. We’ve got nine dedicated portfolio managers, who each have about 17 years of direct equity market experience. And in total, we currently manage about $800 million of funds.
Carolyn Herbert: How have the funds performed over the past year?
David Poppenbeek: The funds have performed quite well. For the full year to June 2015, the average K2 fund has delivered 24.5 per cent return for its clients. And that’s after fees. In regards to relative performance, our Fund outperformed their underlying market by on average, about 9.5 per cent for the year. So it was a pretty good year.
Carolyn Herbert: Has this been reflected in funds under management increasing?
David Poppenbeek: Yes it has. Just over the last three months, we’ve seen inflows of around $60 million. And importantly, about 80 per cent of those inflows have been into our global strategies.
Carolyn Herbert: What success are you having with self-managed superfunds?
David Poppenbeek: Self-managed superfunds is a really important avenue for us, it’s where the growth is. If we look at the marketplace for self-managed superfunds, over the last decade, the average self-managed superfund’s actually doubled in size. And has currently got assets in excess of $1 million. Another thing is that over the last 10 years, there have been 270,000 new self-managed superfunds that have been created.
So currently in Australia, there is about 550,000 self-managed superfunds, so it’s a very important channel. And for us, we’ve got a number of these self-managed superfunds that are actually direct investors in K2 Asset Management, and also direct investors in our Funds.
Carolyn Herbert: I see you’ve recently listed the K2 Global Equities Fund (ASX:KII). Why did you decide to list the Fund and who’s it aimed at?
David Poppenbeek: We decided to list the K2 Global Equities Fund, because we saw that Australian superannuation funds weren’t investing directly in international equities. Less than one per cent of self-managed superfund assets are actually invested directly offshore. So it’s not that the self-managed superfunds are actually against equities, they own a lot of Australian shares. In fact, the average self-managed superfund has over 30 per cent of its assets invested in Australian companies. That might have to do with a bit of a home market bias.
We’ve all had countless interactions with companies like Woolworths Limited (ASX:WOW) and banks like the Commonwealth Bank of Australia (ASX:CBA). But we’ve had limited interaction with retailers like Amazon Inc. (NASDAQ:AMZN) and banks like HSBC. So we feel that KII actually provides self-managed superfunds, with direct access into our best ideas. Also we’re listed on the ASX, so it’s available during the trading times of the ASX. And anyone can buy KII through their stockbrokers.
Carolyn Herbert: How does this differ from other listed investment companies on the ASX?
David Poppenbeek: Most listed investment companies tend to be closed-end funds. Money’s raised upfront and at the time of listing, there’re a fixed number of units that are available to be sold. Once listing commences, then the price of the LIC tends to be determined by the market. If there is more sellers than buyers, then naturally the price of the LIC can start to decline. If the selling starts to intensify, then you can have a situation where the price of the LIC actually trades at a discount, to the net asset backing.
KII on the other hand, is an open-ended Fund. And what that means is that we provide constant liquidity, within one per cent of the live value of the portfolio. So in essence, the value of the portfolio determines the price of KII, not the market.
Carolyn Herbert: What benefits does this provide investors in terms of diversification?
David Poppenbeek: KII is our only Fund that actually has all nine of our portfolio managers contributing to its construction. The portfolio managers can invest anywhere in the world and the Fund, tends to reflect our very best ideas. So it’s very much unconstrained. The other important thing is that if our portfolio managers can’t actually find attractive stocks to invest in, then we can be patient and we can hold cash.
But conversely, if markets look poor and we think they’re in for sustained downward trend, then we can actually short sell. And what that means is that KII actually has a lot of levers to pull and just by that whole structure, offers a lot of diversification.
Carolyn Herbert: David now to your financials, you’ve just reported your full year results for FY2015. What were the highlights?
David Poppenbeek: The highlights for K2 Asset Management this year was our revenue actually grew by 9.3 per cent. That then translated into net profit growth of about 14.8 per cent, and allowed us to pay our shareholders a dividend of 8.5 cents per share, which was fully franked. And at present our share price is around 70 cents a share.
Carolyn Herbert: David finally, what’s your outlook and focus for FY2016?
David Poppenbeek: We’re relatively optimistic about the year ahead. We’re finding a lot of attractively priced companies all around the world. And we’re finding these valuations stack up very well, against other competing asset classes. In regard to our focus for the year ahead, we want to continue to find more like-minded investors. We want to continue to grow into the self-managed superfund channel.
Carolyn Herbert: David Poppenbeek, thank you for the update.
(20min delay)
