TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH NORTHWARD CAPITAL, CHIEF INVESTMENT OFFICER, SIMON RUTHERFURD
Leila Smits: Hello I’m Lelda Smits for the Finance News Network. Joining me today from Funds Manager, Northward Capital is Chief Investment Officer, Simon Rutherfurd.
Simon welcome to FNN. Could you start by introducing Northward Capital, how long have you been going and what are your funds under management?
Simon Rutherfurd: Northward Capital has been going since November 2007. It’s a long only Australian Equities Fund. We manage about $2.5 billion FUM of which about $100 million is in our retail fund. So it’s a multi portfolio manager. Fund approach - pretty similar to Capital International, of Wellington International Equities which people may be familiar with.
Leila Smits: Okay and what’s your investment style?
Simon Rutherfurd: Style mutual, style - so we own a range of price stocks, value stocks. It’s very much valuation focus and each portfolio manager who manages their own sectors, has their discretion over valuation, approach and technique.
Leila Smits: Thanks Simon, now to the local market and its prospects. What do you think it will take to move the market higher?
Simon Rutherfurd: Well the market is – there’re a couple of things that might move the market higher. And the first one would be some resolution to the sovereign debt issues in Europe and some ECB actions over Greece. And then the other countries such as Italy, so that’s not really answerable in today’s forum because there’s been a lot written about it and it’s a very complex issue. There’s no doubt that Greece is insolvent as a country. It’s just a question of do the Europeans let Greece default, or do they come up with other measures.
The second big catalyst to move the market higher will be a change in the view of the RBA on the strength or, as we’d see it, the weakness in the domestic economy. So that would be a new round of rate cuts.
Leila Smits: Should we get there, where will this lead valuations for the ASX 300 historically?
Simon Rutherfurd: Well historically the market is quite cheap right now. The forward P/E is 12 times on the market, the bond yield earnings yield differential is as low, you know as it’s attractive, as it’s been for quite a long time. You’ve also got the dividend yield of the market is over 150 basis points higher than the 90 Bank Bill’s rate currently. So it’s either 5.5% versus 3.6% being, I think over 90 days, so that’s very attractive by historical standards. So the market is very cautious in terms of pricing of future growth.
Leila Smits: You mention you employ a value driven sector portfolio management approach. What does this mean on a daily basis for your fund
managers?
Simon Rutherfurd: Yeah, I’d stress it’s not a value fund but it’s a valuation focussed approach. So we do own growth stocks. In the Fund we will own yield stocks and term special situation turn-around stocks. So the focus in terms of the portfolio managers is to find the most attractive – attractively valued companies within their sectors on a risk adjusted basis.
So some companies may be more attractive for our portfolio if they’re say, 30% undervalued than say a 50% undervalued stock for example, which carries a lot more risk. So we’re always conscious of adjusting for that risk in terms of our valuations in terms of growth rates, likely market share wins, leadership in an industry.
Leila Smits: And which sectors are you overweight and underweight?
Simon Rutherfurd: We’re overweight materials and industrials and we’re underweight financials, REITs and Telcos.
Leila Smits: How often do weightings change and what are the catalysts for changing weightings?
Simon Rutherfurd: Well there’re quite a few factors that go into changing the weightings. There’s clearly a lot of uncertainty globally and in Europe, and a fairly tepid recovery in America. The economic recovery is stuck in first gear there. And then there’s what happens in China and their attempts to slow down their economy and to curb inflation, so they all go into the mix. And then we’ve got the domestic economy which is very, very I guess cautious, in terms of consumer spending at the moment. Very low credit growth, quite an unusual environment.
And then we’ve got strong areas of the economy like the resources, you know resources economies in Western Australia and Queensland say. They all go into the mix, so - but we’ve had those settings all year, we’ve just changed some of the components I guess, within them. So within the materials we have an overweight to soft commodities. We have an overweight to packaging in terms of Amcor which is one of our largest overweight positions in the Fund.
So it’s not all just about resources I guess. If you set out our material overweights this, we also have overweights Newcrest which is - we viewed Newcrest as not a play on the resource cycle, it’s a play on foreign currency on certainty and printing. You know certainty on how much more money the FED’s going to print in the US.
Leila Smits: Thanks Simon. Now to your retail Australian Equity Trust. Is it run along the same lines as the Institutional Fund?
Simon Rutherfurd: Yes, it’s the same portfolio. It’s run exactly the same essentially, so it has about 45 stocks, it has the same overweights, it has the same sector overweights and underweights. And it’s similar to all our other institutional clients’ portfolios.
Leila Smits: And is the Trust fully invested or close to it?
Simon Rutherfurd: About 96% invested.
Leila Smits: So what are your biggest positions and the best performers over the last year?
Simon Rutherfurd: Okay our biggest positions in the Fund are Challenger Financial Services Group, Lend Lease, Transurban, QR National, Newscorp. And the best performers for the last year have been obvious performers, Equinox Minerals which got taken over by Barrick Gold, so that’s very successful. Transurban has been one of our best performers over the year. Challenger Financial Services, Lend Lease, Macquarie Airports, Brambles.
Leila Smits: Finally Simon after a year of heightened risk aversion, what do you think 2012 will be like?
Simon Rutherfurd: I think the market can definitely move higher next year if you get some better resolution on some of the uncertainty which has been impacting consumers and investors.
Leila Smits: Simon Rutherfurd thanks for the introduction and good luck with the next quarter.
Simon Rutherfurd: Thank you
ENDS
CGF Price at posting:
$4.27 Sentiment: None Disclosure: Held
(20min delay)
