AFIC has revealed its $48m overseas shares holdings

The near 100-year-old fund has revealed for the first time just what makes up its $48m international stock picks.

AFIC chief executive Mark Freeman will use the investor’s traditional approach when investing on Wall Street. Aaron Francis/The Australian

Australian Foundation Investment Company, the near 100-year-old investor that embodies the best qualities of Melbourne establishment conservatism, has revealed for the first time its $48 million international shares portfolio to feature global tech stocks like Alphabet, Amazon, Netflix, Paypal and Facebook.

The Collins Street-based listed investment company had also picked up $1.7m worth of Alibaba shares, and then promptly sold down most of the stake in the Chinese online marketplace in the wake of fresh crackdowns by the Chinese Communist Party on conspicuous wealth including the mysterious disappearance - and reappearance - of Alibaba founder Jack Ma.

AFIC, founded in 1928, has also gathered a collection of traditional industrials and blue-chip tech stocks too.

Featured in its international shares list are stalwart US companies such as Apple, Costco, Home Depot, McDonald’s, Nike, Visa and Microsoft along with French cosmetics giant L’Oreal and luxury brands owner LVMH Moet.

There is a smattering of food and beverage companies, with investments in Chipotle, a Mexican themed fast-food chain, PepsiCo and Starbucks.

The full list of its international shares, mingled in with AFIC’s traditional large exposures to Australian blue-chips such as CBA and Woolworths, was released as part of the investor’s annual report and is the forerunner to what could be a new listed investment company offshoot that specialises in international equities.

It is the first time AFIC has publicly disclosed its international stock picks.

At its full-year results in July the $11 billion AFIC said it was considering launching a low-cost international share fund that will not charge performance fees or bonuses, potentially challenging the rich fee-laden fiefdoms run by the likes of Magellan and Platinum.

It had invested $48m in international shares to run a model overseas share portfolio for the last 18 months that it said had outperformed the market.

AFIC chief executive Mark Freeman said the company had hired three analysts to work exclusively on its growing international shares portfolio, with it not deviating from its traditional AFIC approach to investment when scouring overseas markets for investment ideas.

Australian Foundation Investment Company chief executive Mark Freeman. Picture: Aaron Francis/The Australian

Whether it was a $1.587m investment in streaming service Netflix, $2.08m in Alphabet, the owner of Google, or $1.523m in global food manufacturer Nestle, Mr Freeman said AFIC was sticking to its fundamental investment strategy that it had followed in the Australian equities market for decades.

“A lot of these stocks we take back to our process and we just apply the ‘AFIC way’ of investing and what we look for in a quality company, and one of them is a company that has a leadership position in what they do and we see this from an attractive return on capital.

“We look for companies that invest in their company, to sustain a competitive advantage and grow the business with good management teams.

“We like these large stalwart companies, that have very strong market positions very high return on capital, a very strong balance sheet and still an ability to grow.’’

This meant high-flying technology stocks on extremely stretched valuations, especially when compared to the type of industrials that populate AFIC’s Australian industrial shares portfolio, can still be attractive to the conservative investor.

“They (US tech stocks) demonstrate a high return on capital, which is what we like, but those have very strong market position run by great people. It (the portfolio) is not driven by tech, it’s driven by the attractive attributes we look for in any company it is just that when we stretch out into a global context rather than Australia there are more large technology companies that fit the attractive attributes we want rather than here in Australia.”

Traditionally AFIC’s 160,000 shareholders have been attracted to the listed investment company for its growing yield and consistent dividends, but with US stocks not well known for high dividends and Australia almost alone in the use of valuable franking credits its journey into the US market has led it to fast-growing, quality tech companies.

AFIC’s largest tech investments, according to the list provided in its 2021 annual report, is $2.549m invested in Microsoft, followed by Alphabet ($2.08m), Facebook ($1.645m) and Amazon ($1.599m).

There is also a selection of biotech and health companies such as Novo Nordisk, Sonova and Roche.

AFIC did report a large holding in China’s Alibaba, owning $1.71m worth of stock in the online company. But Mr Freeman said the investor had since sold down most of its holding due to sovereign risk issues flaring up in China flowing from recent government policies such as outlawing ‘for profit’ private education businesses.

“Fair to say we have actually reduced our holding substantially since we put out the portfolio. There have been a number of factors around that, sovereign risk, we reduced it quite significantly but we have decided to keep a small position and sort of reassess it, we didn’t exit it.”

Other overseas stocks AFIC has selected for his portfolio include uniforms and workwear provider Cintas, hospitals group HCA Healthcare, Accenture, Estee Lauder, Mastercard and Unilever.

Mr Freeman said there was no set date as yet when AFIC could launch and float its international shares listed investment company.

“At the earliest it would be at least another year away, a lot of other people would rush it to market, but we just want to make sure our processes and frameworks and everything is working.

“If we are going to take money from investors we have just got to be confident we are going to give our shareholders a good experience.”