VGI changes tune on short selling as fund bounces back from ugly 2020 results

Listed fund VGI has reported a dramatic turnaround in profits after missing the market recovery in 2020, but the valuation gap remains.

VGI partners has waded back in to short selling individual stocks, as Robert Luciano’s fund has turned its return around after a crushing 2020. Picture: Jane Dempster

Robert Luciano’s VGI Partners has pulled itself out of the doldrums and posted a turnaround from last year, with the fund signalling it was targeting short positions as market conditions shift.

The result saw VGI deliver a portfolio return of 25.6 per cent, net of fees and before tax.

The $153m profit comes after the company posted a $45.47m loss last year. Net tangible assets per share have risen 18.5 per cent from $2.27 to $2.69.

It comes in the wake of VGI being targeted by Geoff Wilson of Wilson Asset Management.

In June Mr Wilson said the launch of the WAM Strategic Value fund would take a “cheap” stake in VGI, among other listed investment companies trading at a discount.

“Rob Luciano, great fund manager, we’re able to buy exposure to him at 85c in the dollar, great opportunity,” he said.

The stock has been boosted in recent months by a share purchase plan in response to the widening gap between assets and market value. The buyback, which saw 6 per cent of shares purchased, has been extended until September 1, 2022. Mr Luciano noted in August last year the company had delivered an “unacceptable” March quarter, after completely missing the March bounce back from the bottom of the pandemic crash.

VGI has been savaged by critics for its high costs and failing to deliver for shareholders.

In April the company appointed ex-BlackRock Asia-Pacific head of index equity Jonathan Howie as chief executive.

In his letter to shareholders VGI chair David F Jones said the company would pay all allowable operating costs for the VG1 fund.

“In FY21 this amounted to over $781,000, and included ASX and ASIC fees, audit costs, legal and tax advice costs and any fees charged by the Company’s Fund Administrator,” he said.

A 5.5c final dividend was declared, following an interim 1.5c dividend.

Mr Jones noted in his shareholder letter the company had changed its thinking on short selling, noting certain single stock shorts were “becoming more attractive again”.

VGI’s net equity exposure was 89 per cent as of June 30, 107 per cent long investments less 18 per cent short positions.