The Listed Investment Company earned 20c from its investments during the year but announced an unchanged 24c full-year payout (excluding special dividends) to its legion of mom and dad investors.
What’s more, managing director Mark Freeman, says AFIC can use reserves to do the same again in future years if markets continue to struggle.
With analysts estimating that wider dividend payouts this season could drop 20 per cent and the big banks disappointing retail investors with their “dividend deferrals”, the discretion of the better run active funds to smooth dividend payouts from accumulated capital gains might be a powerful differentiation in the months ahead.
“It’s some rainy day money and those days have come around,” says Mark Freeman, managing director of AFIC, which reported a 40 per cent profit drop in net profit to $240m.
Nonetheless, the fund’s portfolio performance in the year to June showed a total return including franking down 3.1 per cent compared to a 6.6 per cent drop on the ASX 200 accumulation index on the same basis.
The Melbourne fund, where strategy has evolved to focus on total returns as much as a previous concentration on dividend payments, has clearly captured many of the major thematic changes in the local market with an exit from shopping centres and steady loading up of technology related stocks.
During the term, the fund sold its holding in the Scentre shopping group marking the end of holding in a sector which Freeman says is facing “structural tailwinds”.
In the year to June 2019, AFIC had announced the sale of its stake in Unibail-Rodamco (which held the former Westfield Group).
According to the AFIC result statement: “Companies in the portfolio that contributed strongly to relative returns through the 12-month period were CSL, Wesfarmers, Fisher & Paykel Healthcare, ResMed, James Hardie Industries, Xero, NextDc and CarSales.”
A close look at the fund holdings shows it has now jettisoned two of the three main buildings stocks on the ASX - exiting Boral in 2019 and Adelaide Brighton in the past 12 months.
Also dropped from the AFIC portfolio in recent times have been stocks such as AMP, Suncorp, Treasury Wines and Perpetual.
The largest and oldest of the Listed Investment Companies, announced three new stock holdings: Altium, the electronics software company, investment platform NetWealth, and Ryman Healthcare an aged care specialist.
AFIC also continued to accumulate stock in Goodman group and Telstra (a return to favour here for the telco which the fund is now buying for income).
With widespread apprehension for the forthcoming earnings season which starts this week with results from Rio Tinto, Freeman is reluctant to make forecasts but expects major stocks that disappoint will be sold off sharply.
Last week, the insurance company IAG endured a very sharp sell off after it coupled poor results with downbeat outlook statements.
Freeman describes valuations in the local market as “full, but not over the top”.
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