Takeovers: What would “The Gambler” do?

March 14th, 2016

Analysing the lyrics to country music songs can strangely provide insight into managing money and in particular in dealing with the game theory that investors must analyse when faced with a takeover offer. Recently we have been receiving quite a few requests from clients about the takeovers of Asciano and Investa Office Trust asking about what to do in various takeover situations.  In this Kenny Rogers themed piece we are going to look at the different kinds of takeovers and the strategies investors should employ when a stock they own receives a takeover bid; namely “hold ‘em”, “fold ‘em” and know when to walk away and know when to run”.

Read more here.

Idiot Proof Companies?

March 7th, 2016

I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.” W. Buffett

Investors are constantly forced to assess the sustainability of company business models when looking at adding new stocks to their portfolios or critically evaluating the companies that they currently own. Indeed an institutional investor may be exposed to the management teams from several hundred companies in any given year. Amongst those companies they will find large variations in both management and business model quality. During bull markets with supportive business conditions it can be quite difficult to separate management quality from the positive tailwinds the business is currently enjoying.

In this week’s piece we are going to look at the characteristics of ‘idiot proof’ companies and the reciprocal which are companies that typically need both supportive market conditions and a strong management team to prosper.  Obviously the conditions of strong management teams and a sympathetic business environment are rarely permanent.

Read more here.

AFARF – Letter to Unit Holders

February 29th, 2016

Suspension of applications and redemptions

From 25th February 2016, applications, redemptions and dividend reinvestments for the Aurora Fortitude Absolute Return Fund (Fund) are temporarily suspended. This means you will not be able to apply for or redeem your units in the Fund until further notice.

Background

The Aurora Fortitude Absolute Return Fund holds Antares Energy Limited Convertible Notes (ASX Code: AZZG) (Antares Notes), which have been suspended from trading and are, consequently, currently illiquid. The note is due to be repaid on 31st March 2016, but information has become available to us which leads us to believe there is a possibility that repayment will not occur on this date, and therefore we are unable to accurately determine a value for the Antares Notes. This uncertainty means we do not believe it is the best interest of unit holders to continue to accept applications and redemptions. The Antares Notes currently comprise 8.03% of the net asset value of the Fund, but this percentage may change as the value of the Antares Notes, and the value of the Fund’s other assets change.

Acting in the best interests of Investors

Aurora has determined that, in these circumstances, it is in the best interest of investors in the Fund as a whole to temporarily suspend applications and redemptions to ensure all investors are treated equally so there is fair treatment between investors who choose to remain invested in the Fund and investors who choose to exit the Fund in the short to medium term.

What this means for you

The Fund has ceased accepting any applications for units or processing redemption requests effective from 25th February 2016. Any application funds received will be returned to you. The temporary suspension does not affect the distributions paid by the Fund. As more information becomes available to us, we will be in better to position to advise when liquidity is likely to be restored.

If you currently have a Distribution Reinvestment Plan in place, your future distributions will only be paid via direct credit into your nominated account and cannot be reinvested in the Fund until further notice. You will need to provide your bank account details by contacting our security registrar, One Registry Services on +61 2 8188 1510.

Further information

If you have any queries or concerns, please contact us.

Telephone: 02 9080 2377 or 1300 553 431 (within Australia) or 0800 447 637 (within New Zealand)
Email: enquiries@aurorafunds.com.au
Post: PO Box R1695, Royal Exchange NSW 1225

Aurora Funds Management Limited | ABN 69 092 626 885 | AFSL No. 222110
29 February 2016

AIB – Letter to Unit Holders

February 29th, 2016

Suspension of applications and redemptions and suspension from trading on ASX From 25th February 2016, applications, redemptions and dividend reinvestments for the Aurora Global Income Trust
(Fund) are temporarily suspended. This means you will not be able to apply for or redeem your units in the Fund until further notice.

The Fund is also suspended from trading on the ASX.

Background

The Aurora Global Income Trust Fund holds Antares Energy Limited Convertible Notes (ASX Code: AZZG) (Antares Notes) which have been suspended from trading and are, consequently, currently illiquid. The note is due to be repaid on 31st March 2016, but information has become available to us which leads us to believe there is a possibility that repayment will not occur on this date, and therefore we are unable to accurately determine a value for the Antares Notes. This uncertainty means we do not believe it is the best interest of unit holders to continue to accept applications and
redemptions, and to allow on market trades whilst there is doubt about the liquidity of a position within the Fund’s portfolio. The Antares Notes currently comprise 9.58% of the net asset value of the Fund, but this percentage may change as the value of the Antares Notes, and the value of the Fund’s other assets change.

Acting in the best interests of Investors

Aurora has determined that, in these circumstances, it is in the best interest of investors in AIB, as a whole to temporarily suspend applications and redemptions and halt market trading to ensure all investors are treated equally so there is fair treatment between investors who choose to remain invested in the Fund and investors who choose to exit the Fund in the short to medium term.

What this means for you

The Fund has ceased accepting any off market applications for units or processing off market redemption requests effective from 25th February 2016. Any application funds received will be returned to you. A request for voluntary suspension to suspend ASX trading has also been lodged with the ASX. The temporary suspension does not affect the distributions paid by the Fund or the investment strategy of the Fund. As more information becomes available to us, we will be in better to position to advise when liquidity is likely to be restored.

If you currently have a Distribution Reinvestment Plan in place, your future distributions will only be paid via direct credit into your nominated account and cannot be reinvested in the Fund until further notice. You will need to provide your bank account details by contacting our security registrar, Registry Direct on 1300 55 6635. Alternatively, you can provide your banking details online at www.registrydirect.com.au/investor.

Further information

If you have any queries or concerns, please contact us.

Telephone: 02 9080 2377 or 1300 553 431 (within Australia) or 0800 447 637 (within New Zealand)

Email: enquiries@aurorafunds.com.au

Post: PO Box R1695, Royal Exchange NSW 1225

Aurora Funds Management Limited | ABN 69 092 626 885 | AFSL No. 222110
29 February 2016

ABW – Letter to Unit Holders

February 29th, 2016

Suspension of applications and redemptions and suspension from trading on ASX From 25th February 2016, applications, redemptions and dividend reinvestments for the Aurora Absolute Return Fund
(Fund) are temporarily suspended. This means you will not be able to apply for or redeem your units in the Fund until further notice.

The Fund is also suspended from trading on the ASX.

Background

The Aurora Absolute Return Fund wholly invests in the Aurora Fortitude Absolute Return Fund (Master Fund). The Master Fund holds Antares Energy Limited Convertible Notes (ASX Code: AZZG) (Antares Notes) which have been suspended from trading and are, consequently, currently illiquid. The note is due to be repaid on 31st March 2016, but information has become available to us which leads us to believe there is a possibility that repayment will not occur on this date, and therefore we are unable to accurately determine a value for the Antares Notes. This uncertainty means we do not believe it is the best interest of unit holders to continue to accept applications and redemptions, and to allow on market trades whilst there is doubt about the liquidity of a position within the Master Fund’s portfolio. The Antares Notes currently comprise 8.03% of the net asset value of the Master Fund, but this percentage may change as the value of the Antares Notes, and the value of the Master Fund’s other assets change.

Acting in the best interests of Investors

Aurora has determined that, in these circumstances, it is in the best interest of investors in the Master Fund and subsequently ABW, as a whole to temporarily suspend applications and redemptions and halt market trading to ensure all investors are treated equally so there is fair treatment between investors who choose to remain invested in the Fund and investors who choose to exit the Fund in the short to medium term.

What this means for you

The Fund has ceased accepting any off market applications for units or processing off market redemption requests effective from 25th February 2016. Any application funds received will be returned to you. A request for voluntary suspension to suspend ASX trading has also been lodged with the ASX.

The temporary suspension does not affect the distributions paid by the Fund or the way the investment strategy of the Master Fund is made.

As more information becomes available to us, we will be in better to position to advise when liquidity is likely to be restored.

If you currently have a Distribution Reinvestment Plan in place, your future distributions will only be paid via direct credit into your nominated account and cannot be reinvested in the Fund until further notice. You will need to provide your bank account details by contacting our security registrar, Registry Direct on 1300 55 6635. Alternatively, you can provide your banking details online at www.registrydirect.com.au/investor.

Further information

If you have any queries or concerns, please contact us.

Telephone: 02 9080 2377 or 1300 553 431 (within Australia) or 0800 447 637 (within New Zealand)
Email: enquiries@aurorafunds.com.au
Post: PO Box R1695, Royal Exchange NSW 1225

Aurora Funds Management Limited | ABN 69 092 626 885 | AFSL No. 222110
29 February 2016

 

 

Ignore the hedge funds, banks are still a buy, Aurora says

February 23rd, 2016

Foreign hedge funds are talking up a collapse in the local housing market and taking short positions in the big four banks, but their enthusiasm is misplaced, Aurora Funds Management says.

Hedge funds have stepped up their positions in the “widow-maker” trade of short-selling Australia’s banks, anticipating falls on the back of what they see is a housing bubble due to burst.

Short-sellers have enjoyed some success. Share prices in the big four had fallen between 20 per cent and 30 per cent since capital requirements sent them tumbling from, or near, record highs last April.

Yet, the housing market wasn’t in crisis, despite the hedge fund doomsaying, Aurora senior portfolio manager Hugh Dive said.

Foreign investors apply the same metrics that have seen the Irish, Spanish and US housing market decline in the past decade.

“Whilst Australian housing can be viewed as expensive globally, we see a range of factors that strongly encourage Australian households to maintain mortgage payments,” he said.

“These include recourse lending, homes are exempt from capital gains tax and strong cultural desire to own one’s own home.”

Foreign investors are also sceptical of the scale of Australian banks. All four sit in the top 15 globally by market capitalisation, beefed up by record-banking profits, their attractive yields, and higher interest rates relative to Europe, Japan and the US.

“The basis of their thesis is that four banks from a small backwater in the financial world have little business being among the largest in the world,” Mr Dive said.

Of the top 10 banks by market capitalisation, four are from Australia and Canada, despite the more than 20 per cent falls in their respective currencies in the past two years.

Mr Dive said, historically, owning the world’s biggest (and most loved) banks in 1985, 1995 and 2005 proved to be a poor investment over the following decade.

Yet, the position of local banks in the global landscape had more to do with the losses and fines incurred in Europe and the US during the global financial crisis relative to Australian banks rather than any “world-conquering strategy”, Mr Dive said.

The banks’ record profits and healthy interim profits and updates posted this reporting season and bad debts at historically low levels meant the banks still had a place in local investors’ portfolios, he said.

“There is a little too much pessimism towards Australian banks,” he said.

“The underlying fundamentals are still very strong. The likes of Deutsche Bank and Credit Suisse would be delighted to be reporting profits that CBA are reporting.”

Reporter: Vanessa Desloires. Read more here.

Australian Banks and the Widow-Maker Trade?

February 21st, 2016

On Monday a Swiss friend was bemoaning the dramatic fall in the share prices of Credit Suisse and UBS. Indeed in terms of market cap UBS, CS and Deutsche Bank combined were worth slightly more than Commonwealth Bank. Despite working in finance, the Swiss friend has not heard of this Australian bank.

Probably the biggest question that any Australian equity fund manager faces is what weight in a portfolio to allocate to the banks. Over the past few years, the Australian banking sector has grown to represent 31% of the ASX100 on the back of record bank profits, weakness in other sectors and a chase for yield by investors globally as monetary policy settings across Europe, Japan and the US have pushed interest rates to multi-century lows. All of this has contributed to all 4 of the Australian banks now being in the top 15 banks globally by market capitalisation, despite their relative lack of importance in the global financial system. In this week’s piece we are going to look at the change in banks over time.

Click here to read.

Going Private

February 12th, 2016

Two weeks ago Australia’s largest private health insurer Medibank Private (MPL) provided a surprise upgrade, boosting its operating profit guidance for the 2016 financial year from “above $370 million” to “Operating profit of above $470 million”. This caused a spike in MPL’s share price, making it one of the top performing stocks in the miserable equity markets of 2016, returning +13% vs. the ASX200 fall of -9.3%. This upgrade on the back of improved margins was treated as a shock by some well-respected sell side analysts who then scrambled to upgrade their financial models of the company.

In this week’s piece we are going to look at privatisations and the reasons why they tend to perform better under private ownership than in government hands.

Read more here.

 

Company Changing Events?

February 5th, 2016

Last week Qube submitted a formal proposal to acquire national rail freight and cargo port Operator Asciano for A$9billion, which is being touted as a company changing acquisition that will make the smaller company Australia’s leading logistics provider. Company changing events are typically major acquisitions or significant new investments requiring equity or debt issues, designed to dramatically boost earnings or change market perceptions of a company, both of which should be beneficial for shareholders. Whilst the valuation or market capitalisation of a company listed on the ASX can vary dramatically with market sentiment, in reality a company’s core business normally changes quite slowly and often the company-changing investment designed to buy growth can actually be very negative.

In this piece we are going to look at recent company changing events from major purchases to significant investments, the entering of new markets that were both positive and negative for shareholders.

Read more here.

A Liquid Stimulus Package

January 25th, 2016

Over the past few weeks there have been no shortage of headlines detailing the woes of the large oil companies as the oil price has continued to fall. Indeed this week, the oil price came under further pressure (hitting 12 year lows), as the prospect of lifting sanctions on Iran raised the spectre of an additional 500,000 barrels of Iranian oil daily hitting the global market. Whilst this has placed a significant amount of stress on oil producers and in particular companies such as Santos and Origin Energy that are completing export LNG projects that require a high oil price to generate commercial returns; the dramatic and sustained fall does have some positive impacts for investors and the economy.

In the first weekly piece of 2016 for The Alternative View we are going to look at the beneficiaries of the sustained decline in hydrocarbon prices.

Read more here.

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