A brief look at the performance charts of LICs on the ETF Watch Fund Database shows a shining light in what has been a reasonably good year for many funds. Little know LIC Henry Morgan Limited (HML), listing only in February 2016 has delivered a remarkable 64% investment growth and 12% dividend yield and still trades at a 20% discount to NTA.This remarkable performance has all happened whilst the majority of ‘free’ options have been exercised, and diluted the NTA somewhat.
Benjamin Hornigold Limited (BHD) is the latest LIC to be offered by Henry Morgan manager, Stuart McAuliffe. There’s no doubt McAuliffe is a unique character in the funds management space. Firstly, all of his companies are named after pirates, with Benjamin Hornigold being a successful English pirate in the 18th century. McAuliffe cites the connection of pirates to funds management as these pirates being global, looking to make profits wherever they went, flexible and mobile.
McAuliffe has also not been afraid to make bold predictions, and in 2016, he was one of the few to get the two big calls correct, that being Brexit & Trump. Basing his portfolio around these events was one of the key reasons behind the strong performance of HML. McAuliffe posts his predictions quarterly on one of his other pirate company websites, John Bridgeman Limited and are an interesting read, regardless of whether or not you agree. McAuliffe’s latest predictions for 2017 are listed below:
- Chinese stocks go on a mid to end year tear beating all developed markets, soaring over 20%.
- The Mexican Peso continues as the best performing currency in the world doubling its returns so far this year (approximately 12% so far).
- Reformist Macron wins the French election and French stocks soar taking European banks and insurers with them. A 20% ‘up year’ in European stocks crushes bears.
- Bunds (German 10 year bonds) and other safe havens get truly mauled (they had it coming).
- Commodities continue to rally into year-end after a dip right now, confounding critics.
- The British Pound becomes the best performing developed world currency from here, closely followed by the Euro rallying 10%, again shocking forecasters.
- The NASDAQ 100 is the best performing US stock index.
- Trump economic policies fail to deliver for most of this year, but all come together by the end of 2017 and push markets higher into year-end and the bull continues throughout 2018. Bears tell us daily that this just cannot be – but we believe it is.
- The ASX is an average performer – we think you should focus on global funds.
- If you think you are long enough stocks, you probably are not. If you are worried you are too conservatively placed, well, don’t say we didn’t warn you.”
Finally, in an era where LICs are incentivised to raise as much as possible from IPOs (with the cynic suggesting to provide them higher management fees), with Benjamin Hornigold, just $20m is being raised, with the manager strong in their position that there will be no oversubscriptions. This is to allow the fund to remain nimble and agile, like a pirate. Management fees of 3% pa and 27% of all positive performance mean the manager will not be missing out on their share of fees, with fees set to some of the highest of the LIC world. Pirates aren't known for their charitable endeavours after all.
Successful pirates didn’t focus on a single strategy, they were opportunistic characters. It’s a theme that runs through the Benjamin Hornigold prospectus, with the company able to invest how it sees fit. This may involve equities, currency, futures, options, bonds and short selling. The company will hold just a few positions, expected to be between 5 and 10 "investment ideas which are undervalued and provide significant growth opportunity".
The manager calls their strategy a "global macro investment strategy" and explains:
Global macro investment strategies utilise fundamental information and economic theory on key inputs including economic growth, inflation, interest rates, currency movements, global imbalances and changes in commodity prices to formulate forecasts and trends for different investment markets. The Manager believes that an effective investment strategy requires a global approach because markets are interdependent with the actions of investors, central bankers, consumers and policy makers in one market having flow on effects, actions and reactions across many markets.
This may not give a lot of clarity on what to expect from the fund, however we found an interview with McAuliffe in late 2015 which better explains his approach to investing, some of his convictions and how he came about those positions, and the tools he uses to help seek out investment opportunities (scroll about half way down the page to play the video).
As per the usual LIC IPO process, investors in the IPO will be gifted a free option for every share they purchase. These options have an expiry date of a huge 3 years after listing (28 April 2020). Shares will be listed at $1.00, with Net Asset Value of between $0.975 to $0.978. Investors in the IPO should be aware of the above 2 facts, as exercise of options in the future will result in dilution of capital, and for every $1.00 invested, the investor will actually receive $0.975 worth of shares. Management fees of 3.00% pa and performance fee of 27% of all performance will apply once the fund is listed.
This post was prepared with publicly available information available from Benjamin Hornigold Limited. ETF Watch did not receive any payment from Benjamin Hornigold for this post.