Fund 2018-11-16T22:19:34+00:00

THE ALLUVIUM GLOBAL FUND

Once the investment philosophy was forged, the discipline to enforce it was crafted.

BASICS

OBJECTIVE

The objective of the Fund is to generate attractive investment returns over the long-term without regard to a specific benchmark and with an emphasis on capital preservation. We aim to do so by holding a long only, concentrated portfolio of around 25 companies operating diverse businesses across different regions. We access these opportunities in the form of equity interests listed on well regulated global exchanges in developed markets.

PHILOSOPHY

With a long-term investment horizon we are afforded the luxury to view volatility as opportunity rather than risk. We feel that by controlling behavioural biases, investors can benefit from markets being irrational over the short-term. As this philosophy isn’t an “ideal fit” with the traditional investment management industry, we believe the Fund represents an interesting and different offering.

STRATEGY

We apply consistent, objective, fundamental business analysis based on the financial statements of companies. The business we hold have demonstrated acceptable levels of returns without using financial leverage. We do not consider benchmarks for our risk or return analysis. The Fund’s risks are mitigated by strict rules in relation to the quality of businesses we buy, the prices we are prepared to pay, and diversification requirements.

“People don’t need extraordinary insight or intelligence. What they need most is the character to adopt simple rules and stick to them.” – Benjamin Graham

PROCESS

We defined our constraints, screening rules, and checklists around securities selection and portfolio construction. We then implemented systems to manage risk adequately.

INVESTMENT UNIVERSE

~0

PREREQUISITES

~0

DATA CHECKING/RANKING

~0

PORTFOLIO

~0
“Analysis is concerned primarily with values which are supported by the facts and not with those which depend largely upon expectations.” – Benjamin Graham

RULES BASED

The “Rules Based” process and checklists minimise any behavioural biases that would otherwise impact the security selection and portfolio construction to the maximum extent that is practicable (we do still allow for “common sense” and ethical overlay). These also ensure diversification by industry, sector, currency and country of operations.

FUNDAMENTAL ANALYSIS

The proprietary analysis is fundamental, in-depth, consistent across all markets, and is based solely on information from past company financial statements, so is completely objective. Prior to investment we do apply a checklist to identify risks not apparent in the numbers. The aim is simply to identify quality, low risk businesses that are trading at attractive prices.

CONTINUAL MONITORING

The portfolio is subject to ongoing review. There are rules around trading securities upon release of new financial information, and/or significant price fluctuations. In some cases there is a degree of discretion which allows us to consider other issues, for example tax implications. If there are insufficient investment opportunities available at reasonable prices (according to our Rules) we will hold cash.

PORTFOLIO

VALUE ORIENTED

The Fund aims to acquire at reasonable prices and if an investment becomes too highly priced, we will divest and deploy the Fund’s capital elsewhere.

NO FINANCIALS/UTILITIES/REITS

Our investment criteria discriminates against debt leveraged companies, so the Fund does not hold interests in businesses that require financial leverage to offer attractive returns.

SMALL-CAP BIAS

The investments we seek are usually more prevalent amongst smaller, less liquid companies. Hence, the Fund generally exhibits a bias toward these companies.

CONCENTRATED

The Fund typically holds around 25 positions. We feel this is adequate to capture the benefits of diversification whilst still allowing for the positions to be meaningful. We have absolutely no regard to any index.

DIVERSIFIED

Our rules ensure the Fund is well diversified in terms of the industries and regions in which its underlying businesses operate, and the currency and listing exchange in which the equity securities are quoted.

LONG-TERM FOCUS

We adopt a long-term focus and we embrace share-price fluctuations because we see these as a source of return. Accordingly, the Fund’s performance is likely to be volatile over the short to medium term.

“The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett

BUSINESSES

UNDERSTANDABLE BUSINESS MODELS

The businesses which meet our requirements tend to be those involved in operations we can understand; for example, manufacturers, transport companies and retailers.

LOW LEVELS OF FINANCIAL LEVERAGE

We assess the quality of a business based on the entire capital it employs, so those companies that rely on financial leverage to provide shareholder returns are excluded.

REASONABLE EARNINGS TRACK RECORD

A business must have produced minimum levels of earnings, operational cash flow, and free cash flow over a reasonable time period to be considered for the portfolio.

ACCEPTABLE PROVEN RETURNS ON INVESTED CAPITAL

We look at the returns a business has achieved and the total capital employed over a number of years. A business must meet minimum levels to be included in the portfolio.

UNLIKELY TO HAVE RAPIDLY GROWING EARNINGS

Businesses that are expected to rapidly grow their earnings will typically be priced at levels beyond our thresholds – hence they are unlikely to be represented in the portfolio.

UNFASHIONABLE, OUT OF FAVOUR, BORING

Many of the companies which meet our criteria are not that exciting. Operating simple businesses in boring industries, they are generally not the “flavour” of Wall Street.

PERFORMANCE

Value of AUD 100,000 (net dividends reinvested)

Source: Administrator, Alluvium, Factset, Interactive Brokers. Past performance is not a reliable indicator of future performance2.

Net Fund Returns Compared to Gross Index Returns (AUD) as at 30 September 2018

Alluvium
Global Fund
(Net)
MSCI World
Net Total Return Index
(AUD)
ASX S&P 200
Net Total Return Index
Fixed
6%
Since Inception (Total) 44.4% 55.6% 35.7% 24.4%
Since Inception 10.3% 12.5% 8.5% 6.0%
3 Years 5.8% 12.4% 12.1% 6.0%
1 Year 3.5% 20.6% 14.0% 6.0%
9 Months 2.7% 14.0% 5.9% 4.5%
6 Months 0.0% 13.2% 10.1% 3.0%
3 Months -1.7% 7.2% 1.5% 1.5%

Source: Administrator, Alluvium, Factset, Interactive Brokers. Returns more than 1 year are annualised. Past performance is not a reliable indicator of future performance. Date of inception: 1 January 2015.

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” – Benjamin Graham

FACTS

INCEPTION*

1 January 2015

ELIGIBILITY

Wholesale Clients, as defined in the Corporations Act

MANAGEMENT FEE

0.90% per annum

TRUSTEE & INVESTMENT MANAGER

Alluvium Asset Management Pty Ltd

ADMINISTRATION FEE

0.45% per annum

SIZE (as at 30 September 2018)*

AUD 7.9m

AUDITOR

Nexia Sydney Audit Pty Ltd

PERFORMANCE FEE

15% above 6% per annum

ADMINISTRATOR & CUSTODIAN

Mainstream Fund Services Pty Ltd

BUY/SELL SPREAD

Nil

HOLDINGS

Typically around 25 positions

LEGAL ADVISER

Norton Rose Fulbright Australia

ENTRY/EXIT FEE

Nil

HORIZON

Greater than 5 years

UNIT PRICING

Monthly

ISIN

AU60ALU93866

BLOOMBERG

AGF0911:AU

APIR

ALU9386AU

“You should be a voracious reader and a sponge of information from other investors. With all the ideas out there, you do not have to agree with them or adopt them, but you should consider them.” – Larry Robbins