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.
UNIVERSE
PREREQUISITES
CURATING
PORTFOLIO
“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: Interactive Brokers, Apex, Mainstream, Alluvium (The Administrators), Factset.
Returns prior to 6 June 2016 based on Interactive Brokers SMA less management fees of 1.35%.
Past performance is not a reliable indicator of future performance.
Net Fund Returns Compared to Gross Index Returns (AUD) as at 30 June 2021
| Alluvium Global Fund (Net) | MSCI World Net Total Return Index (AUD) | ASX S&P 200 Net Total Return Index | Fixed 6% | |
|---|---|---|---|---|
| Since Inception (Total) | 65.0% | 141.6% | 82.7% | 50.4% |
| Since Inception | 7.4% | 13.4% | 9.0% | 6.0% |
| 3 Years | 8.9% | 20.4% | 13.6% | 6.0% |
| 1 Year | 18.3% | 29.3% | 17.2% | 6.0% |
| 9 Months | 8.4% | 23.4% | 11.9% | 4.5% |
| 6 Months | 3.6% | 11.3% | 3.8% | 3.0% |
| 3 Months | 3.4% | 7.1% | 2.1% | 1.5% |
Source: Interactive Brokers, Apex, Mainstream, Alluvium (The Administrators), Factset.
Date of inception of strategy: 1 January 2015.
Returns prior to 6 June 2016 based on Interactive Brokers SMA less management fees of 1.35%.
Past performance is not a reliable indicator of future performance.
“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
1.15% per annum
TRUSTEE & INVESTMENT MANAGER
Alluvium Asset Management Pty Ltd
OTHER FEES
0.40% per annum
SIZE (as at 31 December 2021)*
EUR 44.2m, AUD 69.1m
PERFORMANCE FEE
Nil
ADMINISTRATOR & CUSTODIAN
Alluvium Asset Management Pty Ltd
BUY/SELL SPREAD
Nil
HOLDINGS
Typically around 25 positions
ENTRY/EXIT FEE
Nil
HORIZON
Greater than 5 years
UNIT PRICING
Monthly
BLOOMBERG
AGF0911:AU
FINANCIAL STATEMENTS
Nexia Sydney Pty Ltd
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