Each quarter, we’ll be producing a report much like this one; featuring three sections covering performance, portfolio commentary and a few general observations. As we only hung out our shingle in November, the performance thus far is no guide as to our competence or otherwise (I promise I would have said the same thing were the returns the other way around). For the record, the unit price is up 1.8% since inception while the All Ordinaries Accumulation Index was up 5.7% in the same period.
So far, we’ve invested approximately 50% of the $10m cash contributed to the fund during the first two months. The investments mostly consist of large, liquid infrastructure funds. Together, Prime Infrastructure (our largest holding), MAp Group (the old Macquarie Airports), Australian Infrastructure Fund, Spark Infrastructure and SP Ausnet represent 32% of the fund and 66% of the invested portfolio. With the exception of Prime Infrastructure securities, which ended the quarter in line with our average acquisition price (adjusted for a distribution before the recapitalisation), all are showing unrealised gains. MAp, in particular, ended the December quarter up 14%—despite paying an 8-cent distribution—and Spark Infrastructure closed up 12% on our purchase price.
We expect good, but not spectacular, long-term returns from most of these stocks. Spectacular short-term returns, should they make an appearance, will be attributable to luck.
You should, however, sleep well at night knowing that every time someone shuffles through a major Australian airport, uses electricity in Victoria or South Australia, exports coal from Queensland’s Bowen Basin or harvests a wheat crop in Western Australia, a tiny slice of the revenue generated comes back to you.
RHG Group was sold off heavily in December after announcing it had lost a court case and would suffer financial losses. Having conducted extensive research on the company over a long period, we felt comfortable with acting swiftly to take advantage of what we perceived was an over-reaction in the stock price and added RHG to the portfolio.
A subsequent announcement indicates that the final financial impact will not be as substantial as many, including us, feared. Thus far, this has not been reflected in the stock price, which continues to languish around 8% below our average purchase price.
With hindsight we could have purchased stock more slowly and achieved a slightly lower average entry price, but we’re nonetheless glad to have established a modest position in this company at a price that we believe will prove to be very attractive.
In addition to the stocks mentioned above, we have taken small positions in another five companies. These are all small to mid-sized companies in diverse industries. We’re very keen to own more of these stocks at the right price or—in the case of the smallest—as we are able to find stock to purchase. That’s why we believe it is in unitholders’ best interests that we do not disclose these positions at this time.