WAM Capital Limited is a company which has been formed to invest in a portfolio of permitted investments (refer below). The Company provides investors with the opportunity to invest in an actively managed portfolio of investments and gain access to the management experience and expertise of Wilson Asset Management (International) Pty Limited (the Manager).
The Company will predominantly invest in ASX listed Securities. The Company will have the flexibility to buy or short sell securities. The short sale of securities together with borrowings will never exceed 50% of the value of the Portfolio.
The investment objectives of the Company are to achieve a high real rate of return, comprising both income and capital growth, within risk parameters acceptable to the Directors and preserve the capital of the Company.
The investment philosophy of the Company is exemplified by the following broad principles:
- The universe of potential investments for the Company will be all Securities quoted on the ASX, bills of exchange, other negotiable investments, debentures and other permitted investments identified below. The Company believes a higher percentage of these entities will be found in medium to small industrial companies but size will not be a limiting factor for inclusion in the Company's Portfolio.
- The Company's philosophy is to invest predominantly in industrial companies with an emphasis on companies that are under-researched and mispriced, a tendency more pronounced in the small to medium end of the market as measured by capitalisation.
- The Company's priority will be to undertake investments on a portfolio basis. While all investments will be considered on a case-by-case basis, the Company will usually refrain from taking a majority position in investee entities. This will assist the Company to diversify its investments and so reduce its exposure to abnormal falls in the market price of any single investment.
- The Company believes it achieves acceptable diversification by owning Securities in 20-30 investee entities. The Company will seek to manage investment risk by spreading investments over a range of industry sectors.
- The Company will only invest in Securities quoted on a securities exchange located outside Australia if those Securities are also quoted on ASX and the Board considers that the reporting obligations and trading procedures applicable to that exchange are no less rigorous than those of ASX.
- The Company will look to concentrate on absolute returns and preservation of capital. To achieve this objective, the Company's mandate to the Manager includes the ability to short sell Securities, offering investors potential downsideprotection. This is a distinguishing feature of the Company.
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The two principal factors determining the investment decisions of the Company are:
Research Driven investing: We undertake extensive research, focusing on free cashflow then rating the company with respect to management, earnings growth potential, valuation and industry position. We buy when we can identify a catalyst or event that will change the valuation the market gives to the company. We sell once the company reaches our valuation.
Market Driven investing: We scour the market for trading opportunities. These could include participating in initial public offerings, placements, block trades, rights issues, corporate transactions (such as takeovers, mergers, schemes of arrangements, corporate spin-offs, restructurings), arbitrage opportunities, LIC discount arbitrages or relative value arbitrages and trading market themes and trends. This part of the portfolio is traded actively.
Process for Research Driven Investments
Initially the Manager will identify a universe of stocks for investment by the Company. This involves considering relevant micro and macro economic trends and targeting under-researched companies.
Once a potential investment has been identified, the Manager will undertake extensive analysis. Publicly available information about the entity will be accessed and discussion and competitors undertaken where possible. The Manager will then meet with the company’s management, discussing at length the various dynamics of the business. Two areas that will be given particular attention are the company’s ability to generate free cashflow and return on equity.
Each potential investment will then be rated with respect to:
a) management;
b) projected earnings per share growth
c) valuation – utilising a price for growth formula; and
d) the industry and the investee’s position in that industry.
The above rating system works as a filter identifying the most appropriate investments. Before undertaking a research-driven investment, the Manager will identify a catalyst or event that it believes will lead to an increase or decrease in the market value of the investment.
Process for Market Driven Investments
The process for the Market Driven approach involves the Manager assessing the liquidity of the underlying stock. For each position we generally like to own the equivalent to one days average volume. We also have placed a 10% stop loss which means when a company's share price falls 10% below our cost price we will sell out of the position.
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The Company proposes to invest in the following investments:
a) listed Securities, being any Security quoted on ASX including, without limitation, shares,
units or notes which are redeemable, preference or deferred, fully or partly paid, with or
without any right, title or interest thereto or therein (including a right to subscribe for or
convert to any such Security whether listed on ASX or not), and any Security of
whatsoever nature which the Manager expects will be quoted on ASX within a three
month period from the date of investments;
b) listed Securities for the purpose of short selling. At any time the exposure to these
Securities, the Securities referred to in paragraph c) and the Company’s borrowings
must not exceed 50% of the net asset value of the Company;
c) warrants and options to purchase any investment and warrants and options to sell any
investment which is a permitted investment. At any time the exposure to these
Securities, the Securities referred to in paragraph b) and the Company’s borrowings must
not exceed 50% of the net asset value of the Company;
d) discount or purchase of bills of exchange, promissory notes or other negotiable
instruments accepted, drawn or endorsed by any bank or by the Commonwealth of
Australia, any State or Territory of Australia, or by any corporation of at least an
investment grade credit rating granted by a recognised credit rating agency in Australia;
e) deposits with any bank or corporation declared to be an authorised dealer in the short-
term money market;
f) debentures, unsecured notes, loan stock, bonds, promissory notes, certificates of
deposit, interest bearing accounts, certificates of indebtedness and any other evidence of
indebtedness issued by any bank or by the Commonwealth of Australia, any State or
Territory of Australia, or any governmental organisation, body or instrumentality of
Australia, or, if authorised by its Directors, a corporation of at least an investment grade
credit rating granted by a recognised credit rating agency in Australia; and
g) units or other interests in cash management trusts.
Under the Management Agreement, the Manager may only undertake investments in accordance with the above criteria. The Board will not authorise any investment that falls outside the above criteria until shareholders in a general meeting have approved the amendment to the investment criteria or a particular investment by ordinary resolution.Under the Management Agreement, the Manager may only undertake investments in accordance with the above criteria.
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