Key points:
- Investors in Wealth Defender will have exposure to an actively managed Australian equities portfolio that seeks to cushion the impact of major market falls.
- Stocks will be selected using a “bottom up, value style” investment process, with small caps limited to no more than 20%.
- Up to 160 million shares at $1.00 are being issued via an IPO. Initial investors will also gain access to a loyalty option.
Highly regarded fund manager Perennial has launched a new ASX listed investment company, Wealth Defender Equities Limited. This follows the success of a similar fund that commenced last year, Perennial Value Wealth Defender Australian Equities Trust.
Wealth Defender is coming to the market via an IPO process, and is seeking to raise up to $160 million.
Value proposition
As a listed investment company, investors in Wealth Defender will have exposure to an actively managed Australian equities portfolio that aims to provide the long term benefits of share market investing, while also seeking to cushion the impact of major market falls.
The company’s investment strategy is to actively manage allocations between equities, derivative protection and cash throughout market cycles, with the aim of enhancing the long term performance outcome by maximising returns when markets rally, and cushioning the magnitude of significant losses when markets fall with dynamic capital protection strategies.
The Wealth Defender strategy recognises that while the Australian market may rise and fall, when assessed on rolling six-month periods over the 20 years from 1994, over 90% of negative returns have been in the range of 0-20%.
The Wealth Defender approach focuses on protecting the most likely loss range in an Australian equities portfolio. The aim of this strategy is to reduce the depth of falls that may be experienced during periods of significant market downturn, rather than to eliminate losses entirely.
The company will typically own between 35 and 100 stocks (large cap and small cap), and work within the following asset allocation bands:
Australian equities: 50% to 100%
Cash: 0% to 50%
International assets: 0% to 10%
Derivatives (net effective exposure): 0% to 50%
Stocks will be selected using a “bottom up, value style” investment process, with small caps (stocks outside the top 100) limited to no more than 20% of the gross value of the company’s portfolio. A representation of the investment process is illustrated below.
[1]The manager
The company has appointed Perennial Value Management Limited to manage the portfolio for an initial term of five years, with automatic five years extensions.
Perennial Value is a leading active equity manager, with more than $8.1 billion invested on behalf of institutional and retail clients. Headed by John Murray, its flagship fund, the $1.7 billion Perennial Value Australian Shares Trust, has a robust track record as the following table shows:
[2]Performance to 31 March 2015. Index is the S&P/ASX 300 Accumulation.
The company has elected to not disclose in the PDS the performance of the Perennial Wealth Defender Australian Shares Trust, noting that this has only been going since last May and that the suggested investment time frame is five years or more. On Perennial’s website, it does disclose that this fund’s net performance to 31 March is 11.4%, marginally exceeding the index return of 11.3%.
Perennial will charge the company a management fee of 0.98% per annum (plus GST) on the first $250 million of net assets, and 0.80% per annum (plus GST) on any amount over this. It will also be entitled to a performance fee of 15% of the portfolio’s outperformance, compared to the benchmark S&P/ASX 300 Accumulation Index.
Perennial will also be entitled to the reimbursement of particular expenses. The company will also incur other expenses, such as ASX listing fees and directors’ fees.
The offer
The Company is seeking to raise up to $160 million via the issue of 160 million $1.00 shares. The offer is not underwritten, and will only go ahead if at least 50 million shares are subscribed.
Because of establishment costs and broker placement fees, the Net Asset Value (NAV) of the shares on subscription will be $0.971 if the minimum subscription is obtained, or $0.977 if the maximum subscription is reached.
As a sweetener to initial subscribers, the company will issue loyalty options on the basis of one option for every share subscribed. The loyalty options will only vest if the original shares are held onto for at least six months, otherwise they will lapse. Upon vesting, the holder will then be entitled to exercise the options at any time until 23 November 2016 by subscribing for new shares in the company at a price of $1.00.
Other details are set out below:
[3]
Applications
Applications can be made with the brokers involved in the deal (Morgan Stanley, Bell Potter, CommSec, Macquarie, Lonsec or Ord Minnett), or directly at www.wealthdefenderequities.com.au [4] If applying through a broker, remember that they are getting paid a selling fee of 1.5% and may in some cases elect to share some, or all, of this with you.
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