L1 Long Short Fund Ltd. · ASX:LSF
L1 Long Short Fund — Shareholder Meeting (November 2019)
37 slides from L1 Long Short Fund's shareholder meeting presentation, Nov 20, 2019
Slide 1: Investment Manager's Address - 2019 AGM
For personal use only 20 November 2019 The Manager ASX Market Announcements L1 Long Short Fund Limited – 2019 Annual General Meeting – Investment Manager’s Address Refer to Slide 1 of the IM Presentation Good morning everyone and thank you for attending today’s AGM for the L1 Long Short Fund Limited
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detailed monthly and quarterly investment reports; bi-annual national roadshows & investor presentations; For personal use only bi-annual conference calls; daily NTA announcements; and active engagement with news services such as the AFR, The Australian, Livewire and broker podcasts. Our t
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The Long Short Strategy recently passed the 5 year mark and has delivered 20.3% p.a. after fees For personal use only to investors, delivering an incremental 100 percentage point return beyond that of the ASX200 Accumulation Index. While I acknowledge that shareholders of LSF have not yet had the sa
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Lastly, our newest Fund is the L1 Capital International Fund, which launched earlier this year and is headed up by David Steinthal and his team in Sydney. David was previously the Senior For personal use only Portfolio Manager for 9 years at the Lowy Family Group and is an exceptional investor. We a
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the business is low quality or faces structural challenges. Equally, a growth manager may buy a very high quality business, but it may prove to be a bad investment if it simply overpays for that For personal use only set of future cashflows. Given how expensive high quality stocks are trading at the
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The performance we have delivered this year has been particularly satisfying as the Fund has typically maintained a 50-60% net long and has faced a constant headwind from the enormous For personal use only outperformance of growth stocks over value stocks (which has only ceased in the last couple mo
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We continue to believe that the collapse in bond yields during 2019 has led to extreme crowding in yield stocks and growth stocks. We believe these sectors now carry the most risk as everyone For personal use only is essentially hiding in the same positions. We have begun to see an unwind of this ex
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Refer to Slide 11 of the IM Presentation For personal use only Page 11 shows the portfolio metrics for our long and short portfolio. As you can see, our longs are expected to deliver similar earnings growth as our shorts, yet our longs typically trade at an average 10 P/E points lower and are genera
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Refer to Slide 13 of the IM Presentation CK Hutchison is a large HK-listed company that owns some of the world’s best infrastructure For personal use only assets, including 51 ports, US$40b of U.S. power infrastructure assets, a huge telco and towers business in Europe along with Watsons, the larges
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P/E on bottom of cycle earnings. The world’s oil majors are about to undergo a multi-year increase of their project capex for the first time since 2013. This is required to simply maintain, let alone For personal use only grow production volumes. Today, Worley trades on a P/E of only 12x FY21 (which
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Tempur trades on a P/E of 16x with an under-geared balance sheet and an active on-market buyback program. For personal use only We have also included a number of slides in the appendices, that shows the long term performance track record and attribution of the Long Short Strategy since inception in
Slide 12: L1 Long Short Fund Limited Investment Manager's Presentation November 2019
For personal use only L1 Long Short Fund Limited Investment Manager’s Presentation November 2019
Slide 13: Strong long-term performance across all L1 Capital Funds
Strong long-term performance across all L1 Capital Funds For personal use only ZENITH AWARD Launched Long Short Fund (Strategy) Long Short: Best ‘Australian Sep 2014 20.3% net return p.a. since inception (5 years)1 Equities – Alternative Strategies’ 2017. 160.2% cumulative fund return versus 48.
Slide 14: Investment Philosophy
Investment Philosophy For personal use only We hold 3 core beliefs: Valuation and qualitative factors are the key drivers of long term share 01 price performance. Both factors are critical and of equal importance. Markets tend to be emotional, short-term and backward looking. 02 Markets continually
Slide 15: Investment Philosophy
Investment Philosophy For personal use only Value (50%) + Quality (50%) = Investment appeal L1 Value Managers VALUE TARGET QUALITY Growth Managers Focus on valuation and PORTFOLIO Focused on earnings stocks that are “cheap”. growth and business quality. Risk: May buy a “value trap” (low quality Risk
Slide 16: Research Process
Research Process For personal use only We invest in high quality businesses trading well below their valuation: VALUE Valuation Upside / Downside 50% DCF, Historical & Peer Multiples, Sum of Parts to share price Management Broad evaluation of entire organization – not just CEO/CFO Senior manag
Slide 17: Fund Performance (2019)
Fund Performance (2019) For personal use only The Fund has delivered strong performance in 2019 (+23%)1 These returns have been achieved despite: – maintaining a modest net long position (typically 50-60%) – the continued huge outperformance of ‘growth’ versus ‘value’ stocks – no portfolio benefit
Slide 18: LSF Share Price vs NTA (2019)
LSF Share Price vs NTA (2019) For personal use only LSF Share Price vs NTA - Pre Tax $1.90 $1.80 $1.70 8% discount (8 Nov) $1.60 $1.50 $1.40 $1.30 18% discount (20 Aug) $1.20 Apr-19 Aug-19 Mar-19 Oct-19 May-19 Jan-19 Jun-19 Jul-19 Feb-19 Sep-19 Nov-19 Share Price NTA - Pre Tax Note: Data current as
Slide 19: Investment Market Observations
Investment Market Observations For personal use only Equity markets look expensive in absolute terms, but attractive relative to other asset classes. The outlook for the global economy is uncertain due to a number of macro/geopolitical factors: – Trade war, Brexit, Central bank policies, Europea
Slide 20: Portfolio Positioning
Portfolio Positioning For personal use only Net Exposure Gross Exposure Australia/New Zealand 17% 163% North America 20% 37% Europe 13% 13% Asia 8% 13% Total 57% 227% The Fund does not have a large net long to any geography, reflecting risk from full valuations (Australia & U.S.) or risk from stru
Slide 21: Momentum vs Value Stocks
Momentum vs Value Stocks For personal use only Momentum stocks look extremely overbought relative to value stocks “The underperformance of value stocks relative to low volatility and momentum stocks is worse than any historical factor divergence, including during the late ’90s tech bubble” – Marko K
Slide 22: Portfolio Statistics
Portfolio Statistics For personal use only Given the extreme relative valuations between growth & value stocks, the portfolio is intentionally positioned with a larger value bias than usual. We believe this is prudent from both a portfolio risk and return perspective. Portfolio Metrics P/E (x) EV/EB
Slide 23: Key Long Portfolio Position – Chorus (CNU)
Key Long Portfolio Position – Chorus (CNU) Chorus has been one of the largest positions in the Long Short Strategy since inception in Sept 2014. For personal use only Chorus is the monopoly owner of the new ultra-fast fibre network across most of New Zealand (81%) and also owns 100% of the monop
Slide 24: Key Long Portfolio Position – CK Hutchison (1.HK)
Key Long Portfolio Position – CK Hutchison (1.HK) For personal use only CK Hutchison – HK Listed (US$38b market cap) Extremely high quality set of assets - US$40b+ of U.S. infrastructure assets, 51 ports, largest and fastest growing China pharmacy chain, large European telco & towers infrastruct
Slide 25: Key Long Portfolio Position – News Corp (NWS)
Key Long Portfolio Position – News Corp (NWS) For personal use only NWS is dual-listed (ASX/NYSE) (Mkt Cap A$10.9b/US$7.5b). NWS’ 61.6% stake in REA (A$8.3b) + A$2b net cash = A$10.3b (almost the entire NWS market cap). However, NWS also owns numerous large media, publishing & digital real est
Slide 26: Key Long Portfolio Position – Worley (WOR)
Key Long Portfolio Position – Worley (WOR) For personal use only Worley is a leading global oil services company. It recently acquired the Energy, Chemicals & Resources (“ECR”) division of U.S. peer Jacobs, resulting in a near-doubling of its revenue and earnings. WOR shares fell from around $19
Slide 27: Key Long Portfolio Position – Qantas (QAN)
Key Long Portfolio Position – Qantas (QAN) For personal use only Qantas owns Australia’s dominant full service and low-cost airlines, and Australia’s most successful loyalty program. Exceptional management team and board that has delivered for all stakeholders. Strong cashflows (8-10% free cas
Slide 28: Key Long Portfolio Position – Tempur Sealy (TPX)
Key Long Portfolio Position – Tempur Sealy (TPX) For personal use only Tempur Sealy is the world’s largest bedding provider (NYSE listed - Market cap US$4.6b). Outstanding management team that has invested heavily in product innovation, improved 3rd party distribution and physical store network.
Slide 29: Appendices
For personal use only Appendices
Slide 30: Monthly Performance
Monthly Performance (Since Inception of Long Short Strategy) For personal use only In the table below, we show the full performance history (net of fees) of the L1 Long Short Strategy since inception on 1 September 2014. Long Short Strategy Performance (Net %) Period Jan Feb Mar Apr* May Jun Jul Aug
Slide 31: Downside Protection During Down Markets
Downside Protection During Down Markets (Since Inception of Long Short Strategy) For personal use only In the 25 months that the market fell, the Fund returned +28% (vs ASX200AI -61%) Long Short Fund (%) S&P/ASX200 Accumulation Index (%) 10.0 8.1 5.8 5.5 6.0 4.2 3.9 3.5 2.8 2.6 2.5 2.4 2.1 1.9 1.7 2
Slide 32: Positive Returns in Rising and Falling Markets
Positive Returns in Rising and Falling Markets (Since Inception of Long Short Strategy) For personal use only One of the only Long Short Funds in Australia to deliver positive returns in both rising and falling markets Performance in “Down Market” Months Performance in “Up Market” Months (Average of
Slide 33: Return Analysis
Return Analysis (Since Inception of Long Short Strategy) For personal use only Strong positive returns across all market caps, regions & position type Market Cap Region Position TOTAL TOTAL TOTAL 160.2% 160.2% 160.2% Over $1b 107.8% Australia 131.8% Long 144.6% Sub $1b 52.4% International 28.4% Shor
Slide 34: Sector Contribution
Sector Contribution (Since Inception of Long Short Strategy) For personal use only Strong positive returns across every sector Materials 42.3% Industrials 29.5% Telco Services 21.1% Utilities 16.2% Energy 13.9% Consumer Disc. 12.2% Consumer Staples 11.2% REITs 9.1% Div. Financials 6.7% Health Care 6
Slide 35: Contact
Contact For personal use only Investor Relations Wayne Murray Phone + 61 3 9286 7008 Email [email protected] AFSL 314 302 L1 Long Short Fund Limited 24
Slide 36: Legal Disclaimer
Legal Disclaimer For personal use only Information contained in this presentation The opinions, advice, recommendations and other information contained in this publication, whether express or implied, are published or made by L1 Capital Pty Ltd (ABN 21 125 378 145), Australian Financial Services Lic
Slide 37: For personal use only
For personal use only ABN 21 125 378 145 | AFSL 314 302 Level 28, 101 Collins Street Melbourne Victoria 3000 Australia Phone +61 3 9286 7000 Fax +61 3 9286 7099 Web L1.com.au
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