L1 Long Short Fund Ltd. · ASX:LSF
L1 Long Short Fund — Investor Presentation (October 2018)
36 slides from L1 Long Short Fund's investor presentation, Oct 29, 2018
Slide 1: L1 Long Short Fund Limited October 2018
For personal use only L1 Long Short Fund Limited October 2018
Slide 2: Investment Excellence Across All Products
Investment Excellence Across All Products For personal use only ZENITH AWARD Launched L1 Capital Long Short Fund (unlisted fund since inception) Sep 2014 140.6% net return since inception; 24.0% net return p.a. since inception Best ‘Australian Equities – Alternative Strategies’ 75 individual pos
Slide 3: Contents
Contents For personal use only Performance Equity Market Observations Portfolio Positioning Key Stock Holdings Conclusion L1 Long Short Fund Limited 3
Slide 4: L1 Long Short Fund (LSF) Performance
L1 Long Short Fund (LSF) Performance For personal use only Why has LSF performance been weak over the past 6 months compared to the strategy’s history? 1. High P/E stocks have dramatically outperformed low P/E stocks – The Fund typically has a modest value bias, but that bias has been more pronounce
Slide 5: High P/E stocks have dramatically outperformed low P/E stocks
High P/E stocks have dramatically outperformed low P/E stocks For personal use only Over the past year, low P/E stocks have fallen, while high P/E stocks have rallied strongly In general, the higher the P/E, the better has been the share price performance Very challenging market environment fo
Slide 6: High P/E stocks have dramatically outperformed low P/E stocks (cont…)
High P/E stocks have dramatically outperformed low P/E stocks (cont…) For personal use only The relative valuation dispersion between ‘growth’ and ‘value’ stocks has only reached this level once in the last 30 years The only period where valuations have been more distorted was during the dot com
Slide 7: High P/E stocks have dramatically outperformed low P/E stocks (cont…)
High P/E stocks have dramatically outperformed low P/E stocks (cont…) For personal use only The outperformance of growth stocks has been a global phenomenon (S&P500) Source: Citigroup L1 Long Short Fund Limited 7
Slide 8: 'Momentum' has been the strongest performing factor in the market
‘Momentum’ has been the strongest performing factor in the market, with a huge mid-year surge. For personal use only ‘Momentum’ has outperformed ‘value’ by 17% p.a. on average over the past 5 years In 2018, this pace has surged to an annualised rate of 50% p.a. (see table below) During the Jun
Slide 9: Portfolio had more net exposure in Europe & HK rather than the U.S.
Over the past 6 months, the Portfolio has had more of its net exposure in Europe & HK rather than the U.S. The Fund had been long U.S. equities from 2014-2017. In 2018, the Fund has had more exposure to For personal use only Europe/HK, as we have identified better stock opportunities in those mark
Slide 10: The Portfolio was impacted by a number of truly left-field stock events
The Portfolio was impacted by a number of truly left-field stock events Some of the largest negative impacts on performance in the past few months were: For personal use only VENATOR – Fire at one of their main plants 2 years ago. Management had stated repeatedly that insurance coverage would larg
Slide 11: Contents
Contents For personal use only Performance Equity Market Observations Portfolio Positioning Key Stock Holdings Conclusion L1 Long Short Fund Limited 11
Slide 12: Equity Market Observations
Equity Market Observations For personal use only We believe several stock markets look mispriced as a result of central bank policy and differing stages of their economic cycle 1. The ASX200 Industrials Index is trading well above its long term average P/E 2. European value stocks appear undervalued
Slide 13: The ASX200 Industrials Index is trading well above its long term average P/E
The ASX200 Industrials Index is trading well above its long term average P/E For personal use only Outlook for subdued returns: The ASX200 Industrials index is now trading on 20.7X P/E (1 yr fwd) a 27% premium to its 10- year average of 16.3x We believe returns for the stockmarket will be lower
Slide 14: European value stocks appear undervalued
European value stocks appear undervalued, with many high quality global firms trading at their cheapest levels in over a decade For personal use only Source: Deutsche Bank, Bloomberg, Haver. L1 Long Short Fund Limited 14
Slide 15: Declining central bank asset purchases should pressure asset values and raise volatility
Declining central bank asset purchases should pressure asset values and raise volatility For personal use only Central banks have bought more than $10 trillion of bonds and equities over the past decade This has caused a huge increase in asset values and a large fall in market volatility Inves
Slide 16: NASDAQ has enjoyed an epic bull run, however it is now looking vulnerable
NASDAQ has enjoyed an epic bull run, however it is now looking vulnerable use only Over the past decade, the Fed, ECB, BoJ & BoE all enacted QE and negative real interest rate policy Pension Funds, SWFs and Endowment Funds were forced out of bonds and into equities NASDAQ appears to have been
Slide 17: Contents
Contents For personal use only Performance Equity Market Observations Portfolio Positioning Key Stock Holdings Conclusion L1 Long Short Fund Limited 17
Slide 18: Portfolio Positioning – Net Long & Geographic Exposure
Portfolio Positioning – Net Long & Geographic Exposure For personal use only We believe markets are at a riskier point in the cycle – valuations are full, central bank asset purchases are set to slow and geopolitical risks are elevated (U.S./China relations, Brexit, Italy) We are conservatively
Slide 19: Current Portfolio Positioning
Current Portfolio Positioning For personal use only The portfolio is positioned to take advantage of the extremes we see in the market: 1. Long ‘Value’ & Short ‘Momentum/Growth’ stocks 2. Long European & Hong Kong listed ‘value’ stocks – High quality, global businesses trading at huge discounts to i
Slide 20: Portfolio Metrics
Portfolio Metrics For personal use only Our long portfolio has an average P/E of 14x. The short portfolio has an average P/E of 31x Despite the huge gap in multiples, our longs and shorts are expected to deliver the same earnings growth (8% in FY19) using consensus broker forecasts. Our long p
Slide 21: Contents
Contents For personal use only Performance Equity Market Observations Portfolio Positioning Key Stock Holdings Conclusion L1 Long Short Fund Limited 21
Slide 22: Long Position – Chorus (CNU AU)
Long Position – Chorus (CNU AU) SUMMARY For personal use only Investment Thesis Chorus is the 100% monopoly owner of the existing copper telecommunications network in Chorus generates a 5% dividend yield and we expect dividends to grow at New Zealand and will own 81% of the new a significantly f
Slide 23: Long Position – Chorus (cont) – Capital Expenditure Profile
Long Position – Chorus (cont) – Capital Expenditure Profile For personal use only Illustrative Chorus capex declines rapidly from 2019 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Fibre products and systems Other fibre connections and growth RBI UFB Connections UFB Communal Source: L1 Capital estima
Slide 24: Long Position – Alcoa (AA US)
Long Position – Alcoa (AA US) SUMMARY For personal use only Alcoa owns one of the best global portfolios of high Investment Thesis quality, low-cost bauxite, alumina and aluminium assets. Current Alcoa earnings are sustainable and the business generates around 15% of its market capitalisation in
Slide 25: Long Position – CK Hutchison (1 HK)
Long Position – CK Hutchison (1 HK) SUMMARY For personal use only Investment Thesis High quality conglomerate – 52 ports, US$40b+ of infrastructure assets, We believe CK Hutchison has more than 80% valuation upside, using huge fast-growing Chinese pharmacy chain, conservative assumptions to dete
Slide 26: Long Position – CK Hutchison (cont)
Long Position – CK Hutchison (cont) For personal use only Source: CK Hutchison. All values expressed in HKD L1 Long Short Fund Limited 26
Slide 27: Long Position – Boral (BLD AU)
Long Position – Boral (BLD AU) SUMMARY For personal use only Investment Thesis Boral is a leading construction materials and building product company with operations in Boral owns some of the most strategic quarry, cement, concrete and Australia, North America and Asia. asphalt assets on the eas
Slide 28: Long Position – Boral (cont)
Long Position – Boral (cont) Boral is leveraged to rising infrastructure spending in Australia For personal use only Source: Macromonitor Australian Construction Outlook Overview June 2018 L1 Long Short Fund Limited 28
Slide 29: Long Position – News Corp (NWS AU)
Long Position – News Corp (NWS AU) SUMMARY For personal use only Investment Thesis News Corporation owns a broad suite of digital real estate and media assets, including a 61.6% News Corporation is dramatically undervalued, given all the firm’s assets stake in REA (Australia’s No.1 digital real
Slide 30: Long Position – News Corp (cont)
Long Position – News Corp (cont) For personal use only L1 Long Short Fund Limited 30
Slide 31: Long Position - Mineral Resources (MIN AU)
Long Position - Mineral Resources (MIN AU) SUMMARY For personal use only Investment Thesis MIN is a high-quality mining services business with a predictable crushing contract order book We believe the current market cap of around $2.6b implies little if any value and generates over 250m EBITDA p
Slide 32: Long Position - Mineral Resources (cont)
Long Position - Mineral Resources (cont) Outlook for Lithium Demand from EVs For personal use only Source: Morgan Stanley forecasts L1 Long Short Fund Limited 32
Slide 33: Contents
Contents For personal use only Performance Equity Market Observations Portfolio Positioning Key Stock Holdings Conclusion L1 Long Short Fund Limited 33
Slide 34: Conclusion
Conclusion For personal use only • We remain confident in the research process and the fundamental logic for our portfolio positioning • There have been no changes to the investment team or investment process that has delivered very strong returns to L1 Capital investors since 2007 • All senior memb
Slide 35: Legal Disclaimer
Legal Disclaimer For personal use only This presentation is prepared for L1 Long Short Fund Limited (the Company) by its investment manager (together L1). Information in this presentation is for general information purposes only, and is not an offer or invitation for subscription, purchase, or r
Slide 36: 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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