Wilson Leaders Limited invests in a portfolio of Australian securities. This portfolio is managed by KWB Capital Pty Limited (Manager), an AFSL holder owned by interests associated with Geoff Wilson, Matthew Kidman and Justin Braitling. The Manager has engaged Justin Braitling as its chief investment officer. Wilson Leaders provides investors with the opportunity to invest in an actively managed portfolio and gain access to the management experience and expertise of the Manager.
The Manager is permitted by its management agreement with Wilson Leaders to acquire interests in a broad range of investments including ASX listed and unlisted securities.
The Company focuses on active capital management. This may involve buying back its Shares when trading at a sizeable discount to net tangible asset backing and the issue of other Securities through bonus issues, rights issues and option issues, with a view to enhancing the value of the Securities held by investors.
Investment Objectives
The 3 investment objectives of the Company are:
(a) to achieve a high real rate of return, comprising income and capital growth, within risk parameters acceptable to the Directors;(b) to deliver a secure income stream in the form of fully franked dividends to investors; and(c) to preserve the capital of the Company.
Investment Process
The Manager's investment process is a fundamentals based, stock selection process built around sound investment ideas taken from the investment universe of companies in the S&P ASX 100 Index.
Investment ideas come from monitoring economic and industry trends as well as extensive contact with company management and industry sources.
Once identified, investment opportunities are screened to ensure they are of an investment grade suitable for the Company.
Investment grade companies must:
(i) be well funded with an acceptable level of gearing;(ii) be sufficiently liquid with an acceptable free float; and(iii) have reported an acceptable return on shareholders funds through the business cycle.
A qualitative assessment of the proposed investment will then be completed to establish whether the business is of a suitable quality and attractively priced.
The chief investment officer, Justin Braitling, will then consider investment proposals that pass the qualitative screen for a final investment decision.
Absolute Return Manager
As an absolute return fund manager, the Manager focuses on absolute returns and the avoidance of capital loss. The Manager can employ a range of investment tools in pursuit of these objectives that are not typically available to the vast majority of funds.
Exposure to the market can be actively managed by shifting the Company's portfolio into cash when equities are expensive and leverage exposure to equities with finance when the market is attractively priced. The Manager will, at times when the market is considered attractively priced, gear the portfolio using borrowings to take advantage of this. Stock lending or short selling is an attractive source of funding when the market is expensive. If correctly executed, short selling can provide an outright profit; a cheap source of funding or an effective hedge for the company's capital when the market is fully valued depending on the circumstances.
Security Selection
The Manager looks to invest on a fundamental basis in companies with superior economics. Typically, these are companies with leadership positions in attractive industries with high barriers to entry.
Ideally they will:
(b) have a history of superior returns on the capital employed in the business through the economic cycle; (c) have management with a track record of creating and distributing value to shareholders;(d) be businesses with a capacity to grow; and(e) be attractively priced.
In looking to identify these types of businesses, a full analysis of industry structure is completed to establish the sustainability of profits and cash flows. The Manager will meet with management to further develop our understanding of the business and management philosophy.
Each company in the S&P ASX 100 is appraised and scored based on a range of qualitative measures that evaluate business and management quality as well as valuation. The Manager constructs portfolios around the best investment ideas identified then ranks these ideas based on its conviction and the company's qualitative score. This process ensures an appropriate bias in the portfolio to good companies with superior economics that are attractively priced.
Short Selling
The Manager will typically look to fund a portion of the portfolio by short selling the securities of companies the Manager believes will under perform over time. The funds raised from selling these securities are either reinvested back into the portfolio of listed securities or retained as cash.
If the Manager is unable to identify attractive investment opportunities, a sign the market is more than likely fully valued, the proceeds from short selling will be retained as cash, providing an effective hedge for the Company's capital.
The Manager in effect constructs two discrete portfolios employing the same portfolio construction process:
(a) The Wilson Leaders portfolio. The Manager believes this portfolio will deliver superior returns to Shareholders over the medium term. It is funded by a combination of Shareholder's funds, funds raised from selling borrowed securities and, at times, bank finance; and(b) A borrowed stock portfolio of securities the Manager believes will deliver inferior returns over the medium term.
As long as the Manager is adding value through stock selection, the difference in the performance of the portfolio of securities that have been sold short and the return on funds reinvested in the Wilson Leaders portfolio will contribute to the overall performance of the fund.
The Manager adopts the same investment principles in constructing portfolios of companies that we short sell as a source of funding. The best "shorting" opportunities are found in poorly managed companies with weak fundamentals that can be sold for more than their "appraised value".
These companies will ideally:
(a) have a history of inferior returns;(b) have management with a poor track record;(c) operate in highly competitive industries; and(d) be expensive on a range of valuation measures.
The investment process is the same, we use the same qualitative screening process in identifying securities to short sell.
Advantages over traditional funds
The Manager believes Wilson Leaders has some clear advantages over a traditional fund including:
(a) The Company can participate and profit in all segments of the market taking advantage of mis-pricing not just of securities that are cheap but those that are expensive as well by short selling those securities. (b) We have no style bias restricting our investment universe other than to invest in good, well managed businesses that are undervalued. (c) Short selling is an attractive source of funding when asset values are expensive.(d) We can manage our exposure to equities and protect the Company's capital through the cycle by actively managing both sides of the Company's balance sheet. This includes using borrowed stock and debt as a source of funding.
