AMCIL has performed well as the market continues to deal with the impact of the pandemic. COVID was a shock that no one could have seen coming, but it reinforces the benefit of having diverse investments across several industries in global markets such as we have at AMCIL.
As we discussed at October’s AGM, AMCIL’s 12-month portfolio return of 31.8 per cent including franking, was ahead of the benchmark S&P/ASX 200 Accumulation Index, which returned 29.1 per cent, including franking, over the same period.
AMCIL’s outperformance is largely due to the consistent delivery of strong returns from long-standing, large holdings in our portfolio such as Mainfreight, ARB Corporation, James Hardie Industries, and Goodman.
Our sector exposure is also much more spread than the S&P/ASX 200 Index, being almost evenly spread across technology, industrials, consumer, financial and healthcare companies. This contrasts with the S&P/ASX 200 Index, which has 60 per cent of capital allocated to the financial and resources sectors.
Our portfolio is also well diversified in terms of the size of the companies that we invest in. The market capitalisation of our companies ranges from $125 million to $175 billion. This means our shareholders get a much better exposure to high quality, smaller companies. An investment in AMCIL sees $230 out of every $1000 invested in 10 high-quality companies – such as Fineos, Objective, Breville, Macquarie Telecom and PEXA ‒ while a passive investor in the ASX 200 Index has only a $4 exposure.
This diversified exposure allows us to maintain long-term focus and become part owners of the best companies with the longest growth runways. We believe it yields much better results in the long term.
If you'd invested $10,000 in AMCIL since recapitalisation back in 2004, that investment, including the value of franking credits, would be worth around $85,000 now, compared to just over $60,000 if you had invested in the S&P/ASX 200 Index, including franking.
For an investor reinvesting both dividends and the full benefit of franking credits, $10,000 invested in the AMCIL portfolio 10 years ago in August 2011 would be worth $37,000 compared to $31,000 if invested in the S&P/ASX 200.
Over the long term, our quality-focussed investment approach has consistently delivered. There has not been an instance where the rolling 10-year AMCIL return has underperformed the S&P/ASX 200.
In 2020-21, the total fully franked dividend paid was 4.5 cents per share, which included a special dividend of 2.0 cents per share sourced from capital gains, compared to 2.5 cents per share in total in 2020.
Our share price grew more than our portfolio value during 2020-21. Consequently, the discount at which the shares traded to the portfolio value was reduced to about four per cent at the end of the year. This has been reduced even further to the end of September.
Our management expense ratio (MER), or the costs of running the company, remains low. For every $100 invested, it costs 56 cents to run AMCIL, which remains very competitive against others investing in a similar manner to AMCIL. Our MER has fallen by well over a half following significant growth in the portfolio since recapitalisation in 2004.
Also, there are no performance fees paid to an external funds management company.
From our observations of the equity market, market valuations have looked stretched by historical standards for several years. This is a naturally expected result of a prolonged period of very low interest rates.
While rates remain low and liquidity continues to be injected into global markets, all asset classes are likely to remain supported as investors continue to seek the best available returns. In the longer run, elevated valuations seem more likely to weigh on equity market returns. Economic cycles tend to be more consistently mean-reverting the longer the perspective that you take.
In terms of our portfolio, the strength of recent returns in some of our positions has the potential to somewhat cap our short-term portfolio performance. But in the long run, we remain confident that a portfolio of high-quality equity investments, with attractive growth prospects and high return on capital, will compare favourably to most other alternatives.
We are also confident in our investment process continuing to identify such opportunities.