Funds Management

Newcastle Securities & General Trust

Investment Philosophy

This section tells you about the investment objectives, philosophy and strategy of the Newcastle Securities and General Trust (“the Fund”).

Investment objectives

The Fund has two principal investment objectives:

  • to achieve attractive long term returns; and
  • to preserve investors’ capital.

Investment philosophy

The Fund is a contrarian value investor and looks to buy investments which the Manager believes are undervalued.  Many of these will be out of favour or less well known, or may be experiencing temporary duress which provides an opportunity to buy them cheaply.  As a result of this the Fund’s portfolio will be more eclectic and somewhat different to that of other investment portfolios.

The Manager will impose a cap on the total value of the funds in the Newcastle Securities and General Trust in order to be able to maintain a consistent approach in the selection of investments.

Investment strategy

In evaluating opportunities the Manager will favour those investments that satisfy one or more of the following investment criteria:

  • Investments selling for less than net asset value – Investments priced at less than their asset backing may be purchased on the basis that, in time, their market price should reflect at least their stated asset value.  From time to time the Fund will also able to find investments selling at a discount to net current assets (i.e. cash and other assets which can be turned into cash within one year, such as debtors and inventories, less liabilities).
  • Low price earnings ratio – Investments bought at low price/earnings ratios afford higher earnings yields than stocks bought at higher price earnings ratios.  The earnings yield is the yield which shareholders would receive if all earnings were paid out as dividends.
  • Investments having a high yield – An investment with a high and sustainable yield may be more resistant to a decline in price than lower yielding investments, because the value of the investment is in effect supported by the yield.  The ability to pay cash dividends is a positive factor in assessing the underlying health of a company and the quality of its income stream.
  • A significant decline in the price of an investment – A decline in a company’s share price is often accompanied by a decline in earnings or an earnings downgrade.  If the fundamental business of the company remains sound, the decline may present a buying opportunity.
  • A significant pattern of purchases by directors and management – Directors, management and large shareholders often buy a company’s shares when the price is depressed relative to the value attributable to the company’s assets.
  • Small and middle market capitalisation – Smaller and medium sized companies are often associated with higher rates of growth and may be more easily acquired by larger companies.

While the Fund is generally a medium to long term investor, it may from time to time acquire investments with a view to profit through short term trading opportunities.  However investments bought for trading purposes will not exceed 10 percent of the value of the Fund.

The Fund will not engage in short selling.

Investment policy

The Fund may invest in any asset class, including cash, equities, fixed interest and other securities, real estate, precious metals and derivatives in Australia and overseas.

There are no constraints on the number or types of assets that the Fund may hold at any time.  However the Manager has adopted the following general guidelines for the operation of the Fund:

  • It should have 20 to 50 investments in its portfolio at any one time.
  • No single investment should comprise more than 10 percent of the value of the Fund, other than a deposit with an entity regulated by the Australian Prudential Regulatory Authority or fixed interest securities issued by or guaranteed by an Australian government or government authority.
  • At least 50 per cent of the assets of the Fund should be income producing.
  • At least 75 per cent of the assets of the Fund should be capable of being realised within 180 days in the ordinary course of business.
  • Where the Fund invests in derivatives it will not do so by increasing the leverage of the Fund.
  • The Fund will seek over time to invest a significant proportion of its assets in companies which have a close connection with the Newcastle and Hunter Valley region.  These companies may have their head office or principal place of business or a significant number of employees or investments in the Newcastle and Hunter Valley region, or may be listed on the National Stock Exchange of Australia Limited.

The Fund may from time to time depart from its general investment guidelines when the Manager believes that it is in the best interest of the Fund to do so, consistently with the general investment objectives of the Fund.