Cadence Capital Limited (CDM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 16th Annual General Meeting for Cadence Capital Limited. I'd like to thank you for your attendance today, and warmly welcome all of our shareholders to the meeting, especially our new shareholders joining us for the first time. My name is Karl Siegling, and I will be chairing today's meeting. I'm joined today by fellow Board Directors, James Chirnside; Wayne Davies; and Jenelle Webster. Portfolio managers, Charlie Gray and Jackson Aldridge, will also be presenting today. Also joining us to address any questions regarding the company's financial statements is Chris Chandran from Picture Partners, the company's auditors. Our agenda today will begin with a prerecorded investor presentation. Following this presentation, we will move back to a live environment where we will look to answer any questions you may have or that you have sent in via e-mail to [email protected]. You are able to type any questions that you may have during today's presentation into the Lumi platform. You are also able to ask audio questions via the telephone dial-in. Details of how to do this can be found in your virtual meeting user guide. We will then finish off with the formal part of the meeting. Boardroom has recorded all proxy votes that have been sent through to them. Shareholders participating in this AGM today have the ability to enter their vote via the Lumi platform in the event that they have not already sent in their proxy votes. You can enter your vote at any time during the meeting. Once again, details of how to vote on the Lumi platform can be found in your virtual meeting user guide. The result of today's voting will be announced on the ASX after the close of the meeting. We will now move on to the investor presentation. Our investor presentation begins with the CDM performance update. By now, I'm sure everyone will have seen the 30th of June 2021 year-end results. So these are more up-to-date results, which are the 31st of October results. You can see that year-to-date, we're up 15.4% against the market that is up 2.2%. Our 1-year numbers of 42.7% against the market of 29.3%. Our since inception numbers, which are now 16.1 years, are 13.6% against the market of 7.6%, so nearly double the performance of the ordinaries accumulation index. And those inception numbers when they accumulated result in a 682.2% return for the fund against the market of 222.4%, about 3x the market's return over that period. The big winners for this period have been TMC, the Metals Company, Upstart, Life360, Asana, Digital Ocean, Whitehaven Coal and Appen, which was a short position. Detractors of performance for the period are Resimac, Bed Wealth & Beyond and A2 Milk. The next slide is one that you would see in all of our webcast and in the monthly newsletter, which are the dividends. You can see for 2021, we've paid now $0.05 of fully franked dividends, which is 7.1% gross. And interestingly, when you accumulate all the dividends paid to date, it's $1.92 of dividends. And then when you include franking, that's $1.55 of dividends and franking. The dividend since listing are actually more than our current share price, actually, more than nearly 1.5x our current share price when you include the franking. The final dividend for the year was $0.03 and that's equated to a 5.6% fully franked yield or grossed up an 8% yield based on the October month end share price of $1.65. CDM has healthy profit reserve balances which we can pay future dividends with of around $0.34 per share. Based off the 2021 final year-end, and this is several years' worth of future dividends before even making any future profits. So we find ourselves in a healthy position in relation to future dividends. The company will continue, obviously, realizing franking from its tax payments on realized taxable income and obviously, franking on dividends that we receive. The next slide is obviously one that is topical from time to time and is one that is topical now. And that is the premium and discount to NTA that our lick trades at over time. as we always state, we moved from times were at a discount to NTA or a premium to NTA to a discount to NTA to a premium. And more recently, we were trading during this COVID panic situation at a discount to NTA, and we spoke extensively about it at the time and implemented a buyback, and we're encouraging shareholders to buy shares at a deep discount to NTA. And we traveled very close to NTA during the period and have once again gone to a discount to NTA. Of course, we continue to buy shares in buyback. We, as Board and directors continue to buy shares because we like to buy shares at a discount to NTA and remain confident that over time at discount to NTA will disappear. The following slide is our top 20 holdings as of the 30th of October, Importantly, you will have heard us talking about a more diversified and more liquid portfolio that we were constructing over time. We've been having that conversation now for nearly 3 years. And especially in the last 2 years, we've seen significant improvement in the diversification of the portfolio and the liquidity so much so that 83% of our portfolio could be liquidated in less than 1 week at the moment and almost the entire portfolio in less than a month. People have asked us more recently about our TMC, the metals company position. That is the third biggest position in the portfolio and is 4.4% of the portfolio. So it is not a really, really big position, and we've already sold 1/3 of that position at significant profits. And actual fact, I've stated this before, we can't lose money on TMC. We've already made more money than we put into the position. So the next slide is our exposure slide that appears in our newsletters every month. You can see that we're running at less than 100% exposure at the moment and have been for some time. In actual fact, we've been lifting our cash level slightly. Our short positions have been working for us. So cash has gone up as a consequence of that as well. And we find ourselves in a position where we are less than 100% exposed to the market and are comfortable with that position. I would like to now invite Jackson Aldridge and Charlie Gray to take you through specific examples of our core positions and trading positions within the portfolio.

Thanks, Karl. My name is Jackson Aldridge, Portfolio Manager at Cadence Capital. I'll talk about 2 stocks, and then I'll kind of run through our short book, where without kind of mentioning specific companies or what positions we have on at this point in time. I mean we might just go through what we're looking for on the short side. So the first stock in the portfolio, we've spoken about a number of times, we started buying the stock at about $5 is Life360. It's a trade position in the portfolio. So Life360 is the world's leading safety and communication platform with features such as location sharing, roadside assistance, crash detection, et cetera. They actually dispatched over 14,000 ambulances in the U.S. over the last 12 months through the crash detection feature. So we currently have about USD 120 million of annualized revenue at this point in time. The company has upgraded 3x over the past 12 months, which equates to about 45% revenue growth. And in our internal numbers, we expect them to grow at 30-plus percent into calendar year '22. And then there's about 33.8 million active users on the platform at any one point in time. This is strictly just in the U.S. and parts of Australia at this point in time. We're seeing them launch into Canada at the end of this year and then further internationally next year. So we expect that number to grow. And then, I guess, what the revenue generator for the business is the paying circles or the paying families per se. So there's roughly 2 to 3 users per family. So that equates -- there's about 1.1 million paying circles at this point in time. So we see significant upside for the business if they can convert there's free users on the platform to paying users in the next coming years. That's why we see a key growth driver. The other key growth driver we see for the business is getting the revenue per paying circle up and the business has been very successful at doing this, specifically in about July 2020, they implemented a new subscription service that was effectively a 3 Tiered platform, gold, silver, platinum, different capabilities on the platform. So we're seeing significant upsell and the company has just done an acquisition that I'll touch on that we believe will drive this upsell further. Recently, there's been changes in commissions, App Store and -- which is Apple and the Google store have kind of said they're going to reduce fees that required to pay to the platform. So we see this as a pretty key driver for the business. Just specifically through Google, we see a $2 million reduction pretty instantaneously that drops through to 360 bottom line. There's a strategic review underway. Just yesterday, the company announced an acquisition of Tile, which is doing about $100 million of revenue, 400,000 users. We think it fits extremely well with the current business to drive that upsell. And the company is talking about a direct U.S. listing, likely on the NASDAQ in the first half of FY '22. In terms of valuation, we're seeing some comps in the U.S., and that's part of the direct listing trade at probably 40% higher valuation with half the growth of this business. So we think there could be a further rerate of the stock. Second I'd like to talk about is Qualcomm, core position for us. We traded the stock in the past and exited profitably and then this is kind of another go around at the stock. Many people may be familiar with Qualcomm in the tech bubble early on. They were kind of the first developer of a communication technology that effectively allowed an iPod to turn into an iPhone. So they're a world leader of semiconductor software and services provider, and they do have further patents for 4G and 5G and think this will be a key driver in a number of these hot sectors that everyone is talking about IoT, AI, gaming, automotive, the cloud transition, you name it in terms of communication, Qualcomm is required. And just some comments I've placed on the slide there from the CEO. He thinks they're on the kind of the eve of the next kind of super cycle for the company. It's trading on 17x PE, growing at 20%. So it fits our PEG ratio, our cash flow ratios, et cetera. And we've seen kind of early indications from auto manufacturers and other chip providers at the chip shortage is kind of subsiding and then this will provide a tailwind for the business into next year. The third kind of slide I'd like to touch on is kind of our short positions. And over the last kind of few years, shorting has been really difficult, but we're starting to see early signs of shorting kind of paying dividends for us in terms of generating alpha. So some recent success, as Karl mentioned, Appen was a key performer over the past year for us. That was a big short position for us. Magellan, AGL, A2 Milk, PTON, FICO in the U.S., Opendoor in the U.S. have all contributed meaningly to the portfolio. And rather than kind of looking or outlining what current short positions we have or what I'd like to touch on some things we're looking for. So typically, a business with structural headwinds. For example, if I want to touch on Appen and there's technological headwinds that they've faced over the last 12 months and moving forward that may be structurally challenging for them to kind of generate the revenue growth that the market was expecting. We're looking for downside earnings revisions. It's maybe related to the structural decline of the business or the industry. Management misalignment is a key indicator, often selling stock or not owning that much stock can kind of be a key indicator of what's happening in the business. Any kind of accounting regularities or change in methodology of reporting or segments or changing in kind of the reporting year. And then obviously, we overlaid this sort of technical indicators to let us know when the stock is breaking down. So we're not shorting on valuation alone. We may be in and out for 10%, 15%, 20% on a short, sometimes much more, but we're not shorting strictly on valuation. And then, I guess, to my point, we're not necessarily looking for just out and out 0. We are looking for them, but that's not the key determinant of why it may take a short position. So I'll now pass over to Charlie to touch on a few more parts of the portfolio.

Thanks, Jackson. My name is Charlie Gray, Portfolio Manager here at Cadence Asset Management. The next few slides, I'll go through 2 core positions in the portfolio and also touch on the trading book or the types of stock -- the types of criteria that we're looking for in trading stocks in the portfolio, which has been a meaningful contributor to performance over the past 12 months. Firstly, first stock is universal stores or UNI. UNI owns and operates a network of 67 stores across Australia. And the brand, I'm sure you've seen, is mainly targeted towards youth fashion or that demographic really between 15 and 35 year olds. Company listed in November 2020, $3.80 and it's had a good run since then, now trading around $8. The market cap now is just shy of $600 million. The opportunity for the business is both significant and simple, which we like, with scope really to increase the store network by 50% over the next 3 to 5 years. And the thing that we like about that coming from 67 store base. 6 or 7 stores is not a massive number of stores to open and to be able to manage. So we think the execution risk isn't very high. And management historically have shown that they can achieve this quite well. Management also recently upgraded the store opening target for this financial year for FY '22, which will provide good momentum into next financial year as we come out of COVID. The store level profitability of this business is also expected to be a meaningful driver, with the company having delivered same-store sales growth in the double digits consistently for the past several years. And if you look at any other retailer in the country, that really puts it up there with the top ones. Increasing private label from 40% to 50% of the overall sales mix is also a meaningful driver as we see the gross margins going up over time. The business is well capitalized with approximately $18 million in net cash on the balance sheet, and this provides plenty of capacity to fund the rollout ambitions and other growth opportunities for the stock. We expect a strong bounce back in sales over this Christmas period, and we've already seen the start of that in some company retailer updates, as customers return to shop or going out close. And we've also seen recent data come out that still suggests that the household saving level in Australia is still quite high. So we think there's capacity for consumers to spend significantly over the next 6 months. Overall, we see UNI as a well-run retailer that's got significant growth potential. We see a path for the stock to double over the next couple of years as management execute on their strategy and the valuation rerates close to other high-quality retailers with similar growth characteristics. We estimate the stock is currently trading on 15x earnings in FY '23, which is really the first year of normalized post lockdown earnings. And we estimate growth north of 30%, putting it on a PEG ratio of around 0.5x. The next company that I'll touch on, also a core position in the portfolio, is Data #3. Data #3 is one of Australia's longest technology-related businesses, having IPO-ed in the 1990s. The company has a market capitalization now close to $900 million. Data #3 provides IT products and services to Australia's largest corporate enterprises and the public sector, including the federal government as its exclusive Microsoft reseller. One of the key positive features of Data #3 in our opinion, is the very capable and generally conservative management team that must be among the most well-tenured on the ASX, having been together since the listing in the '90s. The business over recent years has become much more higher quality and predictable, now seeing over 60% of its revenues as recurring or really clipping the ticket on the software licenses that they sell into their customers and fees. In terms of why now, this, we believe that the stock is attractive as we're seeing the resumption of digital transformation projects that were put on hold through COVID. Some of these projects are very lucrative in terms of profitability to Data #3, and we believe that they will add significantly to profit growth over the next 12 months. Further, the IT market overall is expected to grow at 6%, which is one of the highest rates in recent history as businesses resume spending on solutions that help to cut costs, connect better with their customers and improve productivity. Data #3 has managed to grow consistently at a multiple of the market in recent years, and we see no reason that this won't be the case in 2022. Management recently provided profit before tax guidance at the AGM of $15 million to $18 million, which when we apply typical seasonality patterns gets us to around $31 million NPAT for FY '22. This sees the stock trading on around 28x earnings growing at 25% for a peak of around 1.1x. And we would not be surprised either for the business to exceed this given the factors that we explained earlier, given management's typical conservative nature, especially since the end of the year and then into December and June can be very big months for the business that it typically means that management has a guide quite conservatively in terms of the earnings. In any case, we expect strong growth for years to come for Data #3 as the migration to the cloud and the digital transformation of Australian businesses continues to unfold. Now turning to the next slide. I'll now just touch on the trading book in the portfolio and really some of the criteria that we're looking for to get one of these positions into the portfolio. As I said earlier, these have been some of the top contributors to performance over the past 12 months. Many of these are listed in the United States and are very liquid. And by that, we mean over USD 50 million of trading volume per day. You would have seen in our company announcements and the that Karl mentioned previously, the recent successes include DOCN, ASAN, UPST, ABNB, HUBS, and CFLT. So what are we looking for in these companies? Really, the first thing is significant sales and earnings growth potential. And the most important thing really here is a surprise factor or something that's going to surprise the market something new and something significant that could really move the dial. Of course, we need a management team here that have been actually executing that it's not just ambitions in the future, but they're actually executing on what they've been saying in recent history. Business quality and culture is also an important part. Businesses that have strong cultures of innovation and entrepreneurship are typically the type of companies that we're looking for here. The next point really is around institutional sponsorship or institutional interest. We want there to be increasing levels of institutional holdings in the company, hopefully, coming from a relatively low base. That some institutional interest is good, but moving in the right direction. That helps get a re-rating to the stock. In terms of technical criteria, really the first criteria is the stock in an uptrend and as it displaying healthy levels of accumulation. We're looking for a consolidation within that uptrend where we can start the position. And then we're looking for these other criteria such as tightening price and volume action and surges on updates and up weeks. So really, as we go to the right side of the consolidation, if you look at the chart, you want to see a tightening range as the trading action gets tighter and tighter, showing that it could be leading to a big move. If we combine that with the fundamental criteria where we have catalysts to suggest that the next move is up, that's really where you get the biggest moves coming out of that pattern where there's a volume surge. Another way to put this is also tennis ball action. So whenever there's a retracement or a selloff, we want to see that, that stock is retracing or coming back to its highs very quickly. If they stay down, it's typically a sign and we'll be reducing that stock. So we use our scaling approach to make sure we're managing our risk in these positions and locking in profits. This is very -- they can be quite volatile and have massive ranges. Trading positions require discipline we've put here. So when they're not working, we need to exit quickly. And if we're ensuring that these are very liquid, we can do so quite effectively. Thanks for your time. I'll now hand back to Karl to discuss the outlook.

Thanks, Jackson and Charlie. And now turning to the outlook, certainly as things are now, and as we think they might be going a year ahead. And of course, stocks and valuations on those stocks continue just to grind higher. And despite investor concerns over interest rate hikes, inflation and generally the high valuations that the stock market is experiencing at the moment, we are just grinding higher and anyone that would have said in previous years or even 3, 4, 5 years ago, the stocks were expensive and overvalued. Well, here we are, the stocks are even more expensive and according to that theory, even more overvalued. Earnings recovery has been strong post COVID. And so really, what you need to start thinking about is what were the earnings before COVID. Then we had the big effect of the pandemic and what COVID did and now what are the earnings post COVID. And so when we look over that we bridge that gap between and take COVID out of it, where are we tracking in relation to earnings prior to COVID. And some stocks are experiencing quite good organic earnings growth and others are experiencing probably not as good organic growth, and that's an important factor for us to be looking at going forward. The consumer remains in very good shape, obviously, having been in lockdown. We haven't had the opportunity to spend a lot of money. And now what did do well with those what we described as the stay-at-home stocks, and now we're back into the getting out and about stocks and back to business spending now that we're in a more normalized environment post COVID or certainly coming into a more normalized environment post COVID. We're hearing and reading a lot about wage and input cost inflation, supply chain issues and these are likely to be a continuing feature going forward. And this affects all of us and many businesses in different ways. Good management and pricing power within your industry are obviously a key factor that we're starting to look at for the next phase of the marketplace, and we're spending some considerable time on that. As I've said before, and I'll say it again, interest rates are what we call the X factor at the moment. We've been living in an environment where interest rates have been falling for 30 years. The big question is, are we in an environment where interest rates could start to go up? Or are we even at an inflection point? And this is a lot of what the present financial people are talking about at the moment. Well, you know that if the AGM was live at a venue, I would be asking everyone to put their hands up like I do every year and say, "Look, do you think interest rates are going to fall further this year? Or do you think going to go up?" For the last 5 or 10 years that I've been doing that. Of course, everyone said, no, interest rates are going to continue to fall. And they have. It would be interesting if we put our hands up today as to who actually thought interest rates were going to be lower a year from now and who didn't and who thought they were going to be higher. So we've been tracking on this trend for 30 years. And I've been harping on about it. But at some point, when that trend changes, it's a very important inflection point for all asset classes, not just for equities. And of course, at any inflection point, there's likely to be volatility. There will be the believers and there'll be the nonbelievers. The believers will think that interest rates are starting to go up and that affects all asset prices. The nonbelievers will think that interest rates are going to go further down. They're going to stay at 0. Reserve banks and bureaucracies around the world can keep interest rates at 0 forever or artificially low forever. You can hear from the way that I've said introduced that sentence that I think at some stage, interest rates will go up. And I've jokingly said before that it will happen in my lifetime. But I think I'll stand by that prediction. I think in my lifetime, interest rates will go up. Liquidity levels across our portfolio have significantly improved. You've heard Jackson and Charlie talking about very stock-specific things that we're doing inside our portfolio at the moment. Shorting has been working really well for us. The trading part of our portfolio, where things don't meet the core criteria that benefit from expanded valuations, have done well, specific situations where a stock gets revalued based on the catalyst have worked well for us. So we will continue to do those things that have worked well for us whilst at the same time, improving liquidity and having a buffer of cash on our balance sheet. I showed you the portfolio exposure before during the presentation. We're holding 25%, 30% cash at the moment. And if necessary, we can take that to 50% cash or as we did during the pandemic, we took it to 80% cash. During the global financial crisis, we took our portfolio to 80% cash and we have the capacity to do that. We're already seeing the signs of more cash, which is shorting starting to work for us and scaling out of positions that have come to an end after a profitable period. All of these things are increasing our cash levels. Overall, the environment is mixed. As I've described, that COVID period as in a way "a gift." If you could buy into the market at that stage, we've had tremendous returns in the marketplace. Our funds have done tremendously well during that period. We do not expect those type of returns in this year ahead. But nonetheless, the processes that we employ should be able to deliver us good returns in the year ahead. Ladies and gentlemen, thank you for your time. And now we will move into the live audio environment where we will look to answer any questions that you may have. Thank you.

Good morning, ladies and gentlemen. We will now answer any questions that you may have. As stated in the presentation, you can either take your questions into the Lumi platform or you can ask your questions via the telephone dialing. Details of how to do this can be found in your virtual meeting usage. We just take a moment now for people to write the questions or ask the questions and then we'll answer. Karl, I've got a couple of questions here from shareholders. The first question that I've got here is due to the current short attack on TMC, is there any likelihood that CDM and CDO will be caught up in class actions, which have been launched in the U.S.? If the current problem with TMC causing a severe discount to the share price? Is TMC now considered a sound investment?

Yes. Look, I think these are very valid questions, especially given the history of this position. I think let's just take the facts first because there has been quite a bit of confusion about this. And I have to say even in the financial press, there's been confusion about this position. We are a pre-IPO investor in this company, which means we bought into it at about [ USD 73 ] [Audio Gap] currently trading at about $3 to $3.20, which means we've made about 3 to 4x our money. So some of our position in CDM at about 7x what we pay for it. So if you take a very evasive position. But if you buy an investment and you make money on it, and that's a good position by an investment you lose that's a bad position, which is not a bad starting point. We've made a lot of money on this investment. So from that perspective, I consider it a good investment. People may consider that over simplistic, but I think anything where you make 4, 5, 6, 7, 8x your money with the potential to make 10x your money, I consider that. When you have an investment where there's a lot of financial press and international, you hear people are shorting the stock and some people in position may go long or short, and there's a lot of confusion on noise with an investment. From a fund manager's perspective, I can tell you over time over nearly 2 decades now that from a shareholder perspective, that can be viewed as a bad investment or the noise and the emotion and all the emoting that occurs as a consequence of the noise and have factually -- often factually incorrect noise makes it a bad investment. So I mentioned here at the side of the perception reality gap that occurs in finance, the reality is we've made a lot of money on this investment. It's a very good investment such as minerals and everything needed to produce a battery for an electric tile, which is the future, I think we think petrol and fossil fuels is a thing of the past, not going away straight away, but it's something as a world want to move away from. So this is from that perspective, a very good investment. Yes, there was a lot of noise around the company. There was a lot of people that put money in at $10 and the shares of $4 to $3. Are they happy? No. In emotional terms, they're not happy. They're sad. Actually, as professional fund managers, they shouldn't be focusing on their happiness and sadness, they should just be focusing on their investment. So I think what I can say about that is we've had a very famous New York fund green light on. They have started accumulating stock. We've seen a very good presentation and update on the hidden gem, the 208-meter vessel in Rotterdam at the moment, which is being commissioned, and we've set a fly-through video of the pickup that's been completed in China. It will be moved out to start the pilot studies for picking modules of the ocean floor, which is such a technological advancement in terms of mining. And so such a light footprint compared to blowing up, for example, the Indonesian rainforest to get some nickel and burning it in 5 stations in China to get Nickel to put into your electric car to save the world. So I think there's a lot of work and a lot of thinking about the world that needs to occur. If we're going to do what we did with fossil, which was invented about petrol car, get it going for the first time, take holders up it and then from then on have to keep filling it petrol. That wasn't a smart strategy. So we've got to be a bit clever with it. So the second part of that question is, is this causing a discount to NTA. It could be. And I think that's a good question to ask because as we were going to -- as the company was floating in the U.S., we went very close to NTA. Then when it was announced that there was all this shorting and stock was going up and down, the cause of discount to NTA. Really, I think that over time, that discount to NTA will disappear. We just don't think that we have been buying shares back in this company, 25 million or 26 million shares at an average price of $0.75 or $0.78, I think it is now. So we've backed not only our investments, and we've backed ourselves with the actual company buyback shares at a discount to NTA. And of course, discounts to NTA create opportunity, bringing into NTA -- bring a future danger. So I would say to people that this discount to NTA that disappear over time. We have traded at a premium. We've created a discount and net of all of that in the long run as we've traded around NTA. Yes, definitely TMC is topical. The next thing and important thing to watch going forward is going to be its grower that will end around the half year results on that. And if you want, you can add a significant profit. We had even more retained earnings, pay tax on and creating even more of a franking, allow the space for more dividends. That's the mechanics of it.

The next question, it's a question -- asks, please, can you explain the fundamental differences between CDM, which is Cadence Capital Limited and which is Cadence Opportunities Fund. This is a likelihood that they will be rolled into 1 vehicle.

Yes. Okay. So look, it's a shame that we've had this one in the morning, and we've got CEOs AGM this afternoon, Chris Jackson and Charlie have got some slides there that really zoning on the amount of trading that occurs in the CDO and the statistics around the win-loss ratio and the percentage -- win percentage loss. And really, you are looking at a fund that trades high volume and has very high turnover. That is not what CDM was set up for 18 years ago. There's a portion of the CDM portfolio, the trades. And at different times of the cycle, that portion grows and contracts. We were a core investors just the majority of our investments. That's all we did over the last 2 or 3 years, we would have definitely under performed in the market, the trading market. There is very few stocks trading globally that are trading at multiple of 10, running at 20% per annum and throwing up 5% or 10% operating cash flow yield. That just isn't the marketplace we're in. You've seen interest rates fall. You've seen valuations rise, you've seen housing, bonds, equities, be it cars, rare wine, rare whiskey, everything you can name that is considered an asset or has gone up dramatically in value, does not really reflect shares by the earnings growth profile. So that trading portion of what we do, that is what Cadence's opportunities fund does. Very different funds. They would set up the -- was set up later with that trading in mind, and we just have to track it over time, and you will see as time goes by that this will prevail. So, of course, they can't merge because the difference.

The next question is Cheraldyn, shareholder. He says, my concern is that I manage shares in 5 portfolios, holding Cadence shares, which are mainly bought back in 2012 and 2013 and also a potential capital loss position of between 9% and 29%. Sales have been made over the period of losses to offset gains and other investments for tax purposes but still the potential loss exit. Presumably the current discounters partly responsible of performance over the long term seems to have been responsible on our query whether the methodology has changed very much from that originally scripted. Further, I suspect the lack of liquidity in some of the investments has been the cause, but your general comments on how the situation will be iterated would be of interest. Seems improved performance may well be appreciated by the market.

Yes. They're very good questions. I have to say we had our Board meeting on Cadence Capital Limited last week. And I brought out this both issue up about the discounter NTA. When I set this fund out, one of the things I wanted to do was to put my money to work marketplace and then have people come along with me so that our interests were aligned and invest. That was the plan. So what has actually happened with some investors is something quite different to that, which I didn't contemplate at the time and didn't know about. And in my defense, I hadn't run a listed investment company before so how could know. And that was this concept the concept that when you're at a premium, certain investor profiles love that and buy you. And when you're at a discount, certain types of investors take that and sell at a discount to NTA. So to the extent that, that question is asking, should I sell at a discount and buy at a premium? My answer to that is no. My advice to you is to buy the discount and sell at a premium. And then when you analyze your portfolios, if you're able to buy the discount and sell at the premium, we have a very different return profile. Having said that, the return of this fund from an NTA perspective is around 680% since inception, and the market is up around 222%. We often get asked, well, where is all that return, we can't see in the share price. Well, we are trading at a discount at the moment and we paid out 1.5x our share price and dividends over that period. So we've been a big payer of dividends. The third component of that question, which is, does the premium discount track NTA to some extent? Yes, it does, and it also attracts dividend yield and dividend yield tracks performance. So it's kind of a circle. So if you have periods where you underperformed and you can't pay as much dividend, you go to a discount. If you have peers outperform and to pay more dividends to go to a premium. So small investors and listed investment companies should know that and say that after periods of underperformance when you start to outperform again, you're going to move from a discount to a premium. And when you outperform again you have more retained earnings and more fully franked dividends to get a better position to pay more dividends than the half deal, so it will move from a discount to a premium. An actual fact, one of the most fascinating things about listing distant companies is how slowly they absorb that information. So after a period of where we've had a period of underperformance, which we've articulated to the market in great detail, we haven't backed away from that. We're now having periods of significant outperformance. And it will take time for the investing public to absorb that information, and it will take time for them to absorb the fact that we have a lot of retained earnings and a lot of franking up our sleeve. And it will take time for them to absorb the fact that we're in a much stronger position to take to pay fully franked yield as a consequence of that. But when they do absorb that information over the general slope here that it's going to take them to fold that information and acceptable traded NTA. So having said that, the thing that really bothers me about that question or I think this question my concern is just as ongoing concept of selling shares at a discount to NTA investment company and buying them at premium rates. If there's just one thing I want to get out with it, is buy at a discount to NTA, sell at a premium listed investment companies that you own that are trading at a premium to NTA and underperforming market, I would prefer to buy a Cadence Capital Limited at a discount to NTA, which is outperforming too long. And the other thing about all of this is everyone says overall I'm a long-term investor. I'm here in my super fund in accumulation mode, for example, like discount, well, really lying about that, that's an opportunity for me to buy, okay, I'm not going to need that money for another that super stream, super stream for another 15 iteration other people that are using the dividends as the dividends increase we're in a better position. So that's almost more reason to buy this gap. I know last year, I said this every question was about the discount premium I said And I'll just -- I won't add too many more during this AGM, but it's a pretty simple concept to buy at a discount to NTA, sell at a premium to NTA and not the other way around.

I can't see any other questions here. And I'm not just sure -- I don't think any of the calls are wanting to ask any questions. So...

There was -- sorry, there's another part of that question I didn't answer just then I just realized, which is the issue around liquidity. I've seen those questions on line. I want to then say something So just to put that in perspective, yes, as we were only investing in Australia as the portfolio grew. And you know, our proceeds we like to scale any positions and scale other positions. When you're doing that in small and mid-cap stocks in Australia, liquidity can be a bit concerned. You know that about 8 years ago, we started investing offshore and microcap for example, in America $1 billion. So that's considered a mid-cap or sometimes in a large cap when the market is low. We have a lot more liquidity in the portfolio, and we have a lot more spread of liquidity in the portfolio. Liquidity has improved dramatically. And so that should also -- really all liquidity is another measure of risk. But if you have improved liquidity dramatically, we've been able to outperform the market significantly. That means one component of risk that we were taking we're no longer taking to outperform the market, and that is lack of liquidity. And I think that's important in this market. If you've got a big of shares that are all illiquid, you want to be getting paid, you want to be getting paid for the risk that you're taking. And then the second component of that question may have been that you were referring to the liquidity of CDM, I have to say that the liquidity of CDM is very, very good, but we can trade 200,000, 300,000 shares a day, which is $200,000 to $300,000 of stock a day. If I go down to my top 20 shareholders, by the time I get to number 15, 16, 17, 18, 19, 20, that means that those top 20, those shareholders could sell their shares in 1 day. That's an extremely good liquidity our shareholders. And certainly, of the 8,000 shareholders that we have, there should be no problem. All right. Well, if there's no more questions, let's move on to the formal part of the meeting. The first item that we need to discuss is the financial report for the year ended 30th of June 2021. Does anyone have any questions for the orders in relation to the financial report. Just going to wait a while as I'm aware that this process takes us a little bit longer, and I'll just one of you to give us an update.

Karl, no questions received.

All right. So I'll now move on to the resolutions. In accordance with the proxy form, the Chairman intends to vote all eligible under votes where you hold the proxy in favor of the resolutions. If not yet voted, please ensure that you cast your votes now as I will be closing the voting after I have gone through the resolutions. There are 3 resolutions to be passed. The first resolution that the company adopts the remuneration report as set out in the Directors' report. Resolution is advisory only and does not bind the company or its directors. I hold proxies amounting to 38,581,265 shares for this resolution, 2,235,931 against this resolution. Are there any questions in relation to Resolution 1? I'll just wait a moment.

No questions came in.

All right. I'll now ask that Jenelle Webster to read the second resolution.

The second resolution is that Mr. Karl Siegling who retires in accordance with the company's and being eligible, offers himself for reelection, be reelected as a Director of the company. The Chairman holds proxies amounting to 41,296,946 for the resolution and 1,131,001 against the resolution. Are there any questions in relation to resolution 2? If there are no questions, I'll now pass back to Karl Siegling.

Thanks, Jenelle. And so the third resolution is the reverse -- the third resolutions is that Ms. Jenelle Webster who retires in accordance with the company's constitution and being eligible, offers herself for reelection to be reelected as a Director of the company. She hold proxies amounting to 41,261,560 for the resolution and 1,188,387 shares against the resolution. Are there any questions in relation to the third resolution?

No questions Karl.

All right. Well, that means that the voting is now closed. And the results of these votes will be released to the ASX later today. Obviously, I'd like to thank that you all for attending today and the time that you've spent with us online. I will say that I hope that the next AGM is live again and not in this -- in a online format because what's missing here is the human interaction and the live and constructive debate that we have in relation to the process, our shares, our stockholdings at CDM and obviously, in particular. But thank you very much for your time today.

I was going to quickly mention potentially we would also be doing a roadshow.

If we're able to, and we're not stuck in this current restricted environment that we are here in Sydney. Hopefully, in the new calendar year, we'll be planning on doing a national roadshow to get out to all the different states and make a presentation in person, by then we will have our half year results as well.