Future Generation Australia Limited (FGX) Earnings Call Transcript & Summary

Thank you to those participants, who have already sent in questions. We will cover the common question sent in first before opening up to the webinar and caller questions. If we don't get through all questions today, we will come back to everyone who has asked a question over the coming days. Now firstly, the reason for the call. I mean with the uncertainty and volatility in the markets due to coronavirus and its impact, we thought it was opportune to schedule this investor update between our last investor call on the 12th of March, which covered our end of year results and the next shareholder update, which is scheduled for May 21. Here to discuss things with me is Future Generation Founder and Director, Geoff Wilson, who is also the Chair of the FGX Investment Committee and also sits on the FGG Investment Committee. We have also invited John Coombe, FGX Investment Committee member and Principal Consultant and a Director at Investment Consulting firm, JANA. JANA is one of Australia's leading investment consultants currently advising around 80 institutional clients, including corporate, industry and public sector superannuation funds as well as charities, insurers, foundations and endowment funds. JANA's total assets under advice as at December 31 last year are approximately $600 billion. I don't think there is any person in Australia better qualified who knows and understands the funds management industry and the various fund managers than John, both within Australia and also globally. His advice is invaluable also for FGG, even though he is not on that particular investment committee. So firstly, what -- before we chat to Geoff and John, I'd like to update you on some matters. Firstly, what I've been up to or what we've been up to since the last investor call. There's been a number of things. One of the big priorities has been calling our top shareholders in relation to our most recent results, highlighting the defensive nature of the portfolio and the downside protection. This week in our NTA that was actually released on -- yesterday, we launched our first podcast series in conversation with our first guest, Jono Nicholas, and I'd encourage you to spread the word on that podcast and send it to any family, friends or colleagues. That will be a monthly series. The other thing we've been doing is some speaking engagements. Now oddly enough, obviously, with the coronavirus, it's not possible to do those live, but where I can, been doing some of those virtually. So for instance, tomorrow, I'm prerecording a panel session, I'm doing at a conference on mental health funding with some other panelists who are mental health funders, and we're doing that virtually. So it -- we're adapting. The other thing I've been doing is doing update meetings with various financial planners that we know and also some discussions in the last week with our charities to really understand how they've been impacted by the virus and, of course, they have been, like we all have. The other thing is that we will be providing you with our next shareholder presentation, the update we normally do in May, it will be on the 21st of May. But rather than being part of our live roadshow, that will be done as a video presentation, and we'll also be doing a series of presentations to brokers in April and May by virtual meetings as well. Finally, our 6 monthly investment forum, where we usually have 10 stock picks presented by our Australian and global fund managers, this time, they will be in written form and we'll be inviting all of our fund managers from both FGX and FGG to provide their top stock pick. There will also be an interesting panel with 2 leading fund managers. And that forum will be launched to each of you on the 21st of May. So now I'd like to draw your attention to some of the slides that we have in the pack. And I'd like to talk to you firstly about the March NTA report and also dividends. So they're actually slides 3 and 4 that are actually in the pack itself that you should have access to, if you've joined us by the webinar. So firstly, just covering off on the pretax NTAs for both companies: for FGX, $1; and for FGG, $1.39. Now share price as at close of market yesterday for FGX was $0.92 and that was a discount of 8.3%. And with FGG, the share price yesterday was $1.11, representing a discount of 19.7%. Now based on -- assuming we have performed in line with the index, those discounts will be larger than that and they'll be adjusted for live estimates, which would be approximately 12% for FGX and 24% for FGG. Now I want to talk a little bit about, before we talk about the dividends, really our strategy on closing those discounts. I think as you're all aware from our previous investor call that what's caused those discounts has essentially been the capital raisings and the churn from the capital raisings that we did at the end of 2018. And normally, when you do a capital raise like this, you would have churns in the order of 25% to 30% of new people that come in, in a placement and then unfortunately don't stay with us long term. The churn that we had for both of those was in the order of 35% for FGX and 39% for FGG, the higher churn with FGG because we raised more money with that particular company. Now obviously, those discounts have blown out with the downturn, the severe downturn that we've had in recent months this calendar year. And the strategies, the plan to close those discounts, I think I've touched on these in our last investor call, but essentially, it's a very detailed communication plan to actually stimulate more buying. I mean that's what we need to do here to close these discounts. And what we've done as part of that strategy is actually to boost the staffing resources that we have in the communications area. Now I would note here that that's been very generously funded by WAM, by the management company, not the actual LICs themselves. So there's no cost to the Future Generation companies nor to the WAM, LICs in this particular instance. But that is actually allowing me to focus more closely on closing the discounts. And we've had to shift that communication strategy so that because of the virus, we're doing a lot of what we normally do live, whether it's speaking engagements, whether it's talks to groups like the Australian Shareholders Association, the Australian Investors Association, we're doing all of those virtually where we can, and we're becoming very much experts, like I'm sure yourself, at doing Zoom meetings and Skype for Business meetings, et cetera. Now the other important thing here on closing these discounts is that we do have the experience of Geoff Wilson. Geoff's experience with WAM, he's had -- he certainly had some of the LICs at WAM trade at discounts in the past. I think I remember him telling me that during the GFC, I think it was WAM Capital that traded at one point at 34% discount. Our FGX and FGG have traded at discounts before, I'm sure in the future they will trade at discounts again. But we are fully committed to actually closing those. There's no quick fix. It's not like we can turn on the switch. And obviously, it will probably be a bit slower than we would have liked due to the downturn and the impact of the pandemic. We certainly have no plans to do any further capital raisings at this stage until we're consistently trading at premiums again or at least at NTA. And that's -- that obviously was the case when we did the capital raising at the end of 2018. So what I might now -- do now is just talk a little bit about the dividends. I mean important to see here that the dividends -- you can see that the total dividends that we paid since inception are $0.211 (sic) [ $0.221 ] per share for FGX; in contrast with FGG, that has been $0.045 per share. And of course, you would understand that the difference in the dividend payments is very much because FGG is a global stock here. So we're relying on distributions from fund managers. And in some cases with FGG, we have fund managers that are domiciled offshore. So they're headquartered overseas with different tax and legal structures. So what that actually means is that in some cases, we're not picking up distributions from those fund managers. So I'd just remind our participants on the investor call that FGG is very much a capital growth stock as opposed to a dividend stock. Importantly, we put here the profit reserve balances for both companies, it's $0.088 per share for FGX, and it's $0.043 per share for FGG. So importantly there, the philosophy, the policy of the Board has always been to have at least a year or 2 in the kitty at the current level, so that if we get ourselves into a downturn, like we currently are, that we will -- we won't have to be in a position that we would have to cut the dividend. So that's really the philosophy, and we're on track on that going forward, for when we announce the next dividends, which would be at the end of August with our next results. So just on the dividend, that's the slide on Page 4 is just really talking about the $0.026 per share fully franked final dividend. So that's the final dividend for 2019 for FGX. And you can see there that the payment date for that dividend is 28 April. We don't -- up until now, we certainly haven't made a dividend. At the same time, for FGG, and the next dividend payment as per previous years will be announced at the end of August, and we're on track to actually do that. So now what I'd like to do is hand over to Geoff. And firstly, ask you what your view of the market is. I mean we're back in a bull market after one of the shortest bear markets in history and, need I say, some quite extraordinary times. And I know that you've been nervous for about 3 years before all of this that the bull market was coming to an end. I mean the speed and the severity of the downturn has been quite unprecedented. So what's your view on the market, Geoff? And then I'll ask John.

Yes, look -- thanks, Louise. The -- I mean one of the things -- just in terms of looking at the big picture, the fantastic thing about investing in equities or investing in businesses that are listed on the stock market is, over time, you get a good return. The -- obviously, one of -- another strong thing we know about equity markets is they are cyclical in nature. And another thing we know is the bear market -- sorry, bull markets last for a lot longer than bear markets. And I think since the 1900s, the average bear markets run for a little over a -- about 1.5 years. Since the, I think, 1980s, I think the average bear market is a bit shorter. And in terms of where we are, like a bull market is when a market goes up at least 20% and a bear market is when a market falls at least 20%. And as Louise quite rightly pointed out, technically, we've gone from a bear market, when the market fell 35-odd percent, and the fact that it's rallied more than 20% in theory, we're back in a bull market. I believe we're probably still in that bear market, or if not we'll go back into it. The -- as an investor, you usually get quite excited when the market falls because you know some real opportunities are going to present themselves. I think for everyone in the market, this time, it's been a little bit different only because the reason for that -- for the market falling is -- with the coronavirus is there's been a significant loss of life at the same time. The -- in terms of the market, to me one of the interesting things is back in the GFC, it -- really, the saying was that companies that were too big to fail, so if you're a small company, you'd go under, but if you really wanted to be a large company and the banks had to -- then you had to be supported by the banks and the financial system. The interesting thing is, this time, over this period, I would say the saying will be, effectively no one will fail. And the thing that has probably surprised everyone is not only, as you mentioned, the speed at which the market fell, to me that comes a little bit to the overvaluation that we had in the latter part of last year, but coupled with that, the speed at which governments have moved from a fiscal perspective, in terms of stimulus, but also monetary authorities have moved. And the latest federal reserve sort of injection of cash that they announced in the latter part of last week, was another $2.3 trillion. And that wasn't then really supporting unprecedented areas, it was supporting just operating businesses, which they had never done before, and also putting liquidity into the junk bond market, which they've never done before. So -- and the amount of money that they spent, I think the Federal Reserve, this was up to a week or so ago, in a 3-week period, was more than all the money they pumped into the system in the year of the GFC and the 2 years after. So the amount of liquidity that's been pumped into the system. And China -- I mean China has said that, I think, last month, it was something like RMB 5.5 trillion that they pumped into the system and that will probably be ongoing. And because there's not a great deal of economic activity at the moment, where does that liquidity go? It goes into assets. And that sort of helped asset prices bounce back. My current view is that this -- well, and in terms of the lockdown, that will -- or the recovery after that that will be staggered. Probably work will return to normal -- well, sorry, relatively, will return first. And the play or the leisure part will be quite a bit down the track. And my current view is we'll probably be in this period for a bit longer than the market initially was anticipated. And what we're seeing on the ground is, there is being and there will be significantly more equity raised by companies. Back in the GFC, we had about -- 12% of the current -- of the market back then was new capital that was raised. And it wouldn't surprise me if over this period, it's -- it will definitely be greater than that, and we're already starting to see it. So my view on the market is, yes, I think it's going to be a tough 2020. Whether the market will retest [ the flows, ] who knows, I actually think the negative economic impact from the coronavirus will be longer than the market is currently expecting. That's sort of my current view.

Yes. Sounds good. Thank you, Geoff. So John, have you got any views that you'd like to share with us as well, be interested?

Yes. I think Geoff's right about the capital raises. I think that's a really interesting part of the market. But unlike the GFC, we don't think the banks are going to have to raise as much capital. They actually go into this downturn, having had to raise capital since the GFC and they probably got reasonable balance sheets. Now they may well raise a bit more capital just to shore up the balance sheets up for the next couple of years. But if they're not paying out dividends through -- or a reduced dividend, their balance sheets will be pretty good. So this is quite a different recession. This is a policy-induced recession and as one fund manager said to me, it will be a -- policy will determine how fast and how quick we get back out of this. I mean I use the analogy, it's a bit like having a heart attack. It's -- you're laying down there and you're prostrate and you're just wondering whether the little shock treatment is going to keep you back to life. And all of this government's stimulus is like a little shock being on the body. And can it get the economy back quickly? I personally think, it can't. I don't think there'll be policy mistakes. I've never seen governments deliver without some sort of errors occurring and that could well slow down. So I think the markets rallied on the fiscal policies announced around the world. When the economic reality of this strikes, it will be interesting to see how the market reacts to really horrendous numbers being printed on economic growth, number of people unemployed, the amount of money and balance sheets that the central banks will have the size of the central bank balance sheets. And who's going to pay for all of this will start to weigh on the market, I think.

Great. Well, thank you, John, and we might come back to some of that a little bit later, if we've got a bit more time. Now Geoff, during these volatile times, I mean can you share with the participants, the view of each of the investment committees for FGX and FGG. So I know we've got some slides there as well. But -- and also if there are any key outcomes of any recent meetings as well?

Yes. Thanks, Louise. And obviously, the investment committees, which operate purely focusing on the individual fund managers and the makeup of those fund managers, they are looking at the performance of those managers consistently. In terms of the more formal meetings of the investment committees, we actually -- because this is an unprecedented period and with the significant volatility, we're meeting more frequently than we usually do. We actually had -- both committees had meetings yesterday. And the logic -- well, actually, to take a step back in terms of how both committees have set up their -- or selected the various managers, the logic is to try to get performance in line, if not better than the market, and to have a diversified portfolio of managers that reduces the volatility, and that's to have managers that we call them, we use the word absolute managers on that. They are managers that can dial up their cash if they can't find good investment opportunities, or some managers that are looking at for absolute returns, so they will -- they might be -- so they have $100 million they're investing, they might be $100 million invested in the market and $100 million short the market. So they are trying to make money, which is really about stock selection. If the ones they buy go up, and the ones they sell go down, and that takes out a lot of the volatility in the market. So -- and we use that more in FGX than we do in FGG. But it's to have a combination of those two managers. And broadly, if you look at both the portfolios and on the slides, that shows you that for FGX and FGG, you'll see, say, for FGX, I think it's a little over 45% is in managers that are focused on being invested in the market at all times, and we call that long equities and the rest is made up of absolute bias market neutral and cash. And then if you look at FGG, that's on Slide 9, it's 55% of long equities, and the rest of the portfolio is made up of absolute bias and cash. And that's how we set up the portfolio. So the reason why this meeting was called, and it was called a few weeks ago, was assuming it was a normal bear market, which runs its course, then when do we look at, say, increasing our exposure to the equities because we all know that you want to be buying when everyone else is selling and you want to be selling when everyone is buying. So now at our meeting yesterday, because the market had rallied so strongly since we called it, then we haven't changed the makeup of our -- the portfolios of both managers. But we're on alert to that. Let's -- we've got another meeting in a month's time. Obviously, we're looking at this consistently. And the whole idea is to give investors a better than market return with less volatility. And if you look at, say, Slide 5, which is FGX, you'll see on the far right-hand side, the volatility of the market, that's -- the all ords volatility since we started was about 14.5%, and the FGX portfolio was about 11%. So it was nearly 30% less volatile. So in theory, you'd normally say that that would give you a 30% -- you're taking less risk, less volatility, so you get a third -- sorry, 30% less return. But the fact is that FGX has outperformed. Now obviously, we'd like to outperform by more, but that's what the numbers are. And it's -- to me, it's difficult sometimes when -- I know as a fund manager also is with, say, Wilson Asset Management, the portfolios we manage, when we're in a bull market, and you had a different economic environment you're operating in with different economic outcomes you're expecting, then you had a certain portfolio. And when it became clear that the coronavirus was spreading internationally, it was sort of that weekend or that Monday that became clear a number of weeks ago that that was happening, then we seriously looked at our portfolio and said, "Hey, look, this is going to have a significant negative impact on global economies. What -- all the assumptions we've got for growth, what do we have to change? What type of companies do we want to be exposed to?" We actually went -- and so we actually, over that month period, we significantly restructured our portfolios. So in these inflection points, you do get that happening. So therefore, you've got a portfolio that will benefit from what will play out over the next 6 and 12 months. And internally, at our morning meeting, this morning, lot of things we were talking about is, how we -- and we've been talking about this for a while, like setting up a portfolio, how is the portfolio positioned for a recovery, and what does a recovery look like. But if you turn to FGG, and the slide there, again, the performance and the volatility, the -- you can see the numbers there. So that's -- does that pretty much explain that Louise? And probably touches on most of the slides. In terms of the various fund managers there, we can't thank them enough on behalf of the Investment Committee and the Board because we are invested in these fund managers' main funds, they are doing it pro bono. You can see the list of fund managers for both FGX and FGG and they've all performed over time. And to be aware that at various points in time, we do change fund managers. And as investment committees, we're very happy to do that. If it's -- management changes, if it's any -- if they're performing not as we expected or if there's -- and that's both ways, outperforming, taking more risks than we expected or underperforming. And I think there's been -- I think we've added between the 2 about 10 fund managers and removed about 11 fund managers over the last few -- since they've been operating.

Right. Thank you very much, Geoff. And John, is there anything you'd like to add from the point of view of being on the FGX Investment Committee? Okay, I am not sure I've got John there. Okay. John you're not -- you all right, John?

Sorry, Louise, I was on mute. I answered the question to myself. No. I was just saying, Geoff was right. We spent the time just thinking about the future and whether we had the right mix and it was a good meeting.

Yes, good. And John, just another question to you. I mean I'd like to know how you translate your views as an asset allocator for JANA into FGX?

Well, from our point of view, I try to look at the mix that Geoff's talking about before about how much have you got in absolute return, how much you got in long, short managers or the market -- the extended markets and how much you've got in just long only. And we just -- I try to just help the committee think about what mix we've got in there because it will have certain attributes. Also the mix of managers, how many value managers we've got, how much growth managers do we have, is that particular manager going to do well in this environment or do poorly in this environment, so it's a mixture of that, Louise.

Well, I know you've been incredibly valuable when we're thinking about any potential managers that we might use in the future. Your network is quite extraordinary. So thank you for that. Just another couple of questions for you, John. I mean what are fund managers telling you at the moment? Like what -- and what's getting them excited?

Well, I think it really -- if you're a value manager, you're super excited because all of the companies, the cyclical companies, et cetera, that you probably were already starting to own have just been -- they're now 25% cheaper or 30% cheaper because those companies have actually been really hit hard. And so a lot of the value managers are really excited about the opportunities that they're actually seeing in their portfolios. And potentially when the economy rebounds, those cyclical companies will rebound quite hard. The growth guys are really interesting because they're getting excited as well about some of the opportunities and the playing out of the digital world as they see it. So Amazon suddenly, they get a free [ kick ] from all of this online buying, et cetera, struggling to get a foothold in Australia, but suddenly getting additional people shopping online because they're not going after the shops. So the -- both managers are sort of getting excited. The quality managers, or the managers who focus on the quality of management and companies, are basically looking at their portfolios and going, "Well, we've done a really good job here because the market has turned to our style of company." The market is focusing on companies that can grow through any market environment and have strong management. So -- but yes, the value guys are probably the most excited at the moment.

Good. Thank you. And look, one other question for you, I'm just throwing in here, talking to shareholders, as frequently as I do, one of the interesting questions, of course, is, do you think there is a prospect of more big falls before the bottom is finally reached? Or has the bottom already come and gone? Can I ask you Geoff first and then John, your thoughts on that?

For me, like the hard part is, it's just how much liquidity will be pumped into the system or -- from both the fiscal and monetary perspective. I'm more of the believer that we've sort of get -- we've got the sugar hit from that occurring. And then as John was saying, then the sort of the stark reality of the economic slowdown or the significant recessions that we're going to have globally will occur. And you'd assume probably the market is already factoring all that in. Where I'm sort of grappling with, and this is sort of the difficult thing or you just got to spend enormous amount of time trying to do as much research as you can on the virus because as an investor, we're trying to work out how does global economies come out of this? And when do they come out of it? When does the economic activity pick up? And like is it V shape? Is it U shape? Or is it an L shape? I would say sort of maybe the L is lifted up at the bottom a little bit. My current view is that that things will be -- 2020 is going to be a really strange year and that the sort of the negative economic impact is going to be bigger and larger than the market is currently thinking. So therefore, that's -- I'm sort of the view, which I think John was talking about, that we may have seen the bottom, but the market will dip down again. That's sort of where I'm thinking.

Yes. John, anything to add there?

I think it's interesting when you go around the world, Louise. If you talk to an American fund manager, they're all like the President. We're having this big V-shape recovery and we're going to come out like this [ novel ] virus is going to be all beautiful and wonderful. And if you go to the U.K., they're much more sanguine about the whole thing. They do believe they'll have a recovery, but it will be extended. And the fact that you've come into this in progression, you'll come out in progression. And if we haven't got something to kill the virus of, Geoff's right, like if you haven't got a vaccine, then basically we'll be in semi-lockdown for a lot longer than people think because the politicians don't want to put the stress on the health system.

Yes. Fair enough. Well, look, I recently spoke to Jono Nicholas, the CEO of Wellbeing Outfit, an FGG Board member for our first podcast, which was about coronavirus and the impact on how we work and live. And interesting enough, he argues that he doesn't think we will end up with a vaccine that works. But we discussed positive ways to manage the overload of information we're receiving each day and he suggested reading. What are you guys reading [ for all this? ] Because it is an overload, I mean I'm finding it quite overwhelming. I'm starting to adjust and -- but, Geoff, what about you first?

The -- I mean you just got to read as much as you can. The interesting thing is like in our game, whoever has the best quality information tends to do incredibly well. So it's really collecting as much information as you can. And that's -- whether it's -- the strange thing is normally when markets are falling, I wake up. I'm a great sleeper, and I normally just sleep straight through. But when the markets are falling, and I'm sort of getting semi excited, then I wake up in the middle of the night and listen to the market for a little bit, just on CNBC or something like that, then drift back to sleep. And probably for the last month, I've been doing that. And I sort of moved from CNN to listen to the U.K. news or -- to try to find out what's going on over there. And then also just reading, just reading everything you can about -- and particularly the medical. The medical stuff that's based, in fact, whether it's the Imperial College. I think that was the research they did, which talked -- initially talked about 0.5 million people dying in the U.K. and I think 2 million people dying in the U.S. if they did nothing. And that was sort of -- that was, I think, what we're -- Trump, all of a sudden was quite flippant about everything and then he switched around. They said he read that. And what they talk about there is, I think, a 4-month lockdown...

Or someone told him about it, Geoff. Someone told him about it...

Probably, that's right. Actually, just on that, I was -- this friend that I used to cycle with is a doctor, and he sent me a beautiful podcast about Trump and saying that he was a -- just all the personality disorders he has, I think some type of narcissist and -- anyway, I'll flip it to you. [ I think it's quite bizarre. ] But yes, just read as much, yes. To me it is reasonable.

I think if you watch those -- what about you, John?

I've picked out probably 3 -- I've picked out 3 or 4 that I'm following closely because they're just really interesting pieces. So the multi-manager guys at Perpetual are putting out a [ diary ] one which just has some -- every now and again, they throw in a really interesting article, which is just fascinating, so I've been reading that. And I've been -- because I think the bond market is critical here because, at some point, when do they stop buying all this stuff. But I've been basically reading a bit from Bridgewater and a few of the other big bond managers and just -- and PIMCO on things like that, just to try and get a sense of how the bond market is operating and what they're seeing because the bond market could end up being equity holders for a lot of companies who are overleveraged. So it's interesting just to get their view.

Great. Fantastic. Well, I was just hoping -- yes, Geoff?

Louise, I've just had a few people text me about that podcast. And I'll just tell you, it's called The Jolly Swagman Podcast by Joe Walker, and it's the 30th of May 2019, #66, and it's titled, The Leader of the Free World is a Malignant Narcissist with Pre-Dementia. And it's an interview of, I think, a psychologist, John Gartner. So it's -- yes, it's just interesting.

Sounds like a compulsory one. I love it. Okay. Thank you. Thanks very much, Geoff. Well, look, now what, just for the remaining time, and we've got, what, about 15 minutes. I'd now like -- we'll take some questions now, and I'll pass over to future generation brand manager, Alex Hopper Irwin, to moderate those questions for us. Thanks, Alex.

Thanks, Louise, and thanks to everyone who submitted a question by e-mail. So we'll answer these first and then answer a few webinar questions and then finally open up to the call questions. So Louise, there are a number of questions regarding the discount to NTAs [ in ] both FGX and FGG, and I know you outlined your plans earlier. Is there anything you'd like to add? For instance, can you comment on whether a buyback would be part of those plans?

Thanks, Alex. Well, look, not currently, I do get asked about that occasionally. And obviously, there's a number of LICs that have done buybacks in recent times late last year, for instance, to endeavor to reduce the discounts. We've done at Wilson Asset Management and at Future Gen, our Head of Operations has done quite a bit of analysis, looking at those LICs to see whether those buybacks have been successful in reducing the discount. And I think in just about all cases, we haven't been convinced that they have been successful. So it's not currently on our plan. I suppose you never say never. But based on our experience, it's not something we're looking at doing at this point in time. But Geoff, I don't know whether you want to comment a bit further?

No, I agree. The interesting thing is even though logic tells you that a buyback makes sense, so you're buying $1 of assets for $0.80, yes, that history shows that a lot of investors aren't keen on that; A, it shrinks the size of the company. I mean the good thing about this company is there's no costs. So normally, it shrinks the size of the company, so your costs become a bigger percentage. But as virtually everyone's pro bono, I know except yourself, Louise, who gets paid from the company, so there isn't that argument. But really, generally, people tend to like the companies that are growing. The people that are looking at investments can find investment opportunities, and we are very happy to -- I mean as an investment committee, we've got other managers that we have on the bench that we can bring on at any point in time if we believe that we've got excess liquidity to invest. So -- and you tend to find is people tend to want you to do a buyback at the wrong time. It will tend to be when things -- when markets are negative. And to me, one of the sort of travesties of this -- the thought process is when things are tough, give me my money back because when things are tough is when you want to be buying or investing is Australian Infrastructure Fund, which actually was the shell that we used for FGX. And that was listed on the stock market, had a great array of assets. And unfortunately, after the GFC, a number of shareholders, mainly hedge funds, became shareholders [ who were ] trading at a discount assets. They put pressure on the Board. The Board ended up selling the assets to the future fund. The future fund, to me, was a fantastic buy for the future fund. And all the shareholders that had exposure to those fantastic assets, they lost the opportunity. They made a little bit of short-term money, but then they missed all the upside. So that's sort of the logic.

Thanks, Geoff. One another question for you, Geoff. We also received some queries around the frequency of our NTA update, and whether we'd provide a weekly NTA. Can you please comment on this?

Yes. There's quite a bit of debate about that. And like some companies, some LICs do daily NTAs, some LICs do weekly NTAs, we do monthly NTAs. The interesting thing is if you look at the various other ones that do dailies, weeklies, it actually doesn't help them trading at where they trade at either premiums or discounts to NTA. The -- so from our perspective is, we could -- would actually create another degree -- level of work, but we could do more regular ones. Louise mentioned, if you looked at the indexes and used what you thought the index had performed, then you can get estimated NTAs, which a lot of brokers do provide. So I just haven't seen -- so since the end of the market, if you adjust by what the index has done, then it's a reasonable guess, the NTA will be around there. The good thing is both funds have tended to outperform the indexes, so might be slightly better. I've seen no -- and also what we're trying to do is we probably don't want short-termism. We don't want -- we'd prefer not to have traders in the -- people buying and selling just for $0.01 or $0.02 in the 2 entities. We'd prefer to have people that are taking a medium long-term view and are happy with the managers that are in there and invested for that reason. So that's another reason why we've decided not to go with those, but it is open. I've seen no evidence that shows that if you're doing a more regular NTA, then it helps your premium or discount. And to me, that would be the main logical -- logic for the driver.

Right. Thanks, Geoff. And Louise, I know you touched on dividends earlier, but can you outline the plans to dividends in 2020, please?

Thanks, Alex. Well, look, as I mentioned earlier, for FGX, the 2019 fully franked full year dividend was $0.050. And for FGG, the 2019 fully franked dividend was $0.015. So historically, we've paid an interim and a final dividend every year for FGX and only one dividend per year for FGG, which has been announced at the end of August and paid in October. So that will be our current plan again. So those next dividends, we would be looking to announce with our half year results at the end of August. Obviously, at this stage, we can't say too much because we're relying on the distributions that we get in from fund managers, and they tend to come in, in June, July. But as I mentioned earlier, with those profit reserves of $0.088 per share for FGX and $0.043 per share for FGG, we have had that policy of making sure that we have enough in the kitty to at least pay the same amount, again, for the next dividend coming up. So we have that in reserve, and we've had that policy from day 1. So I'm not a CEO who wants to be in a position where I'm calling our top shareholders after the next results and letting them know about a cut in the dividend. So that's not what we are proposing to do, but that's our plan at this stage.

Thanks, Louise. So now we're going to go to some of the questions from the webinar. I'm just conscious of the time. So we'll do a few from the webinar, and then we'll open up the phone to telephone questions. The first question, Geoff, is for you from Eugene Bell. How will real estate investment trusts be affected compared to the rest of the market?

Look, obviously, REITs aren't necessarily my expertise. But just as an observation as a fund manager and -- as an observation is, life is going to be very different now that we've all sort of worked out how to work remotely. And I think that -- and I've spoken to some people that are in that industry. And they think that you could see 10% to 15% of workforce, besides the ones that have lost their jobs, on top of that, 10% to 15% of the workforce actually don't go back into working in office spaces because I know my experience at home, all [ our ] experience. Now we've got Zoom, we've got the various Skypes, Houseparty, other ways of communicating. So to me, that will be -- that's for commercial. I actually think the REIT industry probably will need to raise some capital as well. So -- and they had been -- a lot of them had been trading at reasonable premiums. I haven't got a strong view because I don't look at them closely, but that's just a big picture observation.

Thanks, Geoff. John, do you want to add anything to that?

I think the retail REITs will take some time to come back, but as long as they keep all of their tenants, they should be back and functioning once the restrictions are off. But they will have cost themselves what -- [ however ] months' amount of rent.

Thanks, John. Geoff, we've got a question from Mark Davies regarding the franking balance for FGX and FGG. If you could outline what they are?

Yes. For FGX, it's just a little over $0.06, $0.062 is for FGX, and for FGG that's currently about $0.033. And that -- as we pay more -- as we get distributions or pay more tax, then they'll increase. And so when we get the next lot of distributions, which will be in June, you'd assume, there will be tax paid -- payable on that, which means they'll increase. The profit reserve will increase by the amount of the distributions, and then the franking by the amount of the tax we pay on those distributions or any franking that's inside those distributions.

And just to finish off before we open up to phone questions. Geoff, [ David Oates ] has a question, can you please explain the definition of absolute bias?

Well, absolute bias is someone who is managing the money and trying to make money, where the relative fund manager might put -- be managing money. And if the market falls 20% and he falls 10%, he is very excited because he is outperformed by 10%. The absolute bias manager is someone that's actually trying to start at $1 and make it worth $1.02 or $1.03, no matter what the market does. And so the absolute bias managers we have are ones that can just tend to dial up their cash. So in FGX, we're one of the absolute bias managers. We -- during the reporting season, second week of February, we had 13% of the portfolio in cash. When things started to crack, then we increased our cash levels, we went to 42%. As of last night, I think we're 28% cash. And we're taking the opportunities, some of these capital -- we're using our cash at the moment to get positions in these capital raisings, which have been occurring at the moment.

Thank you, Geoff. So we're going to open up the call to telephone questions now, and we'll endeavor to answer as many as we can. And if we run out of time, we'll contact you after the call.

[Operator Instructions] We'll take our first question from [ Jeff Thomas. ]

Good morning, Geoff and team there. When I ask you question, Geoff, I think it's better to have a cup of tea and a Bex before you answer it. It's regarding the cash holding. We've got 10.7% cash, which I understand is physically cash held. But the question is, are we able to get a look through value of the cash of, say, the top 10 managers, so that we could say, well, okay -- and I know it can't be exact, but if you're doing it on a monthly basis, it doesn't create too much work, so that we might have a look through value of, say, another 10%, so overall it may be 20.7% cash. Is that feasible?

Jeff, Geoff, it is. And also we do, do it. Louise, do we do it annually or 6 months?

I think we do it annually, but I have to check that, Geoff. I might get an answer...

Yes. And -- we can do that. No, I just -- can you -- I mean obviously, things have changed. Things would have changed since we had as of the end of December, but the world has changed since then, so it would be a different dynamic now. The -- I mean it's possible to get. And I mean we can do it.

We actually do it quarterly. I just had checked that with our Head of Ops. So it is done quarterly. If that person wants to contact us, we can talk to him.

So just the point, if it's done quarterly, could it not be published quarterly in your presentation?

Yes. Why don't we just put in the NTA quarterly? The thing is, it is a bit of a lag, but at least it gives you an idea. Why don't we do that, Louise?

Correct. That's what I was asking. Just...

I guess that's -- yes, good point. We'll do it quarterly and put it in the NTA.

Particularly now, it'd be good if we could get -- if we could work out -- well, the thing is because everything is moving so quickly. But if we pick a point in time and then put it in the -- maybe put it in the next NTA.

All right. No, we can do that. Thank you. Thanks, Jeff.

[Operator Instructions] We'll take our next question from [ Ken Terry. ]

Geoff and folks here, thanks very much. I've never seen an organization keeps its investors in touch as much as you people have. I've been with WAM for nearly 20 years and that's absolutely fantastic. Keep the good work up. My question is, can you actually explain the profit reserves? I believe it goes into the NTA. So if you've got profit reserves of $0.05, does that mean you really have to take that off the capital of the NTA?

Yes. Look, thanks for the question. Thanks for your feedback. The -- effectively, say, if we start with $1 of assets, and they go up by 5%, so in theory, we make $0.05 of profit. Then the assets of the company are $1.05 and that $0.05 would be put into the profit reserve, so the NTA will be $1.05. And that would be made up of $1 of capital that you started with plus a $0.05 profit reserve. And the reason we actually talk about the profit reserve is because to pay a dividend, if you want it franked, you need franking credits, but you need a profit reserve and franking credits, if you want it franked. If you want to pay a dividend and you don't have any -- you can still -- you need a profit reserve to pay a dividend because you need actually profit to pay out the dividend. So therefore, the reason we announced it, normally it would just be -- you just think, "well, the NTA is $1.05," but we announced the fact that the $0.05 is profit. As a Board, we've actually put in another [ just an ] accounting, just in a reserve called a profit reserve, which allows us to pay that $0.05 out as a dividend. And it really gives us an opportunity to pay the dividends over time. That's the logic of the profit reserve.

It appears there are no further questions at this time.

Thank you. Well, look, I know we finished our March investor call with some toilet paper buying or lack, [ they're all the ] stories. So we don't really have any time for those now, but I'm sure that's still tough in many neck of the woods because I know it is in down south here on the South Coast of New South Wales. But I want to thank...

Well, eastern suburbs is still out. But we've got the hand towels. We've got much -- many hand towels as you want.

Good luck, good luck. Thanks again for everyone for dialing in. And I especially want to thank Geoff and also John Coombe for joining us. Their insights were invaluable this morning. The recording of the call will be available on our website shortly. And as always, please get in touch with us via phone or e-mail at any time with any questions or feedback that you might have. So thank you, and enjoy the rest of your day.