L1 Long Short Fund Limited (LSF) Earnings Call Transcript & Summary

Good morning, everyone. My name is Mark Landau. I'm the Joint Managing Director and Co-Chief Investment Officer of L1 Capital. Thank you very much for making time this morning. I'm going to be referencing the presentation that was lodged with the ASX on the 24th of March. And hopefully, everyone has a copy of it handy, and I'll be referring to page numbers as we go. Just at the outset, I'd like to say how sorry we are about the weak performance that the fund has had over the last couple of months. In the presentation today, I'll cover the reason for our portfolio positioning coming into 2020, a number of the changes that we made back in January as we saw the initial impact of the coronavirus outbreak, along with some more recent changes that we've been making to take advantage of the very erratic moves that we've seen on the stock market over the last 6 weeks or so. We recognize and we understand it's been a really difficult period for our shareholders and for everyone in the community as a whole. And that I know everyone is enduring a very stressful time. And we're doing our best, and we're working incredibly hard to get the performance of the fund back on track. And I can tell you the Board is also very focused on closing the discount and hopefully, you would have seen the announcements that we've recently made in terms of the share buyback and also other comments from the directors, indicating their commitment to seeing the long-term success of LSF. One of the things that, hopefully, people will be pleased to note is that the Board recently announced the commencement of the buyback, and that kicked off on the 19th of March. Since that announcement has come through and since the buying has commenced, we've seen a 10 percentage point improvement in closing the discount. It's gone from around 40% to 30%, and the Board has also indicated that they will continue with the buyback until such time as the discount reduces to less than 10%. The buying has been very much on the front foot. It's been doing quite a high percentage of volume each day, and that should be an indication to the market that the Board is taking the buyback seriously and is very committed to seeing that discount close. So on that note, I'll turn to the presentation, and I'll try and refer to -- to remember to turn -- to reference page numbers as we go. One thing I should note before we start is that there is an opportunity to ask questions. We've had a lot of questions submitted already. If people do have questions, please send them through. There's a link in the ASX announcement to the market yesterday that enables people to send through questions, and I'll endeavor to get through as many of those as possible at the end of today's presentation. So turning to Page 2 of the presentation. As you can see in this chart, the coronavirus pandemic has caused the fastest collapse in equity markets that any of us have seen in the last 100 years. The red line in the chart shows the typical bear market that we've seen between 1920 and 2020. And what you can see from that chart is that a typical bear market takes place over around a year, roughly 52 weeks, and it translates to around a fall of about 30%. What we've seen over the past sort of 5 weeks or so is a 30% falling market that's occurred in the shortest period of time we've ever seen in a bear market. What's been unbelievable about the sell-off is that the outlook for the global economy has changed so dramatically, and we've seen share prices fall at the fastest pace and volatility increase to higher levels than we saw at the peak of the GFC. Turning to Slide 3. So in our view, the impact of the coronavirus pandemic is going to cause one of the largest negative shocks to global GDP on record. For anyone who saw the U.S. jobless claims numbers at the end of last week, that was 5x larger than the largest jobless claims number we've ever seen in the U.S. in the last 50 years. The Chinese ISM and PMI data again was one of the weakest ratings we've ever seen coming out of China, registering a number of less than 30, which is pretty much unheard of. As most people would now know, this chart -- this slide was prepared about 2 weeks ago, and it's amazing how quickly everything is evolving regarding coronavirus. I'll give some updated thoughts beyond what's on this chart, just given the evolving situation. In the case of Italy, that has been the reference point for investors and for the community in general to understand what the likely profile is of the virus in the Western world. Italy was first affected by the coronavirus outbreak once it's spread outside of China. And our view is that over the next week or so, we're going to see a significant improvement in terms of a deceleration in the rate of growth of infectious -- of infections coming out of Italy. One of the things that we did as soon as it became clear that the virus was spreading through Italy, our head of health care at L1, Andrew Lin, is a medical doctor by background. He's also Chinese born so he's fluent in Mandarin. He was on the phone talking to various epidemiologists, heads of ICU, infectious diseases experts in China, Italy and also the U.S. We believe that the Italian population only began to take it seriously around 10 days ago. And at that point, you start to see a significant change in terms of quarantining, in terms of social distancing and a lot of the measures that are instrumental to slowing the pace of growth of the infections. So we believe that over the next week or so, you'll start to see a significant improvement in the outlook for Italy, and that will provide confidence to the market that it is possible to combat the spread once you get early and broad testing, you get the population adopting the social distancing requirements and also governments taking it seriously in terms of how they enforce those policies. Obviously, unfortunately, the U.S. has taken longer to get serious about the response to the pandemic. We expect that cases in the U.S. will surge over the next couple of weeks. But you'll start to see the benefits of the more recent measures that have been put in place on a sort of 3- to 4-week time period. And we would expect, based on the experts that we've spoken to, you'll start to see a peak in U.S. cases towards the end of April, and then you'll get more confidence in that outlook around the middle of May. The second bullet point that is in bold on Slide 3 is really the key one. For us, the biggest risk to equities was going to transition from the economic impact and the profit impact on a lot of companies to the complete dysfunction in credit markets. And for us, that was by far the biggest tail risk, and it was the thing that we were most concerned about as we saw the pandemic spread and we saw debt markets seize up. The most positive event that we've seen over the last week has been the Fed announcing that they are essentially going to enter credit markets and unblock the plumbing, which have been totally dysfunctional, and we've seen credit spreads blow out to levels that we'd only seen at the absolute peak of the GFC back in 2008. There have been many policy responses that have been positive from governments, from central banks, from regulators. But for us, the unblocking of the credit market is by far the most important event. Turning to Page 4. As you can see on Page 4, this shows the portfolio positioning as of the middle of March. One of the things to note is that the net longs had increased to around 74%. We believe that the market sell-off has been very extreme and very indiscriminate in some areas. A lot of the selling that we've witnessed was not based on business fundamentals. When you think about the types of sellers that have been there in the market, the selling pressure had come from things like: margin calls for both retail investors and for some hedge funds; redemptions; ETFs; quant strategies and volatility targeting strategies, which are huge pools of money typically run out of overseas, jurisdictions that essentially sell market exposure as volatility rises, and obviously, volatility was surging over the past few weeks; and you've obviously had retail investor panic as well. And in most of those cases, that selling pressure is not fundamental selling. It is not based on the outlook for a business or an industry. It is essentially either an emotional response or a mechanistic response to the crisis. So we're looking to take advantage of individual stocks that are being oversold. And later in this presentation, I'll show you a number of the stocks that we've been buying to take advantage of that market dislocation. One of the things that we've been very focused on and we've -- one of the lesson from the GFC is to ensure that the long positions in the portfolio are companies that are undergeared or net cash. The lesson of the GFC was that balance sheets are far more important than P&Ls in a crisis, and this time, it's been no different. We have a relatively low net long to all geographies. One of the things you should note is that our 21% net long to North America is slightly overstated. We have roughly a 5% position in Alibaba, which is obviously a Chinese business. It happens to be listed in the U.S. so that's why it comes up within the North America exposure. So if you want to understand the, I guess, the underlying exposure, the U.S. exposure is closer to -- or sorry, the North America exposure is closer to 16% and the Asia exposure is closer to 18%. Since the time of publishing this slide, our net long has increased. So when you see our monthly report at the end of the month, you'll note that our net long has increased further. That's as a result of some of the policy measures I was talking about before with the central banks, giving us a bit more confidence that some of the severe tail risk has been removed. And we all thought it was very -- we also thought it was very positive, some of the measures that have been announced in Australia by the government in terms of measures to ensure the businesses can survive this interim period until we come out of the coronavirus crisis. You should expect to see our net long increase during market sell-offs as a rule and expect to see our net long decrease as markets rally, assuming the underlying backdrop is no different. What we're trying to take advantage of is where we think that the market is pricing in a worse outcome to what we think is realistic and vice versa. I won't spend too long on Page 5. It just shows the historical track record of the Long Short strategy since inception. The dotted box you can see there is the commencement of the LIC. Obviously, the fund had a good year in 2019. We had positive performance in every quarter. Unfortunately, a lot of the strong performance that we delivered towards the end of 2019 has been reversed back out in the first 2 months of 2020, and I'll discuss the reasons for that on the next slide. On Page 6, you can see that we came into 2020 with a portfolio that was skewed more so to cyclical stocks that we believe will perform very well, assuming a stable or improving global growth backdrop. The trade war and Brexit had finally been resolved around September last year, and we could see clear signs of improvement in terms of the outlook for businesses and the confidence with each CEO as we're talking about the outlook for their industry. Between September and December 2019, all the key leading indicators for global growth were trending up: we saw bond yields were rising, which reflected improvement in global growth expectations; copper and oil prices were rising; ISM and PMIs and new orders were all rising; and global inventories were very depressed, and they needed to be restocked. Unfortunately, that portfolio positioning was exactly the wrong positioning for the coronavirus outbreak, and stocks that have an economic sensitivity were disproportionately hit. The stocks that we held were performing very well into the end of 2019 as global growth outlook was starting to improve, and all we needed was a stable global growth outlook. We didn't need the world to get better. We just needed it not to have a crisis. And unfortunately, the arrival of the pandemic threw a spanner in the works. The other unexpected negative effect from the coronavirus and the negative effect on the portfolio was that the coronavirus outbreak caused a huge oversupply of oil and then on top of that, the Russians and Saudis not committing to production cuts. And in fact, the Saudis committing to increase production by 8% caused a huge fall in the oil price. Today, the oil price is trading at the lowest levels in almost 20 years. The oil price is down from around $62 for Brent to close to $20 today, which is a level that almost no one, I think, would have thought possible only a couple of months ago. On Page 7, you can see a number of the actions that we took as we came to understand the impact of coronavirus. The changes that you see at the top of Page 7 were changes that occurred back in January, at the very early stages of the coronavirus outbreak when it was purely a China event. Within a day or 2 of coronavirus news coming out, we were on the phone to a number of the leading professors, infectious diseases experts, virologists in Wuhan, a lot of the people who are absolutely on the front line of fighting this epidemic. And we realized very early on that this was going to have a major effect. Unfortunately, we thought that there would be a major effect that would be largely isolated to China. We made a number of very significant changes to the portfolio at that time. So we did a full exit of Qantas at close to $7 a share. That share price collapsed to below $2. It's since rebounded a little bit, and we've recently bought back around 1/4 of that position. We did a full exit of Worley, which is an oil services stock, which is obviously very cyclical. We exited Tempur Sealy, which is a high-end mattress manufacturer, which is a very discretionary purchase and obviously has a lot of economic sensitivity. We exited Cenovus Energy, which is an oil stock. And we also reduced Lundin, which is a copper producer. On top of that, we also shorted 4 stocks that have a very large exposure to either China, travel or hotels. And in each case, those stocks subsequently fell 30% to 70% over the following 6 to 8 weeks. With that money, we bought shares in Coles, which is obviously the #2 player in supermarkets in Australia. Coles has been a dramatic outperformer versus the market over that time. We also bought shares in IAG, which we felt was being oversold as a result of the market sell-off. And then to give you a sense of, I guess, more in real time, what we've been doing with the portfolio, this is -- these are changes that we made to the portfolio over the last 2 to 3 weeks. And this slide was prepared just over 10 days ago. We were buying shares in Atlas Arteria, which is for a monopoly toll road network in France, incredibly high-quality asset. We believe that the balance sheet is far safer than what the market believes. The shares have fallen from $8 to less than $5, and we were buying the majority of that position at less than $5. We also did a very similar buying in Transurban, a smaller position in the portfolio. But equally, those shares were bought largely around $10 to $11. We bought back our shares in Safran. Safran is the highest quality engine and cars manufacturer in the world for narrow-body Boeing and Airbus planes. That company was trading around EUR 140 when we reduced our position, and we've recently increased at around EUR 60. As of last night, I think the shares were trading around EUR 85. We bought back our position in Visa. Visa is an incredibly high-quality business. It's obviously very badly affected by the reduction in the short term in terms of consumer spending, but we felt that the share price fall from $220 to $150 was acceptive, considering the excellent outlook that Visa has as we go to Tap & Go and payWave across the U.S. over the next few years. Charter, which is a U.S. broadband business, they supply 40% of the homes in the U.S. with high-speed broadband. Ultimately, they're probably a beneficiary of the whole coronavirus outbreak and the phenomenon of work-at-home. And obviously, people are spending more time in their home. Those shares had fallen from $540 to $380. And lastly, we added to our position in Vivendi, which is the owner of the #1 music label in the world that controls about 1/3 of the world's music. They are the enabler and the beneficiary of streaming. So whether it's through Spotify, Apple Music, Amazon Music, Vivendi shares had fallen from around EUR 26 to around EUR 19. And again, we thought there was minimal negative effect to that business. Again, very strong balance sheet and aggressive buyback program in place, and they've been very active with that as recently as the last month or 2. So on Page 8, you can see we've listed the top 10 positions -- the top 10 long positions in the portfolio. We thought this was important, even though, to be honest, we're quite reluctant to give away what we think is the result of a lot of hard work. We felt it was important to give transparency and some comfort to investors that the quality of the business that we hold as the key positions in the portfolio are very high quality. They've got a great outlook. They've got rock-solid balance sheets, and we believe that they'll deliver really good returns to investors over the next 3 to 5 years. I won't spend too long on each one. There is a slide on almost every one of these case studies as we go through the pack, and I'll go through those very quickly, but please, by all means, send through questions if any of those, folks, are of interest. On Page 9, you can see Alibaba, which is roughly a 5% position in the portfolio. Alibaba is one of the most dominant businesses anywhere in the world. Alibaba is the #1 player in China for e-commerce, logistics and cloud. It also has a leading position in food delivery, video streaming and has a growing Southeast Asian e-commerce business. One of the amazing things about Alibaba is that it trades on a P/E of only 21x. It has a rock-solid balance sheet, high cash flow conversion and earnings are set to grow at roughly 25% per annum for the next 3 years. Within that P/E multiple of 21x, there's a cloud business that is currently not generating much in the way of earnings that we believe will end up being a huge part of the business just as it has been for Microsoft and Amazon. Cash flow conversion within Alibaba is very high, and we believe they are dramatically undermonetizing the take rate. So the proportion of their GMV, the proportion of their sales in their platform that ultimately goes to them, we believe that will increase significantly over the next few years. And we've seen a similar phenomenon with Amazon in the U.S. On Page 10, you can see Charter. I touched on Charter previously. It's an incredibly high-quality business. It's essentially an unregulated monopoly. The business makes its money from supplying high-speed broadband to households in the U.S. It covers about 40% of the country. One of the amazing things about Charter is that it currently generates a free cash flow yield of about 7% per annum. We expect that free cash flow yield will grow to more than 15% per annum over the next few years. And on a 5-year view, it will be about 1/4 of the market cap they'll be generating in free cash flow. It has an extremely high-quality management team. All available cash flow gets used to buy back shares in the company. And we think that it will ultimately be a beneficiary of the change in work habits and the change in lifestyle in terms of people appreciating the need for high-speed broadband. Chorus. You've probably heard us talk about Chorus a lot over the last few years. A number of positive developments have come through for Chorus over the past 6 months or so. One thing is that the company has been very clear that it will be looking to pay out the vast majority of its available free cash flow as dividends. As brokers have been upgrading their numbers, the dividend profile, which is currently around $0.24 a share, is likely to increase to $0.50 or $0.60 a share, and we believe that, that's purely a function of the CapEx within the business reducing. So it's not us or the market expecting earnings to change dramatically. It's purely a function of the fact that the fiber rollout will have been completed and the underlying cash flow in the business, which has been there for the past decade, except that shareholders have never been able to see the benefit of that because it's being used to do the rollout, we believe that, that will ultimately come through in the form of dividends. So we believe Chorus remains an incredibly attractive risk/reward. It's got a super high-quality fiber asset, fiber speeds that we can only dream of in Australia, sort of 10 to 20x faster than Australia's nbn. And then on top of that, you've got a very attractive rising dividend profile. So that remains one of our key positions in the portfolio, and we're still very optimistic about the outlook for the business over the next few years. CK Hutchison, again, owns some incredibly high-quality infrastructure assets. It owns more than $40 billion of U.S. power infrastructure assets, more than 50 ports around the world. It's got the biggest and fastest-growing pharmacy chain in China called Watsons, and it owns a huge European telco and towers business. The 2 things that we think are really exciting about CK Hutch is, firstly, they're expecting to do a sell-down of their European tower assets. Now these assets trade at huge multiples globally, close to 20x EBITDA. If you use similar metrics for CK Hutchison's portfolio, which is one of the biggest and best in the world, you would get a valuation of close to EUR 5 billion. That is roughly 1/4 of the market cap of the whole company. That's likely to occur around June. And the company will have a lot of flexibility as to whether they use that for capital management or for accretive bolt-on acquisitions. Presently, the company pays a 7% dividend yield with only a 35% payout ratio. And we believe that it's also encouraging that the CEO as recently as the last week has been aggressively buying shares on market. I think the buying he did that just got announced the other day was about USD 7 million, and he's already a very significant shareholder. So another positive sign for that quality of business and that quality of outlook. A P/E of 5 and a free cash flow yield of 20% to us seems absolutely insane. Coles, which is on Page 13. Coles, we added to the portfolio a -- about 6 to 8 weeks ago before the hoarding started to take place in Australia. We're not there so much for the short-term impact in terms of sales from that hoarding event. It will obviously be a positive, but it's not the sort of 2- to 3-year story. The reason we really like Coles is that we believe the competitive landscape has dramatically improved. So over the last 6 months, you've seen ALDI be much less aggressive in terms of its price competition and in terms of the store rollout. You've seen Kaufland considering entry into Australia and then leave. You've also seen Amazon not really get too much success in terms of their penetration with online sales. And at the same time, you've seen a new CEO coming to Coles, who's made a lot of sensible decisions in terms of identifying a $1 billion cost-out opportunity and also being much more strategic in terms of the promotional activity. So we believe that both the sales and the profit numbers for Coles over the coming year and also over FY '21 will be significantly better than market expectations. And we believe that the company is incredibly well positioned, particularly in the environment where not many defensive sectors are proving to be so defensive. We think supermarkets are close to the best in terms of their defensive attributes. Turning to Page 14. News Corp. I won't spend too long on News Corp. Their key asset is their 61% stake in REA. They also have around AUD 2 billion of net cash on the balance sheet. Those 2 assets give you roughly the entire market cap of News Corporation. And on top of that, there's another dozen major assets, including The Wall Street Journal and realtor.com, which is the equivalent of REA as the #2 player in the U.S. after Zillow. You also have a huge publishing business and obviously, the traditional media assets as well. Those assets generate over $1 billion of earnings. And what we find amazing is that, that is currently being valued at 0 in the sum of the parts. The company recently stated that they are acutely focused on simplifying the structure of the company and making clear the full value of the sum of our parts. In other words, we believe there is a restructure or an asset sale program that is likely to occur over the next year, and we believe that will be a major positive catalyst for the share price, which has obviously been languishing over the past year and particularly over the last couple of months. We think the current share price is incredibly attractive, and we've been using this opportunity to top up our position. On Tencent, on Page 15. Tencent, again, is one of the dominant Internet companies of China. It has a USD 440 billion market cap and it is, by far, the leading player in online games, mobile messaging, payments. It has roughly 40% of its earnings come from games, roughly 40% come from advertising, and they're the #2 player in cloud as well. So between Alibaba -- in cloud, you have by far, the 2 dominant players in that sector, which is likely to be in structural growth for at least the next decade. Tencent currently trades on a P/E of 25x FY '20. It's delivering roughly 25% EPS growth over the next few years, and it has subsidiaries that are valued at more than USD 100 billion. So we think that Alibaba and Tencent are structural winners over the next decade in China, and they are so dominant in so many sectors. And in many ways, they're undermonetizing the asset they have. Alibaba, obviously, within cloud is over 50% market share. Tencent is the balance -- is the large balance of that. And then you've got areas like WeChat, where they've got 1.1 billion users that are fully integrated into the payment system in China. So they're doing more transactions day-to-day than Mastercard and Visa combined, which is a pretty phenomenal statistic. And lastly, on Vivendi. I've touched on it before. They provide the music to streaming services such as Spotify and Apple Music. They're using the proceeds of their sell-down of UMG, which they're actually doing to Tencent. They're selling down 10% stake of UMG. We expect that, that will get used for buybacks. The company currently generates a free cash flow yield of around 8.5%. It's growing earnings at around 13% per annum, with UMG growing at faster than that rate. And then EPS growth, we expect, will accelerate over the next few years as you get streaming growth improved, plus you get the benefits of the buyback program. On Page 17 to 19, we cover a number of stocks that we feel have been very oversold over the last few weeks. In many cases, there's actually nothing going wrong in the operations of the business, and the coronavirus is unlikely to have any lasting effect on this business. And what we've done here is just give you a sense of why we're so excited about the portfolio. These positions are not necessarily big ones in the portfolio, but we think that they've got the ability to increase by 50% or 100% very easily just as markets settle and you start to see a bit of, I guess, fundamental investors come back into the market to pick up some of these opportunities. Karoon Energy is an interesting example. The current share price is around $0.40 a share. We believe the company has cash backing of between $0.70 and $0.75. We believe that in the current market environment, it's unlikely that Karoon will ultimately proceed with their acquisition in Brazil. We think that there is no legal barrier to them not completing the deal. And essentially, you have roughly 100% upside if the company was to not complete the deal and return the cash in the balance sheet to shareholders. Health and Happiness is a business that a lot of people probably don't know, but people probably do know their key asset, which is Swisse vitamins. They also own Biostime, which is the infant formula brand in China. The company reported their results in the last couple of weeks, earnings growth of around 20% per annum. They're unaffected by the coronavirus outbreak. If anything, the use of vitamins is likely to improve with the coronavirus outbreak, and infant formula is obviously not a discretionary purchase for a mother with a newborn baby. The shares trade on a P/E of around 10x. You compare that to peers, such as a2 Milk that trade in Australia at closer to 30x. HPI, which owns the pubs and hotel property portfolio in Queensland that is critical for Coles to be able to sell liquor in the state. Coles, together with KKR, they're guarantors on the lease. It's a very long-term lease term. It's a 12-year average lease term. The shares are trading at half of NTA. And in the meantime, we're receiving a 13% dividend yield, with an extremely high-quality tenant in the form of Coles. In the interest of time, I won't go through nib and SES. I'll leave that to people to read in their own time. But again, we think they are dramatically oversold and exciting opportunities that we've been adding to recently. And then lastly, on Page 19, we go through a number of more cyclical stocks where we believe the underlying asset quality is high, particularly in the case of Teck Resources and Warrior Met Coal, and we believe the shares are trading at incredibly depressed prices that are likely to improve as markets settle. And we're starting to see that happen just over the last few days. Lastly, on Page 20, we have a slide here that goes through what we and the Board are doing to address the discount to NTA. Obviously, the Board and Rafi and I are very disappointed about the expansion of the discount that's occurred in recent months. Our focus is very serious and very real in terms of closing that discount to NTA. And hopefully, people will have seen the various initiatives that we've undertaken over the past year. Initially, in August last year, Rafi and I committed to a share purchase program where we would buy $25 million of LSF shares in a less than 6-month period. That completed around January of this year. Over that time, we saw the discount close from around 18% to around 8% by December. And then as a result of poor performance in January and also the buy program coming to an end, and there was a bit of uncertainty as to whether there would be a further program, we saw the discount blow out again. We then went to the Board with a proposal where Rafi and I and 2 of the other senior members of the L1 team would commit to buying an incremental $30 million of stock on market. That got approved by the Board, and we commenced buying back in February. Then markets became much more volatile, and the directors noted that the discount had blown out to close to 40%. The independent directors met separately, and they came to the view that it would be in the best interest of all shareholders if a share buyback was to be implemented rather than the share purchase program. There was an article in the paper that suggested that Rafi and I did not want to continue buying shares. And categorically, I'll tell you that was false. We were ready and very keen to be purchasing more shares on market. And we've committed that as soon as the window is open for us to increase our stake in LSF, you can rest assured that we will be increasing our stake significantly in those periods. The share purchase program -- sorry, the share buy program commenced on March 19. We've already seen a significant improvement in the discount. It is early days, but hopefully, people can see from that, that the buyback program is being done on the front foot, and the Board is very committed to seeing that discount close quickly. And I think the feedback that we've had from a number of different people and a number of different shareholders has been really encouraging. So hopefully, people could take that as a sign of the commitment that the Board has and also that Rafi and I have in terms of seeing the share price perform much more strongly over the coming months and years. One thing to note is that Rafi and I are looking to increase our stake in LSF. We are only able to do that at a time when there is a window that we're allowed to buy shares. So effectively, the Board will nominate windows where the buyback will temporarily cease for a short period of time. It will enable directors to buy shares. But at this stage, the directors felt that it was most appropriate that the buyback take precedence, and that has started to occur. So on that, I'll just note that there's a lot more detail in the appendices of the presentation. We've put a huge amount of effort into giving people as much transparency and color on the portfolio, key positions, our thoughts on the market as well as a lot of historical information on the Long Short strategy. And with that, I'm going to turn to questions. Just bear with me for one moment while I grab the questions.

The first question that's come through is, how is the portfolio changing to manage these volatile markets? Where are you seeing the opportunities at the moment? I guess the slides that I'd probably refer you to, and which we've covered to some extent, on Pages 7 and later on, on Pages 17 to 19, I think that the changes that we made almost came in 2 phases. One was the initial change to the portfolio that we did back in January, when we realized that the coronavirus outbreak was going to have a very significant effect on global growth and particularly those companies linked to China, and we list a bunch of the changes we made back then. There was probably a second wave of changes that we've made as the news flow has come through and as our work has been completed on understanding what's happening in Italy and other parts of Europe and also in the U.S. and Australia in terms of the coronavirus outbreak. And I think anyone who's been following the new stories and anyone who's been following the various machinations in terms of policy responses would understand that it's been an incredibly volatile and sort of day-to-day proposition in terms of managing the portfolio. And what we've been trying to do is to sort of block out the noise and just work out which companies are going to come through just fine and which companies are going to have genuine issues. And fortunately, in most cases, the long positions in the portfolio, which have been the ones that have been causing the bulk of the performance pain, in the bulk of cases, we think those companies are going to recover and it won't end up being a permanent loss of capital. In a handful of cases, where either the industry has been so badly affected or the balance sheet has been so badly affected, we've exited those positions in a relatively quick period of time. I guess the one thing I'd note is that, and I didn't get a chance to touch on it in enough detail in the presentation, but the performance of fund in March has been disappointing compared to what we would have expected in a typical market sell-off. The fund -- if you go back over the 5 years for the Long Short strategy, the fund has outperformed the market roughly 90% of the time when there's been a market sell-off, and that's one of the things that we really place a very high importance on, is protecting people's capital in market sell-offs. One of the unusual things about March has been that because the fund had a net long exposure to energy and because you had this breakdown in OPEC, which was -- which resulted in an increase in global supply of oil at a time of the most depressed demand for oil, that was a change that we didn't have any time to change our positioning for. The -- that announcement came out overnight and the next morning, you had the largest single-day fall in oil stocks in Australia on record. You also have the largest fall in the oil sector globally that day. So there was no period of time to adjust the portfolio for that. And unfortunately, that has been the main reason why the portfolio has not held up as well as we would have expected in March. For what it's worth, we had an oil price assumption of around $50 a barrel. The bulk of analysts were using oil price assumptions of around $55 to $60. The oil price at the start of the year was around $62. And the decade average for oil was close to $90 a barrel. Now we didn't think $90 was anywhere close to realistic because there's a lot more shale of supply and a lot of other producers that can be viable around $60 a barrel. But we felt that $50 was quite realistic over the medium term. Obviously, with oil prices today of roughly $20 a barrel, was not in our expectations, and there was no time to adjust the portfolio to reflect the changing dynamics with OPEC and the coronavirus. The next question on the list is, will the L1 owners still buy further shares? Why did you decide to cancel your share purchase program? One thing hopefully that I've made clear in the presentation is that the decision to stop the buying by myself and Rafi was not a decision that we took. We were still very keen to increase our position in LSF. We've committed that we will be significantly increasing our stake in LSF as soon as the share window is open. That will enable us from a compliance point of view to increase our stake. The directors, we think, have acted totally appropriately. The independent directors' job is to look after the interest of all shareholders. We fully support their decision to do what they think is in the best interest of all shareholders, and it was in their view that the share buyback would be a better use of the company's funds to address the discount. Having said that, as soon as the window is open, you can expect Rafi and I to be significant buyers of stock on market. The next question is, where are you seeing the best opportunities in the market? Can you give us a sense of some of the stocks you've been buying? We do touch on a number of the stocks we've been buying at the bottom of Page 7, so where we list Atlas Arteria, Transurban, Safran and Visa, Charter and Vivendi. And then obviously, on Pages 17 to 19, we've disclosed another 7 or 8 positions that we feel are very oversold in the current market. We've been topping up these positions over the past few weeks. And in most cases, we believe they have 50% to 100% upside very easily without using any aggressive assumptions. So obviously, Karoon Energy, we think, has 100% upside based on its cash backing; Health and Happiness, on a P/E of 10, growing earnings at 20% per annum; HPI, trading at half of asset value, with a 13% dividend yield, that has Coles as the guarantor on the lease, we think that these sort of opportunities are incredible and very reminiscent of back in the GFC, when we were buying stake at $3 or $4 a share and we're buying a bunch of, I guess, companies that people have given up on, and then we subsequently saw fantastic returns coming out of that period. The one thing I can assure you is that Rafi and I have been through similar periods before, whether it was through the GFC or the Euro crisis. And during the crisis, it's been very difficult to perform strongly as a lot of the selling is very erratic and very nonfundamental. But as you come out of these periods, essentially, what you do during the crisis sets you up for the next 2 to 3 years, and we believe that the portfolio is incredibly well positioned for a strong period of performance coming out of this crisis. The next question is, can you please give us a rough breakdown of performance attribution in March? What's happened with the shorts? Have they delivered for you? So you probably can't see it from performance. But the shorts have actually been a very strong performer over this period. More than 100% of the negative return has come from the longs. So obviously, the shorts have delivered a positive return. In a lot of cases, the shorts have sold off a lot more than the market overall. There's a number of stocks that we've been short where they're down 60%, 70%, 80%. We've only got one that we believe is down 100%. The shares have gone into suspense, and we think that they'll ultimately be proven to be worthless. And for what it's worth, it's not [ flight center ], in terms of the one that we think will be worthless. We believe that a lot of the, I guess, factors that have been sort of tail risk for a lot of these companies, you didn't need a big event for a lot of these companies to start to find that they have problems. In a lot of cases, their business model was not so resilient. Their balance sheet might have been very risky. The management team might have been taking a very aggressive position in terms of how they position the business. And we feel that, obviously, coronavirus, being such a massive effect, was going to cause a disproportionate negative effect on those businesses. The short positions have performed very well in the long part of the book. The bulk of the pain that we felt over the last couple of months has come from stocks that have any sort of economic sensitivity. Energy is obviously a key one, but that type of business has been the ones that have been sold off the most. And as you can see from the opportunities that we've listed on Pages 17 to 19, in a number of those cases, they're actually quite resilient type of businesses. So whether it's a Health and Happiness or an HPI, these are not businesses that you would typically associate with having a lot of economic sensitivity, but the coronavirus outbreak has affected lots of sectors more than what you would typically see in a downturn. The next question, I think we've covered it in detail. Can you please explain the reason for the change in the share purchase plan to the buyback? I might skip that one. Hopefully, people have got enough color on that answer already. Some of these questions have already been addressed. Are you guys still planning to buy stock? Why did you cancel your share purchase program? Can you give us a sense of the biggest positions in the portfolio? I'll just reference Page 8. If anyone -- for anyone who hasn't seen it already, the top 10 long positions are listed on Page 8. We haven't given the breakdown of which one is the biggest and which one is the 10th biggest, but they're all significant positions in the portfolio. And one of the things that I think you'll notice about these businesses is that they are very resilient. They'll be able to withstand pretty much any outcome that gets thrown at them from coronavirus. They've all got a very strong position within their industry. And they've got a very strong balance sheet that can withstand a lot of earnings pressure. There are a number of other questions that have come through. In the interest of time, I might pull the call to an end. Thank you so much for your attention. Thank you for your support. I can assure you we're working incredibly hard to get performance back on track. And hopefully, between the buyback and the actions that we're taking across the portfolio, it will give you some confidence in the outlook for the company and for the portfolio going forward. I'll do my best to get our team to reply to other people that have more specific questions that probably won't have as much interest for, I guess, the general call. But please feel free to come through to Wayne Murray, who's our Head of Investor Relations, if you have any further questions. And I wish you all the best, and thank you so much for your time. Thank you.