WAM Capital Limited (WAM) Earnings Call Transcript & Summary

Good afternoon, and welcome today to the WAM Capital, WAM Microcap, WAM Research and WAM Active 2022 Interim Result Webinar. I am Geoff Wilson, and I'm Chair of those entities. I'm also the CIO of Wilson Asset Management. The investment team that's led by Oscar Oberg unfortunately, won't be with us today. A very, very close friend of them all, just died very recently of bowel cancer. And so the good news is you've got me or the bad news is you've got me. And in terms of a more detailed assessment and really drilling into some of the companies that we own in those various entities, we'll send you out an e-mail in the next couple of days, selecting another date in a couple of weeks' time. So I apologize for that when I spoke -- was speaking Oscar this morning, he was saying, look, we can do it, and I said, I'm very happy to chat to shareholders as Chairman as much as founder of those entities. Then there's an opportunity -- you've got an opportunity to ask me any questions you want for the next hour. In terms of looking at the results of those 4 entities, I got WAM Capital being the largest listed investment company that we've got in the first 1 that we floated a 20-plus years ago. The performance was in the 6-month period. Slightly outperforming the market. The portfolio is up 4.8%. On the 12 months, it was up a little over 17%. The interim dividend, we're able to maintain that at $0.0775 and that's really giving you an annualized dividend of 7.1%. Now that's before it's grossed up. So that's -- that's a very high dividend yield. There has been questions from time to time, why have we increased the dividend. And the simple answer to that is, we've tried to keep it the same for our shareholders because we've had franked and we have a rough reserves. So we've been able to deliver to shareholders. And with that, a lot of companies 2 or 3 years ago, when things were getting a bit tougher, were cutting dividends. And you'll see we're -- with WAM Capital, we've decided to keep at this high rate. So really, would we be increasing the dividend in WAM Capital? I think giving shareholders a 10% grossed up return is very -- our ability to increase the dividend is not much at this point in time. Things change, the market is dynamic, and let's see. In terms of WAM Microcap, the interim result there, again, a very -- an extremely good result. The portfolio was up. This is for the 6-month period was up 13.8% and that was a strong outperformance of the market. And that's the small ords, which was up a little over 8% for that period. The dividend was a good increase, a 25% increase from $0.04 to $0.05, fully franked, giving now is starting to give a really nice yield for investors of 5.4% before grossing up the value of the franking credits that's annualized. And Microcap is in a really strong position in terms of profit reserves $0.52. And just in terms of WAM Capital, WAM Capital's profit reserve is at the end of -- it's around -- well, I mean we've got 2 and a bit dividends up our sleeve there. So really, we've got to make more profit and pay more tax to continue to pay fully franked dividends. But we've got the next couple of dividends there. In terms of WAM Research, the -- a solid result in the 6 months. The portfolio is up 8.8% outperforming the index by a little over 4%, which was solid and the dividend was $0.05. And there again, we're pretty high in terms of the amount of dividend we're paying out. That's an annualized yield on the share price, which is quite a good premium to NTA of 6%. And in terms of profit reserve for WAM Research, it's got a fraction under $0.44, $0.439 is the figure. So about 4.5 -- just under 4.5 years of cover. And to me, it's interesting talking to some of the other directors on the WAM Research Board, WAM Research, we floated around 2003, 2004. And in the first few years, it was very difficult in terms of -- to pay dividends. Yes, because we had -- we had a little bit of profit reserve, but we just didn't have a significant amount of profit reserves. So for WAM Research, it's a great position they're in now in terms of having, as I said, a good profit reserve. In terms -- with looking at WAM Active, the portfolio was a tougher period over the 6-month period. WAM Active is looking for more short-term trading opportunities or buying a dollar of assets for $0.80, if they can, or a dollar of assets $0.50 obviously, preferably. And that was up a couple of percent in the half year. And over the 12-month period yes, well, and actually, the -- since January -- since effectively inception, just to give you some relative performance numbers and it increased nearly, on an annual basis, about 12% per annum. And the fully franked dividend was $0.03. That was maintaining level of $0.03. And that's because, again, in the profit reserve there's not significant excesses in the profit reserve, there's a little over $0.07 in the profit reserve. So they are the broad results. And what I'll do is I'll pass you over and look, thank you. This is your company. We're only -- we can only do what we do because of your support. We're really passionate about it. What I do like is I mean, we've already done a couple of presentations, the WAM Global presentation, the WAM Leaders presentation. But I think this group being the WAM Capital Group plus others, you've been with us for a long time. And you're very -- you send in some good questions, and I was talking to Camilla before we started, and I said, hey, that's the great thing about the WAM Capital Group. They got no problems sending in some good, solid punchy questions. So please, we've got some really good questions who have already been sent in. If you have any other questions, please send them in. And now I just [Audio Gap] on of our Senior Corporate Affairs advisers, and she will be moderating the questions today.

Great. Thanks, Geoff. We've got some good questions coming in. The first one is from Richard. He says there's been a fair bit of takeover activity recently. Can you please provide an overview for shareholders on the right -- sorry, on this relation to Keybridge Capital and PM Capital? And how do you expect the proposed takeover to play out?

Let's look at it in 2 separate takeouts because they are. WAM -- and just in terms of just going through the facts, WAM Capital made a takeover bid for PM Asia, the PM's Asian listed investment company, it was only about $60-odd million of assets. And the logic of the takeover bid was really PM Global, you nearly argue that the big brother had decided that they wanted to merge with PM Asia. And then when we looked at it, we saw there was a potential opportunity there for WAM Capital. The WAM Capital is trading at a solid premium to NTA. So it's an opportunity to use that premium to NTA to buy effectively cheaper assets. And also, one, a secondary benefit now was the fact that PM Asia had a little under $4 million of franking credits paid. So in theory, it could pay out a fully franked dividend of probably a little over -- around the $6.5 million mark. And yes, so that's quite significant on $60-odd million of assets. So yes, so we made the takeover bid. And as it played out, the Board ended up recommending our bid and the major players from PM Asia agreed to accept our bid. And it was successful, we've gone to compulsory acquisition now. Now in terms of -- and also we've made -- there's an announcement about WAM Capital merging with Westoz and Ozgrowth. And if you look at that and also the -- we made a small acquisition, I think it was about -- a little over $30 million of an unlisted investment company earlier in this financial year. In terms of the transaction, we've -- they will probably add about $34 million of value to WAM Capital shareholders. And so that's -- it's -- you talk about -- I mean, that is one of the advantages of having an active corporate strategy where -- and that amounts to about 1.9% of WAM Capital's assets. So in theory, a number of times, people talk to me about the management fee, and then look at -- you look at WAM Capital versus -- WAM Capital is now the third largest listed investment company, AFIC and Argo are the bigger ones. I think all 3 of them are trading at good premiums to NTA, but AFIC and Argo have a different -- they're internally managed and their managed expense ratio is around in 0.13%. Where if you look at the corporate transactions we've had, then you're actually getting the WAM Capital money managed for free, then you're getting a rebate of nearly, say, 0.7 of 1%. So that's positive. And also the other thing is the secondary benefit which is obviously the primary benefit of doing these transactions is there has been -- there's a real amount of franking that will flow through from those transactions, the Westoz, et cetera, et cetera. On our numbers, it looks like it will be about [indiscernible] so that will -- or about $.004 a share. That's diluted. So yes, so there are some benefits. In terms of the other side, WAM Active had made a couple of bids for Keybridge. WAM Active and WAM Capital own about 45% of Keybridge. And the takeover bids that we made for Keybridge was at $0.069. Now on our numbers, the company was significantly undervalued at that level. Since then, they're actually now stating that the NTA is up close of the 8.5 -- a little over the $0.085 level. In terms of the -- we still think there's assets there that are fully valued or don't reflect the true value of the company. I think as -- the Keybridge has actually made a takeover bid for WAM Active. And we've sent the e-mails out to you. It's a -- I would say it would be -- well, I've got to be careful what I say in there's a takeover there, but someone described it to me as a takeover. And I think you'll see Clayton's that play through. Already, there's been -- 3 of the conditions have been breached. So you'd assume who knows if it's live or not. To me, it's a bit of a joke at in terms of what they're using, they're using a Keybridge piece of paper that's probably worth nothing or who knows what it's worth to bid for WAM Active. So I think you'll just see that will drift off into the sunset. And probably the more interesting thing for WAM Active and please, any WAM Active shareholders that haven't voted, please vote. Keybridge have called an EGM to add 6 people to the Board now. It's just -- they're just trying to -- the various games they're trying to play. And we understand that. And we will just continue to do what we've always done, and that's to manage the money as we always have. So that's pretty much those 2 things. Let's go to the next question.

Great. Thanks, Geoff. Staying on the topic, Philip has said to us, WAM Capital has been very active, taking over other [indiscernible] And forcing their shareholders to take WAM shares. Will we expect a downward price pressure on WAM shares play havoc on performance, put the future dividend in jeopardy and ultimately reduce the premium?

Okay. There's a number of parts to that question. So let's do it in part. So first of all, most of the takeovers have occurred. So -- and say with the last takeover that WAM Capital made was PM Asia, you could have accepted into WAM Capital stock, we went unconditional months ago. So pretty much anyone that bought shares in that last -- all the previous takeover bids, anyone who bought shares, they would have sold if they wanted to sell from last year and the PM Asia one, I would assume anyone who has accepted the bid so far and wanted to sell would have sold. Like PM Global, which own 19.9% of PM Asia, they sold, and I think they sold it -- there's a lot of liquidity in WAM Capital. I think they sold at over now 7 or 8 days, 20% in PM Asia. So to me, that's pretty much all happened. With -- and I know there's a question later on, and maybe I'll touch on it here as well. With Westoz and the Ozgrowth merger, if there's any selling for that, the merger is going to plan to occur on the 21st of April. And then -- and there may be some selling from that. On the other side, this selling tends to be short term. And as we saw -- when we made the amaysim takeover bid, there was some short-term downward pressure on amaysim because what happens is a number of these hedge funds, they see the opportunity, they see an arbitrage opportunity. And like I -- you've got to accept what's happening. And they buy into, say, amaysim accept the WAM takeover bid and sell WAM or see the Westoz, Ozgrowth bid behind of that accept the WAM bid and sell WAM Capital shares. Now they tend to all be short-term things. And with amaysim like that was -- a lot of the unnatural owners and the hedge funds, et cetera, had bought into amaysim. So WAM share price fell over, it's a very short period of time and then bounce back up a couple of months later. And so that's what's tended to happen. So I'd assume that would happen again. In terms of -- as I said, the 21st of April is when the scheme is meant to be implemented for Westoz and Ozgrowth on an NTA for NTA basis then. And any franking we pick up, that will be a secondary benefit. And that's why with the WAM Capital dividend, we're paying it a little bit later. And I think the there's a question a little bit later on about the WAM Capital dividend, why we paid it at very -- why isn't it always at the same time. Ideally, we would like to pay out at the same time. But again, with the amaysim takeover bid and with the Ozgrowth, what we don't want to -- we prefer it to trade once these deals are done, trade comp dividend for as long as possible. There's always strong buying in WAM Capital on a comp dividend basis. So if anyone wants to roll out of their positions, any of these people are hedging or hedge funds, et cetera, then they can roll out and has less of an impact on the share price. So that's the takeovers for the share price. That was the first part of the question. What were the other parts, Camilla, that was that part. What was the other part?

Philip was just wondering if this would put the dividend in jeopardy and impact performance and the premium?

Yes. Well, we've done -- I've dealt with the premium. In terms of performance, it really doesn't impact performance because the day you get the money is then all of a sudden, say WAM Capital has got $1.7 billion of assets, say if they pick up another $100 million of assets, then the day you get access to that money, then that is just managed like the rest so that shouldn't affect performance. Obviously, WAM Capital is bigger than when we floated over 20-odd years ago when we raised $20 million. And obviously, managing $20 million and managing $2 billion is a different dynamic. You need different skills, you need to take advantage of different opportunities. So that's -- they're various things. In terms of the ability to pay future dividends, the impact, obviously, if you issue more shares, then that has a negative impact on your profit reserve. And so there are some slight dilutionary impacts. What fortunately, we've been able to do and a lot of people that own WAM Capital are very happy with the fully franked dividends we've been able to pay. As I mentioned a little bit earlier, from these deals, this is so far this financial year, that it looks like we'll be picking up, as a secondary benefit from those takeover bids, about $20 million of franking credits, which is a little over $0.04 on a diluted basis. So that's franking. And so in theory, that's $0.04 we're giving to shareholders that they wouldn't have had before. And if we give it to them as a fully franked dividend and they're in a self-managed super fund, then they're putting their -- then they're claiming the refund and they're getting a couple of cents back. So yes, to me, the Board thinks that they do add value.

Thanks, Geoff. This next question is from George. He says he notes that WAM Active and WAM Research holds similar companies to WAM Capital. Is there any benefit if we were to consolidate them into 1 leg?

Great question, George. And just so you understand it, effectively, when I set up WAM Capital years ago, the focus was to buy undervalued growth companies and buy them when we could see a catalyst that was going to change the valuation. So the whole idea was to sit in cash for as long as we could and to take as little risk as possible. And then when we saw -- we saw a cheap company, we wouldn't buy -- unless we could see something that we believed would propel the share price up as a catalyst, and then we buy it. So we're trying to make the maximum return to the minimum amount of risk. And that was WAM Capital's strategy, and we're looking for undervalued growth companies. And that was the focus. And when we started --when we're sitting on cash, because I've worked in the equities market for a number of years, obviously, I had very good contacts at various brokers or companies I was aware of. So when they were raising money or doing IPOs or those big placements, some of that free money that institutions get access to and that we've been arguing that retail investors should get access to in terms of placements and the like. But some of that free money, then when we're sitting on the cash, we took that opportunity. And if it was $1 of assets trading at $0.80 or $0.70, we'd take that opportunity. So what happened was WAM Capital ended up being broadly half was buying undervalued growth companies of the funds. And broadly, the other half was sitting in cash or taking more short-term trading opportunities. And so that was -- that's WAM Capital. And then as things have developed over time, I mentioned about WAM Research floating back in 2003, 2004, that just buys the undervalued growth companies. And then WAM Capital, that around 2009, we floated just at the start of the GFC. The logic there was just to buy trading opportunities. So WAM Research is undervalued growth companies, WAM Active is short-term trading opportunities and WAM Capital is 50% of each of them, if that makes sense. And WAM Microcap is then the same strategies as WAM Capital, but on smaller companies, the less than $300 million that is.

Thanks, Geoff. On WAM Active, Tim's asked what was the rationale behind the WAM Active options? And will we be carrying this out any other funds?

Yes, the logic about the option issue is -- the tough thing about WAM Active is when -- I just mentioned earlier, when we floated it, we actually -- it was before the GFC started we prepared the prospectus. And back then, I remember Matthew, Kevin and myself saying, look, the markets are very expensive. But a lot of people -- there's a lot of demand for product. So we thought, look, if we are going to do a product, we're just going to do a trading product. So we've got maximum flexibility to move the cash as quickly as we can. We launched the prospectus by the time -- we launched the prospectus, by the time -- Camilla, have I just lost you for a second?

Just for a second, but your back, Geoff, all good.

Okay. We launched the prospectus and by the time the actual the prospectus was ready to close, the GFC already started. So we only raised a little over $15 million. So it was a difficult -- it was a very small raising, and we've been trying to grow WAM [Audio Gap] and the plan is to continue to grow. Now how do you grow it? You can do a share purchase plan, a placement or an option issue and with WAM Active, we actually end up doing all 3. And what the option does, it gives you another piece of paper effectively, it's like a massive buy right on behalf of all [Audio Gap] There's usually some time, value, money in that option. So you can decide whether you want to keep that option, whether you want to sell the options or whether you want to exercise them. And we have to perform for those options to get exercised. So that's the logic.

Thank you, Geoff. Next one is from Sally. She says, do you think LICs will become more popular in this era of uncertainty? Or are you concerned that ETFs might steal the show?

I mean, to me, it is funny that argument, the ETFs versus the listed investment companies. Now the first listed investment company was created in 1868 and it was effectively -- it was in the U.K. and the whole logic -- it was foreign and colonial, and the logic was to democratize investing. Now they were letting people of smaller means to benefit the way that the larger players in equity markets and debt markets, how they could get exposure. So they've been around a few years. In the U.K., as I said, that's where they started. In Australia, the early '20s, 1920s, that was when Whitefield started, which is before the AFICs and the Argos but they have been around for a long time, and they will continue to be around and they'll continue to grow. And there's some great benefits for listed investment companies. On the other side, you've got ETFs. Now ETFs are open-ended products that will continue to grow significantly. And the fact that the ETF exists isn't negative for the LIC. To me, it's actually positive for the LIC. It's weird, I think the journalists get caught up with this ETFs versus LICs. ETFs are growing so quickly. Well, of course, they are. They're open ended. In a bull market, you'd assume the money to flow in. Where listed investment companies, they're just a fixed pool of capital, so they're close ended. And that's one of the reasons why I saw this research about 30 years ago, showed how listed investment companies outperformed open-ended funds like the ETFs or the managed funds. And that's one of the many benefits that LICs have. So they'll continue to grow, they'll continue to prosper, but ETFs will grow at a greater rate than LICs. And that's what you expect, and that's actually what you want.

Thanks, Geoff. This next one is from Michael and he says, do you expect new federal government to stop franking credits?

Well, I suppose the question is assuming labor wins the next election, and they look at -- so they've got a pretty good chance at the moment, the way [indiscernible] is performing. Let's assume they do, will they do anything with franking credits. Now the great thing is we were very passionate about franking credits before the last election, and we ran a very strong campaign. And a few people -- we're trying to explain that we were -- we're bipartisan in terms of our views. And with the current government, we've been very vocal about AGMs and the negative things they're doing about making AGMs only -- potentially only online and also various other things. So to me, we're more focused. Our goal is to make a difference, make a difference for all our investors in terms of performing and make a difference for our shareholders in terms of being able to stand up for them if we can. And that's where the franking campaign came from last election. The good thing is we kept on them after the election. And the great thing is labor have dropped that from their toolkit. I don't -- one thing -- the reason we were against the franking strategy proposed by labor before the last election, whilst it was unfair and illogical. I have no problems about -- I know it came out -- there was an article in a paper about Dick Smith getting $0.5 million of franking and he didn't know what he should do with it. Well, I mean, obviously give it to charity. But to me, I think that is wrong where these big personal superannuation funds and people get significant benefits from the franking system. Now I think it does make sense for there to be some cap. But to me, to be a fair and equitable cap in terms of what labor was proposing. Some of the unintended consequences, well, a, it wasn't fair. It wasn't -- it wouldn't be the same to all people -- anyone in a different position could have a different outcome, even though they're same age. And there was some very strong unintended consequences in terms of the negative impact that had on sort of hard-working people that have done the right thing all their life.

Thanks, Geoff. And actually staying on the topic of shareholder advocacy, Michael said he saw a quote in the AFR last year about the sophisticated investor test. Can you explain your position on that?

Yes. The position is that -- I'm just trying to think how many years ago. A number of years ago, that the [indiscernible] was introduced. And it was in theory -- some new legislation that was meant to protect retail investors. Unfortunately, it's significantly disadvantaged retail investors. And so what it -- and part of that was the sophisticated investor test. And what effectively that is, is the people that can invest in a placement that doesn't have a prospectus, sophisticated or wholesale investors. And [indiscernible] Of assets that you own. Now that is just so grossly unfair, that a company can -- who's listed on the stock market can raise some money. And then if you're a shareholder in a company, you want to put some more money into the placement. And if you haven't got -- earned more than $250,000 a year or have x amount of million of assets, then you can't do it. Then New Zealand saw the light, and they changed the rules back in 2013, and we've been trying to get the government to change the rules. So if a company is listed on the stock market and it's doing a placement then any investor should be able to participate. Because effectively, what happens is the wholesale investors like ourselves, we can participate in that placement. And then the company is listed on the stock market. Then the next minute, when it comes back on after it's done the placement, we can sell the shares to you at a higher price and make a profit, and that just isn't fair. So that was -- I think where I was quoted, I was saying, look, maybe there's another way of doing it. Maybe it's not on dollars, maybe it's on [skill] or something of those lines.

Thanks, Geoff. I've got a question now from John. So we listed WAM strategic value last year, and he's wondering if there are any plans for a 9th LIC?

Look, thanks, John, and no short-term plans for 9th LIC but at our sort of -- our strategy meeting that we had a month or so ago, Camilla, can you remember how many investment opportunities do we have in the various categories? 8, 9, 10?

Up to 01 years.

Yes. There's various strategies we're looking at. What structures we use, where they fit. The priority for us is to look after the current lot of listed investment companies. Obviously, WAM's strategic value is trading at a discounted NTA. And that's something that we've got to get it back to NTA, if not a premium, also WAM Global's at a discount. And we've got to get that back to trading at NTA, if not a premium, and WAM alternative assets at discount. Now we've narrowed the discount significantly in WAM alternative assets when we took it over a year or so, a little over a year ago, but we've still got to get that traded NTA if not a premium. So we've still got a lot of work. Now we've actually got close to 10 people in the shareholder engagement communication and marketing strategy, which compares to our competitors, say, the AFICs and the Argos, I think they have 1 or 2. So we're very committed to that. And we need to -- that's the area we're focusing on at the moment.

Thanks, Geoff. We've got 1 from Ian, who's just logged on to the webinar. He's let us know that he owns shares in WAM WAX and WA And he's asked, why do you own -- why do we have [WA] when WAM does the takeovers, if you can touch on that again?

Yes. Why was WA created? It was really because the strategies that we adopt, say, WAM Capital is undervalued growth companies with a catalyst or more short-term trading opportunities. But because we're in the listed investment company space, we also allocated 10% of the value of the assets of WAM Capital to buy other closed-end pools of capital -- or listed investment companies or trust that traded at a discount. So what we decided was, look, let's clean up the structure and put all those in a separate entity. And that's where WAM's strategic value is created and it's ASX code is WA. Now -- so that's -- that is WAM strategic value, we're just buying the undervalued assets. I say buying [VGI], [VG1] say it's $1 of assets, you can buy them at $0.85 at the moment, or the Magellan listed investment trust is trading at a 16% discount. We've been buying them recently. Now so you're buying $1 of assets cheaply. Now in terms of making a takeover, it really depends where that pool of capital sits and which one it makes sense to do because with the last takeover we made, which was -- well, actually, the last takeover, not the scheme that I've taken was PM Asia. It actually made more sense for WAM Capital to do that bid and use their script, which was trading at a 20%-plus premium then WA and because currently WA is trading at a discount. It's about a 6% or 7% discount NTA. So it just wouldn't be as appealing. So -- and when we did the deal with Templeton Global, why didn't WAM Capital do the deal, it had a bigger premium. Well, the logic was the assets, it made sense to put them with WAM Global. And that's a thing with WAM Global, it will just take a bit of time for that share register to tighten up. And then I'm very confident that we'll get it back to our NTA. But yes, so WA is doing the investing. It may do takeovers, it's probably more likely will be more takeovers because WA we raised $220 million. And then what that did is before we never really looked at the $40 million, $50 million, $60 million listed investment companies because why invest in them when you're talking about you've got about $1 billion of fund that you're investing in. So -- but now with creating WA, then all those smaller ones are potentially vulnerable from -- in terms of us investing in them.

Thank you, Geoff. This next question is from George. He says, given the WAM Microcap profit reserve basically equates to 5 years' worth of dividends, would the Board ever consider paying a one-off special dividend?

Yes. Thanks, George. And look, what we've done is as we've been growing the profit reserve, yes, on an annual basis, we'll pay an interim dividend that we're comfortable with, the full year dividend we're comfortable with and with Microcap and then pretty much every year, then we paid a final dividend and a special dividend. Now that the yield is getting up, then that will be a debate at year-end. We've announced the interim dividend. Will there be a full year dividend? Well, obviously, there will be a full year dividend, you'd assume it will be similar to the interim dividend. And will there be a special dividend? At the debate we had in the interim, we were questioning whether we would. It really just depends how the portfolio performs. Also, you've got to remember these profit reserves our ability to pay fully franked dividends sort of turn up when we get franking credits from shares that we invest in or we pay tax and get the franking credits from the tax we pay. And you tend to find there's a lag between when you pay the tax, you make the profit reserve first, and you might pay the tax a little later, and it could be 1 or 2 years later. So we actually aren't necessarily in a position where we could pay out a significant fully franked. We couldn't pay all the profit reserve out fully franked at the moment. Yes, it would only be a very small fraction of it because we haven't paid the tax yet.

Thanks, Geoff. This next one is from Andre and he's just looking to understand how profit reserves are kept. He asked, are they in cash? And then how do they impact the NTA?

Yes. I mean, good question, Andre, because it is -- in theory, it's an [accounting] concept. And this is probably the easiest way to explain it to you. Say we started with $100 million. We've floated a new company has got $100 million. Over the 6-month period, the value of the assets go from $100 million to $110 million. Say you're fully invested, say you're 100% invested in the stock market, then from an accounting perspective, after that 6-month period, your shareholders' funds, which is what you started with, is $100 million, and you've got $20 million of earnings -- sorry, $10 million of earnings. Now that $10 million of earnings, what we do, as a Board, we sweep that into the profit reserve. So what the balance sheet looks like is $110 million of assets, $100 million of shareholders funds and $10 million of profit reserve. Now you could be 100% invested in the market. So in theory, it's not cash. It's not cash that's sitting there. It's part of your assets. So I don't know if that -- I tried to sort of use an example to explain it to you. Yes, it's an accounting -- I was going to say, move or -- it's just an accounting entry. It's not something that you've got to put on one side and keep it in cash. It's just part of the pool of capital. So we'll be investing $110 million. Now if we wanted to increase the cash to 50%, we do that. If we want to be 100% invested, we'd be invested would put $110 million in the market. And that $110 million is made up of $100 million of shareholders' funds, which we started with plus $10 million of profit reserve, which you can pay. Now if you have franking, then you can pay it out fully franked. If you don't have any franking, see, that's what happens. So that first 6 months, you might have sold a share. So your profit reserve is $10 million, and you haven't paid a cent in tax. So if you paid that $10 million out, that would be an unfranked dividend. So you'd have to wait till we solve that $10 million worth of stock. And then actually, sorry, it wouldn't have been $10 million because we would have provided for tax, but we might have -- yes, so it would have been $3 million -- so it would be $7 million in the profit reserve. But until we sell that on shares and pay that tax, we can't pay that out as a fully franked dividend.

Great. The next one is from Alan. He's just asked us, are there any issues with your LICs trading between themselves?

Yes. I mean, fair question. And I think you mean, Alan, in terms of -- well, first of all, they all have different strategies, they'll invest in the different strategies. So there may be an occasion where a company that we own in WAM Microcap might get significantly larger, and it might be held in Microcap and WAM Capital. We tend not to try to trade between the entities. The WAM strategic value own shares in WAM Global. And that's -- well, in theory, that's not a long-term position. That turned up from the takeover with the takeover of -- and in retrospect, we probably should have accepted the cash for the Templeton scheme, but that was like a 6% or 7% discount, which I find it very hard giving 6% or 7% away. With the takeovers for Westoz and Ozgrowth, then WAM strategic value, which has positions in them both, the plan is -- the plan would be to roll out of the WAM Capital shareholding when the scheme goes through on the 21st of April, just over the following month or so. So I think that I tried to cover off everything. And I hope that does.

Thanks, Geoff. This next question is from [Fang], who is wondering what is your view on the crisis in Ukraine and its effect on the share market?

Well, the view is totally [indiscernible] everyone is an incredibly sad and sorry for -- everyone who's been significantly negative [indiscernible] the people in Russia that the average citizens, I feel sorry for them. And it's been -- like it is a tough period with what's happening in Australia with the floods. Some people have been totally devastated and died as well, but obviously not on the magnitude that's occurring in the Ukraine. First thing, we just look through it logically. I mean, it's fascinating how the markets perform. You look at logically, effectively, the cold war is over and the significant benefit that world economies got back in the early '90s, that's going to be reversed. So I mean, Germany came out the other day and said they're going to put $100 billion aside for that sort of the fighting fund. So all of a sudden, the cost to defend yourself is real. And so that is -- that's a cost to every company -- sorry, every country. It's got to be paid by someone. So that's a negative on world growth. Obviously, from globalization to the opposite, that is obviously negative as well. The interesting thing is the million-dollar question over this period, and we've seen it with COVID and with the GFC and just how -- sort of how central banks are prepared to pump money into the system. And I know after the GFC, I remember seeing 1 of the guys talking in the U.S., just talking about how during the GFC when Drexel was going under, et cetera, it looked as though every -- all the monetary all the banks, et cetera, or monetary authorities were looking over the cliff. And they just didn't know what was down there. And we've seen that they've learned by stimulating economies by pumping -- dropping interest rates at very low levels and pumping money in the system. It actually keeps the system performing well. And what it does do, the unintended consequences and we've all been a major beneficiary of that is a push as asset prices up. That's assets in terms of equities and assets in terms of property. Now we were of the view that -- and also, we're finally seeing some inflation because of that free money position. The risk with inflation is interstates go up, and obviously, then PEs contract, and that's negative for the market. But the strange thing is the fact that the war is broken out means that monetary authorities globally probably have to change their strategy. So in terms of -- instead of trying to tighten the monetary conditions, now all of a sudden, I think, well, we've probably got to loosen or we could have dilution monetary conditions. So that's potentially positive in the equity market. And I think that's why the equity market is a bit over the place. It obviously sold off early. I remember Desert Storm, I remember when they invaded on -- in Desert Storm, the day they [indiscernible] Was actually the day they invade. Look, old Rothchild back in the -- was at the battle of Waterloo, his famous quote buy when the blood runs in the street. Now maybe that was the case on the first day. But I'm still of a view, I'd still be very cautious with your money. I would definitely be in a position [indiscernible]. So if the market fell 20% or 30%, you wouldn't be stressed. So that means you've got to be holding a bit more cash than hold a bit more cash because the market has had a -- it's been a very strong and long bull market. We know it has been at the market or asset prices, but there's been a major benefit of the drop in interest rates and asset prices being equities, valuations and property, you'd have to say pretty extreme levels. So to me, there's a lot more risk now than there was historically. So I think that sort of sums up a little bit my current thoughts. Obviously, the equity market, we know, you never pick the top. Back in '87, there's before the -- I think January '87, everyone knew the market was expensive. It went up another, I think it was 50% before it crashed in October that year. So you've got to keep invested because we never pick the top and we never pick the bottom. But don't -- make sure you're not overextended. There's been a lot of new money in the market. And when I was a young broker, I was taught that you make your money in your second bull market. And I think I worked out that whatever money you make in your first bull market, you lose again. That's what the philosophy was there. So the newer players to the equity market, the odds are whatever they've got, may disappear. And they'll be a bit wiser. They'll take a bit more off the table next time, they won't over extend themselves. Thanks, Camilla.

Thanks, Geoff. John has written and he's asked, does the pay ratio apply towards investment companies?

Yes, it doesn't. No. I mean, some people -- we're always taught buy companies on low PEs and sell them on high PEs. Well, that was -- when I said in the market in [ 1980] . But probably in the last period, it's buy them at high PEs because that means they're growth companies and probably sell them on low PEs. But no, it's really the value of the assets. In theory, you're investing -- you're trying to buy $1 of assets as cheaply as you can. If you can buy the dollar of assets for $0.80 or $0.85, then you get $1 of exposure to the market, and you're not paying the full amount. So you're getting it at a discount. A PE it's just in terms of backward-looking measure for listed investment companies of what they -- the profit they made last year.

Thanks, Geoff. We've just had Sabi write with an interesting question. He wants to know your view on the brand value of your name at Wilson Asset Management in light of Magellan's issues.

Yes. Very little, very little. Well, what was -- well, first of all, all our listed investment companies are closed [in pools] of capital. So there won't be any redemptions. To me, the funny thing is what I -- does amuse me. People I speak to, they think I do all the work. We've got 50 people. I mean you're seeing one of them, Camilla today on the [coms] team. Yes, she's 1 of 10 on that area. You see some of our investment guys. We've got 14 going to 15 people in the investment area. They are the ones that do all the hard work. The accounting operations, they're all the guys that are doing the hard work. On the on the old one that just makes a bit of noise now and then and does the introductions. But today, I've got to do a bit more. So I've got to sing for my supper a little bit more. So to me, having me not around it probably frees them up a little bit more. They'll probably be more creative and perform better, who knows. And then that's -- like with Magellan, that's the strange thing is, Hamish -- I'm signaling more hands off. I think Hamish is a bit more hands on. But he's 1 of 35 people on the investment side. So those other 35 people are still there, even though Hamish isn't. So I would assume that Magellan -- obviously, they're dealing with outflows at the moment. And if I was looking at buying the stock, I'd probably give it 6 months just to see where it bottoms out. And I definitely try to then buy it before you started to see it growing again or if you want to be a bit more conservative, you see the fund starting to grow. And if they're getting inflows, and that would be probably a smart time to buy.

That's great. Thanks, Geoff. One last question today, which has been asked by a few people. Amanda says, why do you only report monthly? Surely, a daily or weekly report would be more beneficial.

Yes. Look, thanks, Amanda. And we did a presentation the other day for WAM Global, and we had the same question. And probably the best way for me to explain it is if you look at WAM Research, which is 1 of the listed investment companies we're talking about today. And we floated that back in 2003, 2004. And actually, after a few months, it went to a discount and traded at a discount for nearly 7 years. It took us -- that's the longest amount of time it took us to get a liquid traded NTA, if not a premium. And what happened over those 7 years is we're explaining to shareholders what we're doing, how we're investing the money, taking medium, long term -- buying undervalued growth companies with a catalyst, et cetera, et cetera. And it just took a long time to get that message through and really to shake out the traders and the people they are more short term, looking for more short-term opportunities. And as I explained, with WAM Capital, when we made some takeover bids for amaysim, we've had to deal with or Templeton Global, the short-term traders that have bought positions and just trade out. And my view is by -- the decision you've got to make is whether you believe that people are managing the money are going to perform for you. Now is it the right structure you want to be in? Do you want a growing stream of fully franked dividends et cetera, et cetera. And you've got to be able to trust those people. Now -- and circumstances change, and you may change your mind. But you really don't want someone buying the shares because the NTA was announced today and then -- sorry, the NTA announced today is a little different to yesterday or a little different than the day before or the day after that. So we've just stuck to the what the ASX rules are. And that's -- we've got to announce at least once a month, and we've got announced by the 14th day of the following month. The various other allies -- and that's really to have a long term -- the shareholders have taken a medium long-term view. And the -- I mean, the proof of the pudding is in the eating and with WAM Research, that was trading at 20% and 30% discounts back in that first 7-year period, and now it's trading -- I think it's trading over a 40% premium. Now we probably did too good a job there in tightening up the share register and getting more medium, long-term shareholders there. But that's why we sort of don't go -- we're just doing the ASX regulations. We don't want to encourage sort of more short-term trading. I know it's good. It creates liquidity, probably creates opportunities for people. But we've got probably -- our goal is to have a medium, long term, a good quality business, and it's to have -- to find people that align with us and we can go on the journey together. That's the plan. The interesting thing is the ones that do daily NTAs. It doesn't actually help them. I know the Perpetual guys, do daily NTAs, and it doesn't -- I don't think they've traded at a premium for a very long at all in terms of the period of time they've been listed. So yes, that doesn't help premium or discount.

Thanks, Geoff, and thanks to everyone who are wrote in questions today. Do you have any closing words, Geoff?

Thank you very much, everyone, and I really appreciate the time. And it's probably good, we've been able to have a bit of quality time together. It is a difficult period. I think our -- I mean, incredibly sad in terms of what's happening around the world. And back in Australia, everyone who's been negatively impacted through the floods, our sort of hearts go out to them. And I'm really looking forward to seeing you all again. When we have -- in a couple of weeks' time, we'll send an email [indiscernible] And in a couple of weeks' time, we'll have the A team back on the webinar. And it will really be -- maybe we'll even -- if you can turn your questions, we'll just ask you to do [indiscernible] well a little bit more [indiscernible] the portfolio but also [Audio Gap]