WAM Global Limited (WGB) Earnings Call Transcript & Summary

This is a hybrid meeting held both in person here at the Museum of Sydney and online. I would like to acknowledge the Gadigal people of the Eora Nation and pay my respects to Elders past and present. I'd also -- yes, okay. Before we officially open the meeting, I'd like to say that our thoughts and prayers are with all the people who are in conflict right now particularly in the Middle East and Eastern Europe. Before we begin, a disclaimer is displayed for you on the screen for to read. I'm Geoff Wilson, Chairman of the Board of Directors. Joining me in person today is my fellow Board member, Kate Thorley and joining us online are our other Board members, Gabrielle Trainor, whose appointment you are invited to vote on today, and Caesar Bryan, and acting in his capacity as moderator is Jesse Hamilton, our joint Company Secretary and Wilson Asset Management's Chief Financial Officer. He'll be assisting with addressing any questions received during the meeting. Scott Whiddett is in the front row here, representative from our auditor, Pitcher Partners is also with us and available to address any comments relating to the Company's financial statement. As it's just after 8:30 and a quorum is present. I declare the meeting open. The notice of meeting has been circulated to shareholders, and in the absence of any objections, I'll be proceeding on the basis of the notice be taken as read. I encourage you to read the Chairman's address, which is announced -- is announced to the ASX in detail. Shareholders who have logged into the webinar, with your user name and password, will have the opportunity to submit questions online and ask audio questions as well as vote on the resolutions. If you're joining us online, questions can be submitted at any time. For those shareholders joining us online who wish to ask a verbal question, an audio question facility is available during the meeting. For those shareholders joining us in person, please raise your hand and wait for us to bring the microphone to you. Voting today will be conducted by way of a poll on all items of business. When I open the poll, the voting icon will appear on the navigation bar for those people joining us online. Simply select 1 of the options to cast your vote. If you change your mind, please select option. I now declare voting [ open ] on all items of business. You can vote at any time during the proceedings until I declare the voting closed. Since -- now just in terms of -- this is the Chairman's address, which I mentioned is online. I'll just give you a little bit of a summary and talking about the -- a little bit of an update -- this year and where we are in terms of dividend and franking going forward. Since inception, WAM Global has achieved an investment portfolio performance. So it's just a little under 7% per annum. Now in the period of September, the portfolio is down fractionally pretty much in line with the MSCI index, which is down 0.4% and outperforming the MSCI smaller mid-cap index. So far this month, you'd be aware, the Australian dollar has been weak. So in Australian dollar terms, the actual portfolio is up slightly. In terms of the dividends and paying dividends going forward, you'd all be aware, on a monthly basis, we update you with the profit reserve and WAM Global has a very healthy profit reserve. As WAM Global is investing in global entities, its ability to pay fully franked dividends is really a function of tax paid on profits realized and tax paid in Australia. When we announced the full year result, we noted that the -- our franking account was reducing. And as we -- after the payment of the last dividend, we're sitting on a little over -- well, it's just fractionally over -- it's [ 3.55 cents ] per share. So in terms of the next dividend, if we don't pay any more tax between now and the next dividend payment, it looks like the next dividend will be about 60% franked. And then the franking of dividends going forward after that really depends on the performance of the portfolio and really the realized tax that's paid. So as you'll be aware, the profit reserve is a combination of realized and unrealized profits. And we are still in a healthy position to continue paying strong dividends going forward. As I mentioned, I'd ask you to read the Chairman's address in detail, which we've announced [ at exchange ]. Now I'd like to go through the formal part of the meeting. There are 3 items of business for the AGM today as set out in the Notice of Meeting. Two are to be voted on. The Notice of Meeting and explanatory memorandum was circulated to shareholders in the absence of any objections, I'll proceed on the basis of these are taken as read. I note our Boardroom -- the returning officer for today's meeting, and we'll conduct all the polls. I further note, Resolution 1 is subject to voting exclusions as outlined in the Notice of Meeting. The Board recommends approval of Resolution 1 and Resolution 2, as Chair, I'll be voting all open votes provided to me for both resolutions. Will advise the ASX as soon as the results are determined, which will be a little later today. You may submit any questions or comments you have related the financial statements or reports. If you're online, submit them now. The first item of business is to receive and consider the financial statement, the Directors' report and the auditor's report for the company, the year ending 30th of June 2023. I've already introduced Scott Whiddett to you. And there's no resolution on this matter. I'll just pause for a minute to see if there's any questions online. Are there any questions in the room on the -- yes, thank you.

Hello. I wonder if you had a comment on the discount to NTA and I think particularly a bit more general and also generally with LICs.

Yes. And thank you for that question. And I'll do it specifically for WAM Global. But why don't I start off with the sector. And you have noted you'd be aware that in the last a couple of weeks. Magellan has talked about effectively turning their listed investment trust into an open-ended trust. So -- and Forager has talked about, they've been listed trust for 7 years, and they have talked about effectively becoming an unlisted trust, an open-end trust again. And probably, I mean, the good thing is -- well I haven't got any right here, but if I had it, I would. Like yourself, we've been around for quite a period of time. And to me, this is just a normal market cycle. Specifically in the Chairman's address that we've announced online. We've given you a few facts and figures. And probably just to give you a summary of that, listed or closed in pools of capital have been around since Foreign and Colonial was listed on the London Exchange in 1868. And they are fantastic investment vehicles. And they've survived hundreds and hundreds of years. And they'll continue to survive and prosper over a long period of time. We do get periods -- like any market, there's -- like the stock market, there's a period of the boom, like any market, there's a period of expansion and contraction or consolidation. And if you cast your mind back to 2000 -- 2002, 2003, then there was only -- I think there might have been 40-odd listed investment companies, obviously, AFIC and Argo, the bigger ones. The Miltons, there was a few others that have been merged since then. And we went through a period from -- was it August 2002 probably June the following year, where there was a -- the market come off a bottom and it rallied strongly. We actually floated WAM Research. We thought we'd raise $50 million, I think, we're the first IPO of the upswing in the market. We end up being oversubscribed at $150 million. I think we had $200-odd million of demand. And everyone saw that like a market. And over the next 9 months, I think 32 LICs is listed. Now of those 32 listed investment companies that listed over that period of time, WAM Research is still there. But I think nearly all of the others have -- something has happened to them. And what a lot of people think, they think you can just list a listed investment company. It's sort of like going to university or going to school and think if you're a [ 10 ] school, you'll get an A, you actually got to do the hard work. And to me, what we're seeing is the people that -- when there was demand. And when FOFA came in, that effectively leveled the playing field between managed funds and listed investment companies. And we had another explosion in growth in listed investment companies, and we're just going through just a natural consolidation. Now the ones that are committed to the space will continue to grow and prosper, the one committed to [indiscernible] disappear. And that's what we're seeing. So to me, it's just -- it's a natural market [indiscernible], the rumors of the death of the sector are greatly exaggerated. Now it will continue to perform well. And the interesting thing is we've seen more recently, we've been on a little road show because we're opening up a structure, which is what I started with 26 years ago. And we're just doing another one just focusing on the large caps. And we've probably seen at each capital city, 200 to 300 investors. And I'd say, 90-odd percent of them are listed investment company investors, and they're there for the benefits of listed investment companies, and they're not trust investors. And if you look at the whole sector, the funds management sector in Australia, about $4.5 trillion, 1% of its listed investment companies, that's $50 billion, 3% of its ETFs and 96% of it is trust [ structures ]. So it will continue to be a great place to invest, a great place that can give you a consistent stream of dividends over time. Yes. So to me, that's sort of my view. Does that pretty much answer your question or that part, and then I'll go to specifically the global. Does that answer that part of the question? Yes. And in terms of WAM Global, if you look at the history of WAM Global, what you find -- and what does the listed investment company need to do to perform. It needs to -- well, [indiscernible] NTA, if not a premium. It's incredibly easy to explain how a listed investment company trades at NTA, if not a premium, it's incredibly difficult to achieve. It is first year economic, supply/demand, if there's enough demand, where supply and demand meet is equilibrium. And in theory, NTA should be equilibrium. And obviously, when you have more selling, you're at a discount, when you have more buying, you have a premium. So the challenge for anyone managing a listed investment company is to communicate to all your shareholders, so they clearly know what you're doing. And it's like us, when we invest in a company, if we clearly understand what management are doing, then we have a lot more faith in their ability to achieve what they're planning to achieve. So if everyone who is an investor is happy, then of course, there's no selling and then all you need is a bit of buying around NTA, if not a premium, and it trades at NTA, if not a premium. It is hard to do that. And what happens is when you list any company, it's effectively the first time even operating companies that we invest in. When they list on the stock market, they might have been private for 100 years. But when they list on the stock market, that's the first time you assess them. So effectively, when you list an IPO, everyone who has invested on, they think they know what they're investing in. But when it's listed on the market, then people make an assessment. Is it living up to my expectations? Or is it not? And what you tend to find is there's a group of people that participate in IPO that will roll out over the next year or 2. And WAM global dealt with that. And we -- in the early days after the float, I think we're trading around NTA, if not a premium and then we went to a bit of a discount, then WAM Global is back trading at NTA. And then the opportunity came up to merge with Templeton Global. And we saw that as a great opportunity to get size -- to be one of the top global players. And when you think about the listed investment company sector, is people -- particularly participants in it, say, financial planners -- they effectively are happy to pay a bit more for liquidity. And we saw that when Soul Pattinson made the takeover bid for Milton. Here is a really good established company that does investments. Making a takeover bid for a listed investment company. Now no synergy benefits. It's not as if you're going to sack 1,000 staff, and there's going to be significant benefits. But both companies, I think, rallied about 20%. Now you'd say, that is just totally illogical. But it's -- the logical part is because you're becoming a bigger player. And so therefore, the financial planners that made liquidity, they want to put $1 million or $5 million -- depending on the size of the financial planner. That will [indiscernible] listed investment companies that if you're doing everything else right, in terms of engaging with your shareholders, communicating with shareholders, marketing, performing, paying a consistent dividend, treating your shareholders respectfully. Then the big you are, the [indiscernible] [ they try to look at goes ]and also the length of time you've been around is the length of time you've been able to effectively sort of tighten up your share register. So everyone is pretty much happy with what's going on. So we are [indiscernible] perspective, right. We've gone from a $450 million entity, sort of a little -- a small player to [indiscernible]. So therefore, we're actually -- we're nearly getting into the top few global players. If you want to play global, then that's the entity. Unfortunately -- and when we did it, we gave people [indiscernible] script or [indiscernible] you had cash at a [ discount ] [indiscernible] people want cash, then we'll get a benefit for the WAM Global shareholders, they're going to get less. Now the bulk of the people who took the shares, this is about a [ 5% ] difference between the two. And probably what we didn't realize is how many of them took the shares just to sell them in [indiscernible] and that's pretty much -- WAM Global has been working through that. And the tough thing is when you try to get a discount, you just don't know how -- you don't -- [ like all ] that doubling in size, you don't know how many you're going to sell. So it's not as if you think, oh, look, if I -- there's $100 million demand, that cleans it out and then we go back to trade with NTA, if not a premium. And then once you go to a discount, say, like WAM Global got to a 20%-plus discount. And now it's -- the discount is shrinking. I know recently after went ex dividend, I think there must be a seller. I assume it's one of the old Templeton sellers, has put a bit of pressure on the share price just since we've gone ex dividend. So that's probably a short-term opportunity, but it had got to about a 13% discount. It's now at about a 15% discount. The good thing is like -- sort of it was over the worst of the discount. So you think, oh, great. It's actually -- the dynamics are moving in the right direction now. We're heading back to NTA. The tough thing is when you've been at a discount, then you actually -- it's not [indiscernible] 50 million shares or 20 million shares, you have to buy, and it goes back to NTA. It's -- there's quite a lot of churn in there because the people will be buying it at a 20% discount, they're selling it at a 16% discount. Now at the moment, now it's a 15% discount. The people -- sorry, buying at [ discount ] will sell at a 10% discount, that are the discounts. So we'll need to move -- we'll move through that. I'm very confident that we'll get WAM Global back to NTA. Yes, I'm very confident about that. And you look at our pool of listed investment companies. You've got the newer ones, and I can -- I can go through the logic of why they're trading at discounts. And they're in the process of -- we're in the process of tightening up those share registers and eventually getting them back to traded NTAs. I know we all feel a lot happier if the share price was NTA, if not a premium. So I know that was quite a long explanation, but I think it's important to understand that. Thank you.

Just in regards to the NTA, to me, it's a lot of academic [ club type ]. I'm very happy to have a discount to the NTA because it means if I want to add to the -- to my holding, it's going to be at a better return than if it's at NTA. So I wouldn't encourage anyone to try and get above the NTA. And I think the fuss that's being made is mostly by people, as you said, [ arbitraging ] the price. What they want to do is buy into the vehicle, then have the whole thing change so that they get an immediate uplift. And there's [indiscernible] a lot of been written about that, and I'd be very happy if you continue to trade below the NTA.

No. Look, thank you for that. And you sound like Warren Buffett. That was -- that was his comment. He said if you're a hamburger manufacturer -- sorry, if you're selling hamburgers, you want hamburger meat to go up in price or to go down in price. Now like if you're an accumulator, you want the NTA to get higher and higher. The discount to get bigger and bigger.

The performance of the company. If the company is performing, the NTA doesn't matter.

Yes. And I mean, that's a very fair point. And another point is what you did say is a lot of people see the short-term arbitrage opportunities. In terms of trying to buy something of discount and get NTA as quickly as they can. And unfortunately, in the Australian market, there are a number of instances of collateral damage because of that. I remember the Australian infrastructure fund. Where could you get exposed to those type of assets. Unfortunately, after the GFC, they get bullied by hedge funds and they rounded up. So anyway, that's -- no, thank you for that. Any other?

[indiscernible]

Perfect. Okay. Thanks, Jesse. So the Resolution 1 relates to the adoption of the remuneration report. You submit any questions or comments you have. Now we'll go specifically any questions or comments on Resolution 1. Any other general questions will hold for after we've done the 2 resolutions. So Jesse, are there any submitted questions for Resolution 1, any questions here for Resolution 1? No. Proxies received are on the screen for the open proxies, which have been granted to the Chair, I'll be voting in favor of the resolution. As we've got no questions, I'll now put the motion that the resolution be approved as set out in the Notice of Meeting. If you're a shareholder or a proxy holder ineligible to vote online, could you now please complete your vote for Resolution 1. And anyone in the room you can vote [ our ] technology with the flashing lights. Resolution 2 relates to the reelection of Director, Gabrielle Trainor. Gab, would you like to make a short -- say a few short words on your reelection as Director of WAM Global.

Sorry, just unmuting. Thanks, Geoff. I would. Thank you for the invitation. It's great to see the -- hand on, I'll just get my video going now, too. Thank you. Great to see those at the meeting today and online. And good morning to you all. I feel like it's quite honored to put myself forward for reelection to the Board of your company. As you know, I've been on the Board since inception as an independent director. I suppose, I really do want to just reinforce how committed the portfolio team led by Catriona Burns and the management team are to the performance of your company, as is your Board. And I think we see that commitment amplified during these uncertain times out there. You've heard and read my CV, so I won't be going through that. But one thing to point out is that I do Chair the Audit and Risk Committee of your company and I've been part of many such committees over the journey. And I just really wanted to say and assure you that the standards of risk management and compliance at WAM Global are high and that we're committed to continuous improvement. My colleagues on the Board bring a diversity of thinking and a steadfast focus on your interest to WAM Global. So I'll be very pleased if you [ still feel ] to reelect [indiscernible].

Look, thank you very much, Gab. And from my perspective, as Chair, Kate as Fellow Director and CEO, WAM Capital. And I -- Jesse as joint company sector and CFO. We're very lucky with the quality of the directors we have on WAM Global. And we're very honored to have Gabrielle working with us, someone with such a depth of knowledge in terms of the Australian landscape and trained as a lawyer, but really has -- add significant value. In terms of -- are there any specific questions on the resolution? None online, any in the room? No. The proxies received are on the screen for the open proxies that have been granted to myself, I'll be voting in favor of the resolution. The -- if anyone in the room [indiscernible] anyone online, please vote. As there are no further questions or comments, I now put the motion that Ms. Gabrielle Trainor AO be reelected as set out in the Notice of Meeting. Okay. Now in terms of the poll for both -- you have to both -- both resolutions. If anyone online, I'm going to close the poll in a second or two. So if anyone online hasn't voted, please if you can vote now. So I'm now declaring the poll closed and formally charge Boardroom to count the votes. The resolution -- the results of the AGM will be released to the market as soon as they are determined, which will be at later today as there is no formal business for the meeting. I'll now declare the meeting closed. But I'd actually like to -- let's just go over to the -- any other questions we have online.

We've got a question from Peter. Please explain the key reasons why the portfolio is 3.4% behind the benchmark since inception.

Yes. And Peter, I mean, a logical question. The reason is effectively WAM Global looks at undervalued grow companies and buys them when it can identify a catalyst that will believe will change the valuation. Those undervalued growth companies tend to be in the mid- and small-cap space. And effectively, the underperformance you -- and as I mentioned earlier in the Chairman's address, I talked about the performance of the MSCI Small Cap Index. The underperformance is against the large cap index. And because of the hunting ground for us is those undervalued growth companies, which tend to be medium and small companies. We can go up into the large companies, and we can go down to the micros. But we tend to have a significantly larger weighting than any index in those smaller mid-caps. And as you'd be aware, over the last period, that sector has been well -- well, I was not going to say [indiscernible] it's been very challenging to that sector. And in terms of looking at the mid- and small-cap sector on a global basis, I think it's the cheapest it's been -- Nick, for how many? Yes, over 20 years. So it has significantly underperformed that sector. We are very happy to stay exposed to that because we know, we've all been in markets long enough to know when there are significant periods of underperformance, you don't change what you're doing and sort of put your money in the Magnificent 7 which is -- which I think for one of the periods I was looking at has given you 41% of the market's performance. So we will just stay investing -- stay what we're doing, looking for undervalued growth companies. They are the opportunities -- there are a lot of opportunities there at the moment. And unfortunately, there will be periods where we underperform the headline index. And that's why we're going to probably put it in context, which I talked about in the Chairman's address -- the exchange. For this little period to September, you saw even then we've pretty much kept up with the market into performance. And it's even with the performance of the larger companies and where the smaller companies had under -- we had outperformed the smaller index. So we're doing relatively good -- we're doing a solid job compared to that. But obviously, you've invested in global equities and we have to outperform the index. And we don't get a performance fee if we don't outperform. So yes, so to me, we are 100% focused on doing that, but that's the logic of the reason for the underperformance.

Thanks, Geoff. Another question from Peter. I think this is in relation to the DRP. Why do you keep issuing shares at a discount to NTA?

Yes. I mean the question is about the DRP. Why issuing shares at a discount to NTA. What -- our broad rule of thumb is with the DRP if the share price is traded at discount NTA, we'll do a DRP with no discount. If our share price of any of our LICs traded at a premium to NTA, then we'll do an DRP at a 2.5% discount. We actually are not necessarily encouraging people to do the DRP. Our participation in the DRP -- Jesse do you do know what it is off the top of your head?

I think it's around 10% to 20%, but the...

Yes, it's low, yes, it would be 20%. It's -- to me, they're all sub-20s. They used to be in the old days, about 20% to 25%, but now it's sort of [ 10%, 13% or 14% ] participation. So the dilution is actually fractional. And what we found is a lot of people, a lot of our shareholders are self-managed super investors. We think about [ 65 ] of self-managed super investors. And a lot of them from a from a simplistic perspective, they just like just reinvesting and getting the multiplier effect or they bought shares for their children because I think the average age of our investors is around that [ 68 to 70 ] level. And the last thing you want to do when you bought shares for your children is keep getting the checks on a 6 monthly basis. It's just so easier to DRP. We actually -- with one of our entities, we've actually with a strategic value, we actually buy back the DRP shares, and that's something that we're trying. The dilution just is fractional because of the participation. It's always a significant dilution, then possibly would go to buying back the shares, which is something that we're discussing. And we're trying to work out, does it just create a level of -- does it make things abnormal? Like the gentleman said earlier, if you're buying something at discount, then all of a sudden, your discount is less because you're buying back the DRP, and then address back to the discount. Like to what extent is it helping the [ chords ]. Because to me, in the end, like do buybacks work or don't they work. And I won't get into franking. And unfortunately, what the government is proposing, the negative impact that the franking legislation will have on buybacks. But we don't think per se a buyback works because people want to be in a company that's growing and developing and all the research we've done with listed investment companies, broadly buybacks per se don't work.

Just on buybacks. So we have a question from Gabriel about how are any of the investments in the portfolio better than buying back shares at a 15% or more discount to NTA? Geoff often talks about this making sense for WAM? Why don't directors do it for...

Yes. The -- I don't know what I -- what -- I don't mind other people buying back shares. The -- I mean what buying back shares does a couple of things. It is logical, but actually doesn't help the problem. And if I cast your mind back, there was a listed investment company called Hunter Hall Global years ago, traded at a 20% discount for most of its life. It bought back half the company at a 20% discount. And it was still at a 20% discount. And the logic was they'll keep buying back until it traded at NTA. They only paid dividends out when they had franking. So there'll be no dividend, no dividend a $0.06 dividend, no dividend, no dividend at $0.03 dividend, no dividend, no dividend. They got a new Chair. He was from the corporate world. We were small shareholders in it. I explained to them how I didn't believe buybacks worked in terms of closing the discount. They do work in terms of increasing the NTA at no cost. And I said you're better off stopping the buyback and starting a dividend -- a growing stream of dividend strategy. If you stop the buyback, he did that. And he went from a 20% discount to try 3% or 4% discount. Unfortunately, then the Board had a brain snap and did a placement at a discount to NTA and a capital raising. But pretty much, that just shows -- it's a live example of showing that buybacks don't work. Unfortunately, you've got a new pit of legislation that's in the process of going through the Senate. If it doesn't get blocked in the Senate. So that means that every company that does a buyback that's listed in the stock market, will lose franking on a per share basis if they have retained earnings. So there's actually -- there's another dynamic to buybacks. If you like, franking you won't do a buyback. And unfortunately, that's the unintended consequences of the government's legislation chapter for that we've been publicly lobbying against.

Got a question from Wayne. Can you discuss what processes, if any, to manage foreign currencies and exchange rate risk in general?

Yes. The -- why don't I pass to Nick who's -- Nick -- one of the portfolio managers of Global.

Yes, absolutely. Thank you for the question. So we can manage FX and we can hedge it, but we tend not to because we think there is a beneficial aspect to having exposure to -- not just the foreign companies, but the foreign exchange, the foreign currencies. We think if you hedge that out, you do lose some of that benefit from international exposure.

I just have time for one more question. Just we do have an AGM starting at 9:15. From Peter again, can you please give some more detail on performance? How much higher allocation to SMID, has it impacted 3.4% per annum over 5 years is huge. Is it 1% or 2% or more? And why is your benchmark the MSCI World?

Yes. I'll just -- I'll do the first part, and Nick can do the second part. The reason why the benchmark is the MSCI World is because just like WAM Capital, the benchmarks, the all odds. You'd say, logically, the benchmark for WAM Capital should be mids and smalls. But it's when -- when we -- created WAM Global. It was for people to invest in global equities. So we said, if that's what they're looking to invest in, then we have to outperform that market. We could have used the mids and smalls. It would be -- that would have been in our favor. But in theory, our logic was they're looking to -- if people are putting money in there, they're putting -- they're looking for exposure to global equities. So we need to outperform that index. So that's the index one. And Nick, do you just want to talk about the performance?

Yes. So over the life of the fund, we've had about double the exposure to the small and mid-cap size of the -- side of the market. So the index is very heavily large cap. So it's about 25% small and mid. We've been about 50%. And over the life of the fund, small caps have underperformed large caps by about 6 percentage points. So a significant impact.

Yes. Great. And any of the other questions, we can -- it sounds like Peter has got a number of questions? Please, Peter.

Yes, there's 2 more questions on the DRP, but we do need to wrap up. So we'll have a member of the team call you following the meeting.

Yes. Okay. Great. So I declare the AGM closed earlier. And I'd just like to thank the Board of WAM Global, and I'd like to thank the shareholders and look forward to seeing you in 6 months' time when we're doing our 6 monthly presentations or in 12 months' time at the next AGM. Thank you.