Australian Foundation Investment Co.Ltd (ASX: AFI) yesterday released full-year results to 30 June 2014. While the result had a negligible impact on the share price a big revelation came via the outlook statement suggesting the potential for a market correction.
The company invests for the medium-to-long term and has a rich history of outperformance (12.4% including dividends over the last five years). So let's examine what stocks the company is both investing in and avoiding, while simultaneously having misgivings about the wider market. It may transform your approach to your portfolio construction.
But first we will examine the gloomy outlook held by the company:
"Recent strong returns and low volatility suggests investors have become somewhat complacent about the potential for setbacks. However we believe risks are elevated. There is the ongoing reliance on low interest rates to support sentiment and growth and the potential for subdued earnings outcomes. At some point interest rates will rise, although the timing and impact still remain uncertain. There are also the risks of unanticipated geopolitical events."
1. Stocks Australian Foundation Investment Bought:
a) Major Additions to existing holdings:
The telecommunication behemoth Telstra Corporation Ltd (ASX: TLS).
The biopharmaceutical company CSL Limited (ASX: CSL).
Transurban Group (ASX: TCL), operates and maintains toll roads in Australia and the US.
Equity Trustees Ltd (Public, ASX: EQT), the financial services company that provides private client, trustee, estate administration and funds management services.
b) Some New Additions included the following:
The Australian version of Warren Buffet's Berkshire Hathaway (NYSE: BRK,A, BRK,B), namely Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
Healthcare companies ResMed Inc. (CHESS) (ASX: RMD) and Japara Healthcare Ltd (ASX: JHC).
TPG Telecom Ltd (Public, ASX: TPM) the multi-media full service telecommunications company.
The integrated provider of import and export logistics services Qube Holdings Ltd (ASX: QUB).
2. Stocks Australian Foundation Investment Avoided:
The complete disposal of GWA Group Ltd (ASX: GWA) the Australian supplier of building fixtures and fittings to households and commercial premises.
BHP Billiton Limited (ASX: BHP), but only from the company's buy and write portfolio.
