With volatility on the rise one area of the market that should be doing better is hedge funds.
A hedge fund gets its name from the use of hedging strategies which are aimed at reducing volatility within the portfolio and lowering downside risks.
While many hedge funds (rightly) get a “bad” wrap, one of the most successful funds management companies in Australia, Platinum Asset Management Limited (ASX: PTM), in fact operates a hedge fund strategy.
One of the easiest ways investors can benefit from the skills of Platinum is via its listed investment company (LIC) Platinum Capital Limited (ASX: PMC), which recently reported its interim results for the six months ending December 31.
While the headwinds buffeting global markets made for a tough half year for the LIC, the portfolio maintains a reasonable long-term track record against its benchmark the MSCI, particularly when considerations of Platinum Capital’s lower net exposure and hence lower risk compared to the market are taken into account.
Over the past five years the company’s pre-tax net asset value has achieved an 11.7% compound annual return which is a reasonable absolute return.
Importantly, the company also pays fully franked dividends.
Although the just declared interim dividend has been reduced to three cents per share (cps) from five cps in the prior corresponding period, the stock appears to remain appealing for income-seeking investors.
With a significant franking account balance, assuming Platinum Capital pays out a final dividend of five cps (which would represent a reduction of one cps on the prior corresponding final dividend) then shareholders who own the stock prior to the ex-dividend date of February 12 could be looking at a fully franked dividend yield of 4.9% based on a share price of $1.64 over the coming 12 months.
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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.