Why WAM Capital Limited just bought more shares of Templeton Growth Fund Ltd

WAM Capital Limited (ASX: WAM) is one of the most successful investment companies in Australia, with its portfolio having delivered an average return per annum of 17.5% since inception in 1999.

It looks to invest in undervalued growth companies where a catalyst could increase the share price. WAM Capital also looks to provide exposure to value arbitrage and market mispricing opportunities, such as when a share is trading for less than its underlying value.

One such example is Templeton Growth Fund Ltd (ASX: TGG). WAM Capital (and the other WAM LICs) just increased the collective holding of Templeton Growth Fund from 7.8% to 9.18% at the end of April 2018.

At 27 April 2018 Templeton announced the estimated pre-tax net tangible assets per share was $1.577, yet the share price is only trading at $1.40 today, which suggests a discount of around 12%.

Templeton has done well for its shareholders with its share price growing from $0.90 five years ago to today’s $1.40. It has also delivered a pleasing dividend in that time, it currently has a grossed-up dividend yield of 4.59%.

Its top ten holdings include Microsoft, Samsung, Oracle and Alphabet (Google). Its holdings suggest it’s going for growth and it could continue to perform well.

Its dividend policy is to pay at least 3% of the company’s NTA at June of the prior year.

Foolish takeaway

Templeton appears to offer investors a decent dividend, international exposure and a discount to the NTA. I’d be happy to buy shares for the long-term at the current level and I can see why WAM wanted to buy more of it at these levels.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Scott Phillips.

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