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Why the FY20 result sent the PM Capital Global Opportunities Fund share price up 4%

The PM Capital Global Opportunities Fund Ltd (ASX: PGF) share price is up 4% after reporting its FY20 result.

Quick overview of PM Capital Global Opportunities Fund

PM Capital Global Opportunities Fund is a listed investment company (LIC). The job of a LIC is to invest in other shares. As the name might suggest, the LIC invests in global shares which it thinks are opportunities.

Fund manager business PM Capital, run by Paul Moore, operates this LIC. It aims to be invested in between 25 to 45 global companies. PM Capital has been investing for over 30 years.

FY20 result

The COVID-19 share market selloff caused PM Capital Global Opportunities Fund’s share portfolio to drop in value over the year. This caused its net revenue to drop to negative $22.1 million. It saw a net loss of $18.7 million.

The LIC disclosed that its portfolio’s net return after fees and expenses was a negative 6.4%, compared to the MSCI World Net Total Return Index return of 4.8%. However, looking at its 22-year track record shows clear outperformance of the MSCI, by 4.38% per annum.

Manager of PM Capital Global Opportunities Fund, Paul Moore, said that the LIC has been adding to its positions in resource businesses across various commodities including Freeport-McMoRan (copper), Newmont Mining (gold), Teck Resources (copper and zinc) and Boliden (zinc). It increased its positions in industrial stocks like Siemens and also re-established a position in Alphabet (Google).

But he believes that there is potential for good longer-term returns. Mr Moore said: “We feel the pandemic has not simply delayed our thesis, but the fiscal and monetary actions will have the effect of essentially making the thesis inevitable. The unknown factor is the timing. In the short-term, behavioural biases have not declined and their effects will be exaggerated by the weight of the index funds. This is why it is so important to have a longer time horizon so as to let the thesis play out to its full extent and in doing so profit from it. It is amazing how often – if one has patience – the conventional “wisdom” proves itself to be wrong.”

Shareholder returns

PM Capital Global Opportunities Fund announced two shareholder return initiatives.

The LIC has announced a final dividend of 2.5 cents per share, which is a 25% increase on FY19’s final dividend and the FY20 interim dividend. The full year dividend of 4.5 cents per share equates to a grossed-up dividend yield of 6.6% at the current PM Capital Global Opportunities Fund share price.

Income-focused investors will probably see the bigger payout as a welcome increase. Particularly as the RBA interest rate is now very low. 

The LIC also announced an off-market equal access buy-back. It will buy up to 5% of the shares held by each shareholder at a price set at a 5% discount to the post-tax net tangible assets (NTA) (excluding deferred tax assets) at the close date which is 23 October 2020.

The PM Capital Global Opportunities Fund board believes this is an efficient way to allow shareholders to obtain value close to the NTA in circumstances where the shares are trading at a discount to the NTA. 

Largest positions

At the end of FY20 its biggest positions were (in order): Apollo Global Management, Freeport-McMoRan, Bank of America, MasterCard, KKR & Co, Visa, Siemens, Oracle, JPMorgan Chase, Caixa Bank, Lloyds Banking Group, Howard Hughes, Ares Management, Sands China and ING.

Each of the above positions had a market value of more than $10 million at the end of FY20.

Current valuation

At the current PM Capital Global Opportunities Fund share price of $0.98, it’s trading at a 17% discount to the 7 August 2020 NTA of around $1.18.

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Motley Fool contributor Tristan Harrison owns shares of PM Capital Global Opportunities Fund Ltd. 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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