Regular readers will know that I'm a big fan of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or Soul Patts, shares. It recently made an investment decision I'm happy about.
Due to the rise of more than 10% of the Soul Patts share price over the past month, it's the biggest position in my portfolio, with some distance to the second-largest position in my portfolio.
There's a lot to like about the business and there has been a recent change with the Soul Patts portfolio that makes me more bullish on the business.
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Asset selldown
The investment house gives investors exposure to a wide variety of industries such as resources, telecommunications, swimming pools, agriculture, water entitlements, electrification and plenty more.
For most of the last few decades, its three largest holdings were New Hope Corporation Ltd (ASX: NHC), Brickworks and TPG Telecom Ltd (ASX: TPG).
Soul Patts recently acquired the entire Brickworks business and continues to hold a substantial stake of New Hope. But, it has made a big investment decision with its TPG holding.
Over the last several weeks it has made multiple sales of TPG shares, raising hundreds of millions of dollars. In fact, Soul Patts has sold so many shares that it has ceased to be a substantial shareholder in TPG.
Why I think this was a great move for Soul Patts shares
TPG has been a great long-term investment for Soul Patts that it has held for decades.
However, I think it is a good time to move on. TPG has not been delivering sufficient growth, in my view, to justify being a long-term holding. Its margins and market share have not been growing in the way I was hoping for.
The TPG share price has dropped close to 40% since October 2021 – it has been going in the wrong direction for a while, though part of that was because of the capital return to shareholders after the sale of some of its telecommunication assets.
Ideally, as an owner of Soul Patts shares, I want to see its investments deliver long-term capital growth and dividend growth for the investment house's portfolio.
Soul Patts can reallocate the TPG money into other opportunities.
I think new, non-TPG investments will deliver stronger growth for Soul Patts over time compared to sticking with the telco, even if that means paying some tax on the gains (which turn into franking credits).
As a result of this change, I think Soul Patts can deliver stronger long-term portfolio growth, which makes it more appealing to own, in my view.
