Update No. 274 – 01/07/16

FY2016 was an excellent year for the fund, at least in comparison to a fairly weak performance from the indices. FY2013 and FY2014 were very strong ones for the Australian market, with a 44.15% 2-year gain. FY2015 and FY2016 have been disappointing, with only a 7.93% 2-year gain. A little extra tailwind would certainly be helpful in generating a larger absolute performance.

The annual investor letter went out to all shareholders last night, and I’ll allow its content to stand alone, but I’d like to talk a little about ‘benchmarks’ this week.

The ASX200 index was down 4.13% over FY2016. This is the ‘price index’ and doesn’t factor for the reinvestment of dividends.

As such, a better index is the ASX200TR index, which was in fact up 0.55% over FY2016. Australian shares pay among the largest dividends globally, the difference between the price and accumulation indexes was 4.68% in performance terms.

Our benchmark, the S&PASX200TRGU index was up 2.13%. In effect, this means the value of the franking credits attached to the dividends amounted to 1.58%. This means the dividend output of the ASX200 was franked to roughly 79% in FY2016 at the 30% corporate rate, which is historically high. When Standard and Poors created the ‘Franking Credit Adjusted Tax-Exempt’ index, we were very swift to adopt it at EGP, because franking credits are an important component of the investment proposition. You will find very few other fund managers using the franking adjusted indices, though you’ll find a few adding the value of distributed franking credits to performance. You can’t have it both ways…

When someone tells you their investment property yields 5%, you don’t say, well at a 30% tax rate, that’s a ‘tax-paid’ return of 3.5%. Yet many investors do just this when it comes to shares. In FY2016, the ‘yield’ of the ASX200 was 4.68%, but the ‘grossed-up yield’ was 6.26%, the franking system is a valuable way to ensure efficient taxation of income. Be sure you allow for this when correctly figuring out what the returns of all of your investments are.

While I’m on the topic of benchmarks, our benchmark has returned 39.30% since inception or 6.52% annually. Here is a list of the total returns of some of the alternatives we might have legitimately selected:

Small Ordinaries Total Return: (2.15%) since inception or (0.41%) annually

All Ordinaries Total Return: 36.23% since inception or 6.07% annually

ASX300 Total Return: 35.99% since inception or 6.03% annually

I was prompted to write a little about benchmarks after noticing our benchmark somehow advanced by 1.84% today, whilst the regular total return index only lifted by 0.25% today. I’m not sure what the 1.59% discrepancy is on the first day of trading, but we have 364 days to deliver our outperformance for FY2017, so I shan’t panic yet.

Remember, we will now be blogging only twice monthly, so the next update will be around July 15th – Tony Hansen 01/07/2016


Apr 1st 2011

Jun 30th 2016

Current Price

Since July 1st 2016

Since Inception

EGP Fund No. 1












EGP Fund No. 1 Pty Ltd. Up by 0.75%, trailing the benchmark by 1.09% since July 1st 2016. Since inception, EGP Fund No. 1 Pty Ltd is Up by 111.76%, leading the benchmark by 69.90% all-time (April 1st 2011).

*1 after a 31 May 2013 dividend of 2.333 cents per share (cps) plus 1.000 cps Franking Credit, a 31 May 2014 Dividend of 7.000 cps plus 3.000 cps Franking Credit and a 31 May 2015 Dividend of 8.6667 cps plus 3.7143 cps Franking Credit and a 31 May 2016 Dividend of 6.0000 cps plus a 2.5714 cps Franking Credit

*2 calculated based on dividends reinvested