Update No. 288 – 31/01/17

I say this at the end of every January and July. The most exciting months in an Australian fund manager’s life are February and August. Reporting season is when we get to see whether our prognostications were correct and find out whether the market will come to agree with our assessment that the stocks we own are undervalued.

Interestingly it doesn’t really work this way. By this I mean our outperformance hasn’t really come in large chunks around the two primary Australian reporting periods.

I know because I’ve reviewed the figures. May has been the month where the largest proportion of our outperformance has been generated since inception (over 40% since inception in fact), it is followed by August in second place, but so far, February has seen us on average underperform the benchmark, Along with November April and December.

So, perhaps the months where outperformance squirts out of a well-constructed portfolio really does follow a relatively ‘random-walk’.

With that in mind, we’re pretty excited about the value of our portfolio relative to the broader market, so hopefully this February will prove to be a profitable one…

We have completed the selling of one of the positions I mentioned we were disposing in the lead up to reporting season in an attempt to further concentrate our portfolio into our best ideas and to grow our cash hoard in readiness for any opportunities reporting season might throw up.

We sold the last of our small stake in Embleton (EMB.ASX) on January 30th. The position was a very small one for the fund and due to the illiquidity ended up never getting to the scale of a ‘full’ position. We think of a full position as one occupying at least 5% of the equity portfolio. Even at the last traded price of $11 per share, our peak holding would have only amounted to about 1.3% of the fund.

Embleton is a well-run business that sells flooring and has a small engineering concern. I have followed the business for many years. It is like a lot of businesses we are often attracted to, having a massive insider ownership and some nepotistic leanings. The CEO (son of the Chairman) probably earns a salary that’s a little larger than the scale & scope of the business warrants, but it has been prudentially managed for a long time (holders buying 10 years ago have earned a low teens annual return, despite the GFC landing in the holding period).

The other big attraction was that the portfolio of land assets in our view probably at least matched the market capitalisation of the company when we started purchasing stock. We last bought in August 2016 when the stock traded at $8.22 per share at around that price, we’d have happily built the stake at around those prices, but despite sitting in the market for many months, we failed to build the position to a suitable size.

It ran away this month as some fairly determined buyer (or buyers) started to push the price up sharply. Given our preference for larger positions, and our desire to build our cash holdings, I sold our small position into this spike.

The holding earned an IRR of 93.7% over our holding period including dividends and added almost 0.5% to our fund. Nothing spectacular, but occasionally we will hit singles as we try to build our innings. The buyer of our position will probably do well over any reasonable holding period, but we were happy to take our profits and look to the next opportunity – Tony Hansen 31/01/2017


Apr 1st 2011

Jun 30th 2016

Current Price

Since July 1st 2016

Since Inception


EGP Fund No. 1














*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