Ann: Change of Director's Interest Notice, page-2

1 Cadence Capital (CDM) 77c: This is absolute return fund that is actively traded and has the ability to short the market. They go ex-dividend in April & September each year and have paid 7cps fully franked over the past 12 months, with high consistency in dividend payouts. This equates to a yield of ~9% plus franking or ~13% gross - looks attractive on first read through, however their performance over the past 12 months has been poor, the portfolio down -20.6% before fees.

Their top 20 holdings as at June 30 account for 67% of their portfolio. The yield over the past 12 months on those holdings equates to 2.20% excluding franking. If we’re generous and assume the portfolio has a natural yield of 4%, they are then paying 5% of capital back to shareholders annually to ensure the dividend yield remains attractive. Weak performance amplified by capital returns and it’s easy to see why the LIC has underperformed the market by ~40% on a 1 year view. Clearly this has been a poor performer, however the fund now trades at a 15% discount to the value of its assets making it cheap.

We like buying things at discounts and if you believe performance will turn, then investors can benefit from 1. Portfolio performance & 2. the closing of the discount to the value of their assets. However don’t get suckered in by the yield, it’s a manufactured payout.

On the positive side, the company is doing an on market buy-back and Directors are buying stock. On the negative side, they clearly don’t practice what they preach in terms of a disciplined exit criteria for stocks positions.

“they clearly don’t practice what they preach in terms of a disciplined exit criteria for stocks positions.”

From Market Matters..........