Merlon Capital Partners is holding onto its top holding, a 6% stake in AMP, despite the firm being a “laggard” contributor during September for its $570 million Australian Share Income fund.
The fund had a significant amount in financial firms including 6% in AMP, 5.5% in Commonwealth Bank, 5.1% in Westpac and smaller amounts in Pendal and Magellan.
Merlon hit the news earlier this year when it slammed the decision by AMP to sell its life insurance arm and described it as the “the worst share price reaction for a divestment among ASX 100 listed companies in history” and that AMP had “misled” the Australian Securities Exchange (ASX).
In the days following the announcement of the life insurance sale, AMP’s market capitalisation fell by 28%.
Shares in AMP have fallen by 40% over the past year to 30 September versus returns of 11% by the ASX 200, according to FE Analytics.
AMP share price performance vs ASX 200 over one year to 30 September, 2019.
In a monthly fund update, lead portfolio manager Neil Margolis, said: “There were some noteworthy poor performers for the year led by AMP primarily as a result of the self-inflicted and value-destructive sale of the company’s life insurance operations.
“AMP continues to feature in our portfolio notwithstanding continued concerns about the fallout of the Royal Commission on the company’s financial advice business.
“We believe our investment in the company is more than underwritten by value outside of the financial advice businesses consisting net asset backing, AMP Bank and AMP Capital Investors.”
Meanwhile, Pendal was a new addition to the portfolio during September as Merlon felt it had been “oversold” on fund outflow concerns but demonstrated upside relative to its funds under management and historical valuation metrics.
The fund’s best-performing holding was Magellan Financial as the firm said performance fees surpassed market expectations and there was growth in its funds under management.
The Merlon Australian Equity Income fund returned 7.2% over one year to 30 September, 2019 versus returns of 9.9% by the ACS Equity- Australia Equity Income fund, according to FE Analytics.
Commenting on the performance, Margolis said: “The underlying share portfolio underperformed a market that was led by tech stocks, iron ore miners, bond proxies and more recently banks.
“Given our calculated and deliberate positioning away from the tech sector, iron ore miners and many of the bond proxies through the year, the fund’s performance was pleasing and was achieved without speculating about new valuation paradigms, the permanency of recent iron ore supply disruptions or the sustainability of negative real interest rates.”
Performance of Merlon Australian Equity Income fund versus the ASX 200 over one year to 30 September, 2019.
