Platinum loses some of its lustre

Platinum Capital Limited has produced what it described as a “disappointing” performance for the 12 months to June 30, albeit that it will pay a 10 cents per share dividend to shareholders, fully franked, bringing the dividend to 15 cents for the full year.

Platinum managing director Kerr Neilson used the company’s report to the Australian Stock Exchange to say that “our inherent aversion to risk has clearly retarded our performance”.

He said that it was well known that markets often overshoot, but that the recent expansion in credit markets had been unprecedented.

“Investors in stocks are behaving in rational accordance with the signals they are receiving,” Neilson said. “They can see that money is cheap and plentiful, company profits are at record levels, and there are no imminent signs that the cost of funds is about to destroy the arbitrage possibilities which exist when earnings yields are way above the cost of borrowing.”

He said that Platinum’s predicament was to gauge how much insurance to run on account of the system’s unsound footing and the degree to which it should provide for an outlier event.

“Wary of overplaying our hand, we have reduced our shorts and have cut back on the associated play of holding yen,” Nielson said. “Our share holdings themselves are characterised by low financial leverage, and typically our holdings are not trading at peak margins, are favoured by structural growth drivers and have valuations that are sensible.”