Royal Commission pressure detracts from performance for WaveStone fund

The impending Royal Commission changes are impacting not just financial firms but individual funds as WaveStone Capital said its holding in Link Administration detracted from performance after the firm issued a profit warning.

In its latest factsheet, the $442 million Dynamic Australian Equity fund said the holding was a key detractor from performance during May after it issued a profit warning at the end of the month, its second in two years.

Shares fell 28 per cent after it stated it expected full year 2019 operating net profit after tax and amortisation would be between $195 million - $205 million, down from $206 million during the 2018 financial year. This was, it said, due to the lack of finality over Brexit and lower levels of business activity in the UK as a result.

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Furthermore, Link said it was requiring additional costs in order to manage the scope of regulation under the Royal Commission and Protecting Your Super Package (PYSP).

During May, the WaveStone Capital Dynamic Australian Equity fund lost 0.6 per cent, according to FE Analytics, compared to positive returns of 0.9 per cent by its S&P ASX 300 benchmark.

WaveStone said: “The downgrade [of Link] was primarily attributed to delays in Brexit impacting the group’s UK and European operations. In addition, Link experienced earlier than expected revenue drag from accelerated super account consolidation across its Australian fund administration business.

“Unfortunately this coincided with a period of increased cost as their industry fund clients embarked on increased member communications in response to the Royal Commission and impending regulatory changes.”

Nevertheless, WaveStone said it would retain its exposure to the company in the short term and reconsider in June.

“Whilst the recent downgrade and share price fall has been disappointing, we have retained our ownership and will reassess our investment following their investor day in June.”

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