Global stocks rose in November supported by improving world economic growth and the potential for meaningful corporate tax reform. There were signs of a rotation away from technology stocks and into financial stocks as tax legislation proceeded through the Senate. The eurozone unemployment rate dropped to 8.8% the lowest we’ve seen in almost nine years. The Bank of England implemented the first interest rate rise in a decade reflecting a gradual shift by global central banks, after an extended period of very low interest rates, towards normalisation.
The Fund’s unit price increased by 2.0%, after the cost of protection, in November. The performance was driven by positive contributions from our holdings in Zoetis, PayPal, Heineken, Disney and Visa. The main negative contributors were Oracle, Cognizant Tech Solutions, eBay, BAT and Priceline.
The Fund continues to have no foreign currency hedging in place as Insync consider the main risks to the Australian dollar to be on the downside. Over 50% of the Fund is currently protected using our put protection strategy.
The entire media industry has come under additional investor scrutiny as 2017 may be best remembered as the year that “cord cutting” (the act of cancelling one’s pay-TV subscription in favour of internet-delivered video options) accelerated. Twenty-First Century Fox (Fox) produce enough must-see TV programs and cable channels that they should be able to remain relevant to any bundle and to render irrelevant any bundle without them. We expect the impact of declining traditional bundle subscribers to be largely offset by subscribers to the new bundles and direct to consumer channels over the long run.
What is under-appreciated is that Fox is truly a global company, generating nearly 40% of its revenues outside the United States, and unlike the mature US market, pay-TV is still in “growth mode” in many countries around the world. One of the key gems in their international business is Star India.
Star is a leader with circa .23% of television viewing in India (population of 1.3 billion people offers huge growth potential). For many years, it had been investing almost all operating profits into sports content and rights for live exclusive content. Much of the success of Star India, therefore, has been masked by tremendous reinvestment into the sports side of the business. This investment phase in additional sports content is coming to an end and management is thereby focusing more effort on generating profit growth.
Fox is in a strong position to capitalise on the secular growth in the value of high quality content worldwide. Fox is a unique and diversified media company with an amalgamation of various assets in six different continents. Valuing these assets is quite difficult, given the interdependency between various operating segments. The recent negative trends in cord-cutting has created an opportunity to invest at depressed valuations. Despite these negative trends the strength of their content business in the US was reflected in double digit top line strength in affiliate revenue. We see an asymmetric risk profile with limited downside risks but significant upside opportunity.
|Average market cap||A$189.3bn|
|WAVG⁴ forecast dividend yield||1.50%|
|Wt AVG forecast PE ratio||20.3x|
|Current FX hedging position||0% overseas exposure|
|hedged back into $A|
|Current put protection||50%|
|ASX mFund code||INS01|
|Distributions paid||Annually, as at 30 June|
|Minimum initial investment||$10,000|
|Applications & redemptions||Each Sydney business day|
|Entry & exit fee||Nil|
|MER||1.3% (plus GST) p.a.|
|Concentrated, large cap global equity fund, incorporating active currency management and downside protection strategies|
|To provide long term capital growth and some income through investment in listed global securities. Insync believes that a strong focus on capital preservation will lead to superior relative and absolute returns over time|
|How to apply|
|Online or via application form at www.insyncfm.com.auPlatform – Macquarie, Colonial FirstWrap, Mason Stevens, Onevue, ASX mFund|
|T: + 61 2 8094 1255|