Hunter Hall Value Growth Trust

International Shares Manager Review

FUND

The Hunter Hall Value Growth Trust (VGT) is principally invested in an ethically screened global portfolio of manufacturing, service and distribution businesses.

ORGANISATION

Hunter Hall Investment Management is Australia’s largest dedicated ethical investment manager aimed to create wealth for investors over time through careful and responsible investment in undervalued companies.

Formed in 1993, Hunter Hall is a funds management business built on superior long term investment performance with an ethical investment overlay. Hunter Hall's objective is to provide investors with superior returns over the medium to long term by investing in high quality stocks that are perceived to be undervalued. These are often undiscovered, under researched and out of favour companies.

INVESTMENT PROCESS

Investment Objective

The objective of the VGT is to increase the wealth of its investors by substantially outperforming the global stockmarkets, benchmarked by the MSCI World Total Return Index, Net Dividends Reinvested, in Australian Dollars (MSCI World), over the medium to long term without incurring significant risk to capital.

Investment Philosophy and Style

Hunter Hall implements the investment strategy of the Funds through a value growth investment methodology based on the fundamental analysis of individual stocks.

There are two major components of the value growth investment methodology: 

•  identify quality stocks with good long term growth potential, and

•  buy stocks at prices that are substantially less than their intrinsic value.

This methodology is based on the view that:

•  every stock has an intrinsic value which is roughly equal to the net present value of its future cashflows,

•  over time share prices tend to move towards intrinsic value, and

•  holding stocks for the long term allows for the compounding of returns and does not realise taxable gains.

Ethical Investment Policy

Hunter Hall is committed to the concept of responsible investing and seeks to avoid investing in businesses that are, in its opinion, involved in activities that are harmful to people, animals or the environment.

The VGT utilises a negative screening process. This screening process seeks to avoid investment in companies that derive operating revenues from direct and material business involvement in:

•  the manufacture or sale of weapons and weapons components,

•  tobacco manufacture,

•  gambling outlets or systems,

•  intensive animal farming,

•  animal testing for cosmetics,

•  activities that give rise to human rights violations,

•  unremediated destruction of the environment, and

•  uranium mining and nuclear reactors.

Investment Strategy 

•  The VGT is managed using a deep value investment philosophy based on fundamental analysis of individual companies.

•  The VGT primarily invests in companies listed on international and Australian stock exchanges.

•  Investment is focused on under-researched and undiscovered businesses.

•  A highly concentrated portfolio of typically no more than 100 stocks.

•  The total cost of an investment in any one company will not exceed 15% of the book value of the VGT’s portfolio.

•  The VGT may invest up to 100% in international stocks.

•  Up to 100% of the foreign currency exposure may be hedged primarily through short to medium term forward contracts.

Investment Process

Research Process

Hunter Hall’s research process is based on the analysis of primary sources such as financial statements and interviews with company management and other industry participants. Secondary sources, such as stockbroker reviews or the media are generally viewed as being of less value.

The first step in the research process is to use the Portfolio Managers’ computer database to ‘screen’ for stocks which appear to fulfil the Fund’s selection criteria. Hundreds of stocks are monitored and investment candidates are subject to a detailed analysis of all available financial information. Integrated forecasts are made for the medium term future.

If the quantitative evidence suggests that a potential investment is of high quality with strong growth potential as well as undervalued, it is tested through qualitative research. This involves gathering and analysing information from sources such as publicly available documents, market research surveys and interviews with customers, competitors, suppliers and company management. By putting together a ‘matrix’ of information sources the Portfolio Managers gain an informed view of the value of the stock, the factors determining this value and the potential catalysts for its intrinsic value to be betterrecognised by the market.

Portfolio Structure

The Hunter Hall Funds’ portfolios generally comprise between 30 and 100 stocks and are managed through a Federation of Portfolio Managers governed by rules relating to country, industry sector, portfolio concentration and liquidity risks. These rules are administered by the Chief Investment Officer and Deputy Chief Investment Officer. Each Portfolio Manager is responsible for managing an individual portfolio of their best stock ideas. These portfolios are then aggregated to establish the various final portfolios of the Funds. Portfolio Managers are fully accountable for their individual portfolios within a set of risk controls, and their remuneration is strongly linked to the performance of their investments.

PERFORMANCE

Established in May 1994, the Fund has outperformed the MSCI World ex Australia Index in the long term.

COMMENT

Hunter Hall is highly committed to ethical investment and its suitably experienced investment team is actively involved in the investment process from screening, research to portfolio structure. The Fund offers adequate diversification across sectors and regions with a portfolio size of between 30 to 100 stocks.

Performance over the long term, over the past 12 months in particular, has been strong, although its management fee is above those of similar products.