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AFIC fully invested as ASX roars higher

The Australian share market has been sitting at record highs, but the managing director of Australia’s largest listed investment company says it isn’t tempting to take a little off the table.

Mark Freeman says the start of 2020 – during which time the ASX200 has risen nearly six per cent – has been “extraordinary,” but the Australian Foundation Investment Company remains nearly fully invested with just about 1.6 per cent of its assets in cash.

“People want us to ride up the ups and downs,” he said.

The market looked expensive months ago as well, he noted. “If you’d taken that view you’d have really missed out.”

The foundation on Monday reported that in the half-year to December 31, it made a profit after tax of $146.1 million, down from $239.8 million a year ago.

Its investments in Australian equities resulted in six-month return of 5.4 per cent, including franking, compared to a 3.8 per cent return for the ASX200 index during that time.

Mr Freeman said the foundation, which had $5.85 billion in assets as of December 31, had pared its holdings from 95 to 70 over the last four years to build a more focused portfolio.

Its notable acquisitions in the half year were Goodman Group, Macquarie and CSL, he said.

The focus now will be on the reporting season, he said.

While stocks look expensive by historical levels, there are questions about whether that metric is dated in this era of ultra-low interest rates, Mr Freeman said.

“So much money is just pouring into equities to get yield,” he said. There’s really no alternative to shares for earning yield, because of the low interest rates, he said.

The foundation will be watching to see if Australia really does experiment with negative interest rates this year, he said.

Other investing themes for 2020 will include the US-China trade war, the US elections and climate issues, he said.

The foundation doesn’t have a formal policy against investing in fossil fuel companies but its only exposure to them are through its investments in BHP and Rio Tinto, companies where fossil fuels are only a “tiny” portion of their overall activities.

AFIC looks at sustainability from an investment perspective, only wanting to invest in industries that are going to survive over the next five to 10 years, he said.

“It seems like things are changing faster and faster,” Mr Freeman said.

AFIC has also cut its exposure to the major banks, given the competitive and regulatory exposure the sector is facing.

Mr Freeman said they were a risky business and he would not like to see their return on investment drop much lower.

AUSTRALIAN FOUNDATION INVESTMENT COMPANY H120

* Revenue for the half year to December 31 was down 37.1 pct at $157.5 million, from the prior corresponding period. That’s mostly to participating in the Coles demerger from Wesfarmers and the Rio Tinto and BHP off-market buybacks in the previous period.

* Net profit was down 39.1 pct at $146.1 million.

* Interim dividend 10 cents per share, fully franked, unchanged from last year.

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