Our Investment Philosophy

AFIC focuses on investing in Australian companies with unique high quality assets, brands and/or business footprints that can withstand the business cycles. Our view is that such businesses will generate superior returns over the long term.

The investment philosophy is driven by the investment objectives of AFIC.
We aim to provide shareholders with attractive investment returns through access to a steady stream of fully franked dividends and medium to long term capital growth.
In this regard our primary goals are:

    • to pay dividends which, over time, grow faster than the rate of inflation; and
    • to provide attractive total returns over the medium to long term.

    AFIC’s investment philosophy has the following core principles:
The investment philosophy is driven by the investment objectives of AFIC

Buy and Hold investment style over the long term

AFIC’s investment style is to buy shares in listed companies and hold them for the medium to long term. This approach minimises dealing costs and has historically provided investors with sound, tax-efficient, long term returns. AFIC does not seek to trade business cycles.

Sound returns with lower variability

By combining the benefits of investment in quality companies with those of diversification, the investment process seeks to produce attractive returns with lower volatility.

Growing stream of franked dividends

As a long term investor, our primary method of communicating value to our shareholders is through a growing stream of fully franked dividends. We aim to provide shareholders with real income growth through dividends growing at a greater rate than inflation.

Investment in quality stocks

AFIC focuses on owning companies in attractively structured industries with unique high quality assets, brands and/or business footprints that can withstand the business cycles. We also look for management and Board strength and for sound and disciplined financial metrics covering returns on investment, profit margins, cash flow and gearing. Our view is that such businesses will generate superior returns over the long term.

Focus on tax efficiency

Tax can be a significant drain on the returns to investors. Our focus on investing in companies that pay franked dividends helps to generate efficient after tax returns for our shareholders.

The long term buy and hold approach adopted by AFIC typically results in a low level of capital gains tax payable because few positions are sold each year. Where AFIC does realise a gain we aim to pass on any LIC credits generated, thereby providing the opportunity for shareholders to potentially claim a tax deduction.

Portfolio diversification

AFIC seeks to reduce investment risk by diversifying its investments across a range of companies and industries, thereby ensuring that the portfolio is not overly exposed to one company or one particular sector of the market.  While the Company has not set specific minimum or maximum levels of the portfolio that can be invested in a single company or sector, the weightings of individual securities and market sectors are regularly reviewed by the Investment Committee.

Nursery development

We aim to maintain a ‘nursery’ of smaller stocks in the portfolio and therefore remain constantly on the lookout for new companies that have the capacity to develop into major businesses over time.  While such companies may be small, they typically exhibit similar characteristics to those in the core investment portfolio, and provide AFIC with future growth options.

Investment committee participation

The participation of the Investment Committee is a key component of the Investment Process. This allows for wide ranging perspectives on current and potential investments utilising the business expertise of Directors, the Company’s Investment professionals and senior management team.

Use of Trading Portfolio

We operate a trading portfolio to generate additional income by taking advantage of shorter term opportunities in the market. The objective therefore is to buy with the intent of resale at a profit. This may include utilising selective option strategies approved by the Investment Committee. The Trading Portfolio is maintained within limits set by the Board and can be no greater than 10% of the total portfolio.

Conservative Gearing

Appropriate levels of gearing may be utilised where potential investment returns justify the use of debt. This is managed within very conservative limits, as determined by the Board.

Monitoring existing stocks in the portfolio

AFIC is fundamentally a long term investor in companies and these investments are monitored closely to ensure ongoing alignment with our Investment Philosophy.

Share markets can be very volatile and periods of significant share price weakness may not reflect the true underlying value of a business. Such times can often provide opportunities to add to our holdings in companies we continue to believe have excellent long term prospects.

From time to time, some companies in the portfolio will no longer meet our investment criteria. This situation usually arises because of a change in the long term fundamentals rather than cyclical fluctuations or a specific event.  In these cases we will act to sell such stocks from the portfolio.

The process for monitoring our investments involves a number of activities:Weekly Investment Committee meetings – This is a critical part of the process which involves contributions from the Investment Team, Management and Directors;

  • Face to face meetings with key management in house. These meetings provide the opportunity to get a better understanding about the company’s business, culture, industry, long-term prospects as well as cross referencing other industry participants.
  • Management presentations at brokers, conferences, site visits, etc;
  • Industry contacts;
  • Feedback from broker research analysts (meetings or written research reports);
  • Internally generated research and analysis (e.g. Company Reviews and Focus Reports).