Our experienced team manage the AFIC portfolio with a long-term lens – aiming to provide shareholders with attractive investment returns through access to a growing stream of fully franked dividends and growth in capital invested.
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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.
By combining the benefits of investment in quality companies with those of diversification, the investment process seeks to produce attractive returns with lower volatility.
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.
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.
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.
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.
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.
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.
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.
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.
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.