Boutique Australian equity manager DNR Capital has received strong endorsement from investment researcher Lonsec, which has upgraded two DNR strategies, its Australian Equities Income Portfolio and Australian Equities High Conviction Portfolio.
Lonsec has given the funds ‘highly recommended’ ratings – its highest rating.
Lonsec says DNR takes a “concentrated, benchmark agnostic” approach to portfolio management, using a “robust and repeatable” investment process that has produced good long-term results.
Lonsec views the quality of DNR’s lead portfolio manager, Jamie Nicol, positively, “as he brings seasoned Australian equities experience to its strategies.”
The objective of the High Conviction Portfolio, which was launched in 2015, is to outperform the S&P/ASX 200 Accumulation Index by 4 per cent a year over rolling three-year periods.
The fund holds a maximum of 30 stocks, with an active share of around 60 per cent (active share if a measure of how much a fund’s holdings differ from the index).
The manager’s stock research has a strong focus on identifying high quality companies, which takes into account industry position, earnings strength, balance sheet strength, management and ESG factors. The manager assigns a “quality score” to each company.
“The manager has a very clear understanding of the types of investment opportunities it wishes to pursue. It aims to identify companies with ‘moat expanding characteristics, de-rated good quality companies and companies where the sustainability of earnings is being questioned. DNR has deftly exploited opportunities in each category.”
Currently, its top holdings include Lend Lease, Woolworths, Aurizon Holdings, National Australia Bank, Janus Henderson Group, Tatts Group, SEEK, Macquarie Group and ALS.
The fund produced a return of 10.4 per cent over the 12 months to the end of August, compared with a 9.8 per cent return for the S&P/ASX 200 Accumulation Index over the same period.
Over the past two years it has produced an average return of 12.9 per cent a year, compared with a 9.5 per cent average annual return for the index.
Lonsec says DNR’s weaknesses include the small size of the investment team, which has seven people, less depth in the bottom-up research than larger competitors and the fund’s limited track record.
The objective of the Australian Equities Income Portfolio is to outperform the S&P/ASX 200 Industrials Index and deliver higher levels of income over a rolling three-year period.
The income fund was launched in 2007. It produced a return of 6.7 per cent over the 12 months to the end of August, compared with a return of 6.8 per cent for the S&P/ASX 200 Industrials Accumulation Index.
Over the past three years it has produced an average return of 8.4 per cent a year, compared with the index return of 6.6 per cent a year. And over the past five years it has produced an average return of 14.9 per cent a year, compared with the index return of 12.8 per cent a year.
Grossed-up dividend yields have between 5.5 per cent and 10.4 per cent over the past nine years.