Independent Investment Research has reviewed the changes made to Hunter Hall Global Value Ltd (HHV), after Hunter Hall’s merger with Pengana Holdings earlier this year, and it has reinstated the fund’s ‘recommended’ rating.
HHV is a listed investment company that invests in a concentrated portfolio of international equities.
Hunter Hall went through a period of uncertainty after Peter Hall, Hunter Hall’s founder and chief investment officer, quit in January. In June Hunter Hall merged with Pangana Holdings, which is now the manager of the Global Value portfolio.
“PCG brings a largely new investment team and a very different investment philosophy and strategy,” IIR says in its review.
The team will be led by Jordan Cvetanovski, chief investment officer, and Steven Glass, head of research – both from Pengana. James McDonald and Tim Blake, both from Hunter Hall, are part of the team. McDonald was Hunter Hall’s chief investment officer.
Hunter Hall Global Value’s investment strategy will be changed to replicate the Pengana International Equities Fund.
The Pengana fund has produced a return of 8.4 per cent a year over the two years since it was launched in 2015, compared with a 7 per cent index return over the same period. Standard deviation is high at 11.6 per cent.
The new manager has cut the management fee from 1.5 per cent to 1.2 per cent. IIR says the proposed fee (which has to be approved at the annual general meeting) is in line with the average management fee of the peer group, with the performance fee of 15 per cent of returns above the index is at the high end of the scale.
Its dividend policy is to pay a regular and growing dividend. The company employs an ethical screen.
IIR says: “There have been a number of positive changes to the structure of the company post the merger, including the fee reduction and a reduction in payments to directors. New appointments to the board are welcome, particularly Frank Gooch, a long time managing director of Milton Corp.
One of HHV’s drawback’s since listing is that it has traded at a discount to net asset backing. Discount to NTA has averaged 9.6 per cent over the past three years. “Stability in the investment team, good returns and the delivery of a stable and growing discount will contribute to narrowing the discount,” IIR says
On the downside, the company will be issuing bonus options on a one for one basis in November. In the event options are exercised it will dilute shareholder positions for those that do not participate, IIR says.
Another negative is that the board does not have a majority of independent directors.
A question mark is that the Pengana investment team that is taking over has only been together for two years (the Pengana International Equities Fund was launched in July 2015).
The manager’s methodology involves splitting investments into three segments: core; cyclical; and opportunistic. The bulk of the portfolio is invested in core stocks, up to 30 per cent can be invested in cyclical and up to 20 per cent in opportunistic.
Pengana has been in operation since 2003 and has more than $3 billion of funds under management in 12 funds.