Independent Investment Research has upgraded its rating of listed investment company Mirabooka Investments to ‘highly recommended’, citing its strong investment team, transparency, low cost and long track record of good performance.
Mirabooka invests in small and mid-cap stocks and is managed by the same team that manages another leading LIC, Australian Foundation Investment Co.
IIR says the manager is very much a long-term investor, can be contrarian at times and intentionally does not trade investment cycles.
As an LIC, Mirabooka is not subject to investor fund flows. This facilitates the manager being both a long-term investor in companies as well as a contrarian investor at times, having the latitude to buy stocks that may be out of favour.
A small to mid-cap strategy inevitably comes with the potential for a higher degree of volatility, compared with large market cap strategies. “However, the manager’s investment style means that it eschews the more volatile small cap resources sector,” IIR says.
The fund’s management fee is 62 basis points and there is no performance fee.
Dividends yields over the past few years have been 3.9 per cent in 2013/14, 4.2 per cent in 2014/15 and 4.2 per cent in 2015/16.
Top holdings include Lifestyle Communities, Qube Holdings, Mainfreight, ALS, IRESS, Alumina, Challenger, Iluka Resources, Seek and ResMed.
Over the past five years (to the end of September) the fund has produced an average return of 10.9 per cent a year, compared with the index return of 10.3 per cent a year. The fund is benchmarked against a combined index – equal parts the S&P/ASX Mid 50s and the Small Ordinaries Accumulation Index.
Over the past three years it has returned 8.3 per cent a year, compared with the index return of 11.18 per cent. Over the past 12 months it has returned 0.5 per cent, compared with the index return of 6.4 per cent.
The recent underperformance is because the fund is underweight mining stocks, which have been strong performers over the past year.
Mirabooka reported at its annual general meeting that stocks that worked well for it over the past year included Treasury Wine Estates and Computershare, while those that underperformed included Healthscope and Mayne Pharma.
Looking ahead, it has high hopes for Clydesdale Bank, which was spun off from National Australia Bank last year and listed on the ASX. Mirabooka believes that improved management focus will lead to significant costs savings and a back-to-basics approach that will eliminate some of the risky practices of the past. It says the bank is attractively priced, compared with Australian equivalents.
It also has high hopes for caresales.com and Alumina Ltd, which is one of the lowest cost alumina producers in the world.
IIR says one downside is that the shares are trading at a significant premium to their net asset backing and have done so for several years. Investors would need to wait for a good entry point.
