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Boutique launches Aussie equities fund

A Brisbane Aussie equities boutique has launched an income-focussed strategy as an unlisted managed trust, after running it as a separately managed portfolio for 13 years.

DNR Capital's Australian Equities Fund is managed by DNR's chief investment officer Jamie Nicol and portfolio manager Scott Kelly.

The fund is style neutral and invests in a concentrated portfolio of stocks with the aim of beating S&P/ASX 200 Industrials Accumulation Index over rolling three-year periods.

Top 10 holdings at August end included: Tabcorp, Telstra, Aurizon, Lendlease and IPH.

By sector, its highest weighting is to financials (21.9% of the fund), industrials (16.6%), consumer discretionary (16.1%), communication services (12.83%) and real estate and materials (about 10.6% each). It had no utilities or information technology stocks at August end.

The fees are set at 90bps per year. Buy sell spread is +/- 25bps.

Since the fund's launch on March 11, it has delivered 9.39% vs the index's 2.69% to August end.

The equivalent strategy, which has been running as an SMA since 2007, has delivered annual gross yield of 6.6% over the period at July end. It got the highest Lonsec rating "highly recommended" after a review earlier this month.

"The fund targets quality companies at attractive prices that provide sustainable and growing dividends over time. Its investment philosophy centres on six 'quality' factors which we believe contribute to medium-to-long-term outperformance: superior industry position, a sound balance sheet, strong company management, earnings strength, income sustainability and growth, and low ESG risk," Nicol said.

The fund classifies income-generating companies as: growers, compounders, cows or yielders.

Growers are companies that currently pay below-market dividends but in DNR's opinion are on their way to paying good income in the medium term. It put SEEK and REA Group in the category.

Compounders it defines as stocks with a strong competitive position underpinning attractive and sustainable income, such as Amcor and IPH.

Cows (likes Aurizon and Wesfarmers) are stocks with strong balance sheet and capital management potential, which are currently being undervalued on traditional earnings-based metrics.

Lastly, yielders (Suncorp, BHP) are companies that have little growth but have good valuations and sustainable cash-backed dividends, DNR said.

DNR in January hired Pengana Capital's New South Wales adviser distribution lead, as a regional manager for NSW and Queensland.

Its last launch was a small caps strategy in 2018, for which it hired Schroders European portfolio manager Sam Twidale to co-manage with DNR Veteran Mark Sedawie.

DNR manages about $5.5 billion in total.

Read more: DNR CapitalJamie Nicol
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