Portfolio manager of Investors Mutual's Private Portfolio Fund, Tuan Luu, says his interest in wealth creation was triggered way back during University in 1991 when he watched the Commonwealth Bank float and its shares jump from an issue price of $5.40 to close at $6.46 on its first day of trading.
"After Uni, I did pretty much everything I could to steer my career to where I want to be. So, I find at 30 years later at IML, I'm still trading CBA," he says.
"There's one thing you learn very quickly in financial markets is things change, but really things never change as well."
Prior to joining Investors Mutual in 2017, Luu had also worked with Investors Mutual founder Anton Tagliaferro when they were both at BNP Paribas Asset Management over twenty years ago.
"[Anton]is a very passionate and determined investor who is lucky enough to have command of both the fundamental research but also the market intuition to capture the opportunities. But more importantly I actually learned from him the prudence and the care that a good fund manager should exercise when managing a client's investment as if it's his or her own money," Luu says.
Investors Mutual's Private Portfolio Fund is a combination of Luu's experience in absolute-return strategies and Tagliaferro's expertise in value investing.
"When I re-joined Anton nearly five years ago now, we wanted to combine our experience in value stock picking, event driven (from what I learned at Macquarie) and income generation, with an overlay of risk management. So, the result as you can see, is the Private Portfolio Fund, which is designed to generate positive returns across the market cycle without depending on an ever-rising market," Luu says.
Lonsec recently initiated coverage of the fund, which now has a three-year history, with a 'Recommended' rating.
The fund uses the three diversified strategies of Relative Value, Income, and Events (M&A and capital raisings). The first strategy involves investing in the same quality, value, high conviction stocks that IML has over the past two decades. Luu mentions Amcor, Sonic Health, Telstra as stocks in this category.
"We aim to earn that good sustainable yield between, say 4 to 6 per cent from conservative companies like Metcash ... and then supplement this income with option premium," he says.
"So, what we find is by writing options at our research target entry and exit prices, we're going to add around 2 to 3 per cent of additional income per annum."
The Events strategy is all about participating in M&A activity and the capital raising pipeline and working out the appropriate value of an asset in the hands of the right holder.
Low interest rates and easier access to debt have seen an increased volume of M&A activity in recent years.
"This is driven the M&A pipeline ... over the last 12 months to over $100 billion in Australia alone," Luu says.
In terms of opportunities presenting themselves in a post-Covid world, Luu believes that essentially it has compressed and accelerated many of the underlying trends already in the market, such as technology adoption, work decentralization and online commerce, which all result in an economic divergence between winners and losers.
Luu also says that while there are many high conviction, long short alternative strategies available to Australian investors, he believes the Investors Mutual Private Portfolio Fund is unique because it has three diversified underlying strategies.
"So, the strategies that we build, act as a toolkit to generate returns across different market conditions, whether it's bullish or neutral or bearish," he says.
And Luu is no stranger to managing alternative strategies during challenging conditions, having managed a similar event driven strategy at Macquarie during the GFC. He says that and Covid, have taught him many valuable lessons about risk management.
As for his concerns for the next 12 months, Luu cites rising costs and inflation.
"The challenge now for conservative mom and dad is how to earn an adequate return of at least 6 to 12 per cent net per annum to keep ahead of inflation, while not being forced to take on excessive risk, you know, at the wrong time when the effective risk free rate is zero," he says.