December, 2020
As at 31 December 2020, the Fund is invested in 31 companies which meet the criteria of a dividend yield above the cash rate, capital appreciation potential and sustainability of dividend. Given between 1% and 3% of Fund assets will be invested in each qualifying company at month end, listed shares accounted for 90.1% of assets and 9.9% of Fund assets were invested in cash deposits.
As at 31 December 2020, the Fund’s aggregate forward yield continued to look attractive at 3.4%, or 4.2% when “grossed -up” for franking credits and tax deferral benefits*. This can be compared to the RBA annual cash rate at month end of 0.10%. The two RBA measurements of term deposit rates in the Australian market, the “Average Rate (all terms)” and the “Special Rate (al l terms)”, ended the month at 0.25% and 0.30%, respectively. This means the expected annual yield from the Fund is 3.30% above the month -end RBA cash rate and at a 4.10% premium on a “grossed-up” basis. The Fund’s expected excess yield over the RBA “Special Rate (all terms)” index is 3.10% and 3.90% on a “grossed-up” basis (with the Fund’s yield premium over the RBA “Average Rate” obviously higher).
December saw seven ex-dates and four dividend payments. ANZ, NAB and WBC have significantly de-rated over the last five years relative to the wider Australian market, with the relative multiple P/B multiple falling by between 50% and 60% from early 2015 to end of September 2020 and the relative forward P/E ratio falling from a ca 14% discount over 2000-2015 to a 37% discount by the end of the third quarter of 2020. While significant uncertainty regarding the course of the COVID-19 pandemic remains, prompt and dramatic monetary and fiscal support for the economy over 2020 has reduced the risk of a severe credit cycle and Australian residential prices in particular have remained broadly stable over the year. While low interest rates will exert further downward pressure on net interest margins over the next few years (from the rolling off of replicating portfolios of interest rate futures hedging contracts) and credit growth is expected to remain low, these Australian banks will be able to return to sustainable payout ratios by 2022, delivering an over 6% fully franked yield to shareholders even after the share price recoveries over the Q4 of 2020.
Accordingly, we see the risks amply compensated by the attractive valuations. In contrast, CBA trades at a 45% FY2 premium P/E ratio to its peers and at 19x f22 EPS remains one of the most expensively priced developed market banks in the world. Looking ahead, January will be a quiet month on the dividend front with one dividend receipt expected. The investment strategy of the Fund is to provide investors with access to companies listed on the Australian Securities Exchange that Lazard believes offer sustainably high dividends and capital appreciation potential.
The large economic impact from COVID-19 both in Australia and globally, will we believe, impact dividends of many companies in the shorter term, including some of those held in the Fund. In this environment, we will however continue to seek to invest in companies that w e believe offer sustainably high dividends and capital appreciation potential over a full market cycle.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/163322016.pdfticker: LAZ0022AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Right sidebar -> Quick Links -> Provider’s own factsheet
asset_class: Domestic Equity
asset_category: Australia Large Blend - Absolute Return
peer_benchmark: Domestic Equity - Absolute Return Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund