Platinum Capital Limited (ASX: PMC) Review


November 6, 2023
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Platinum Capital Limited (ASX: PMC) is a listed investment company (LIC) that provides exposure to an actively managed portfolio of global equities with an absolute return focus. The Company has a long history with the Company listing on the ASX in 1994. The portfolio is managed by Platinum Asset Management Ltd (ASX: PTM) (the “Manager” or “Platinum”), an ASX-listed asset management company focused on global equities with $17.3 billion funds under management (FUM) as at 30 June 2023. The Company’s primary objective is to provide capital growth over the long-term by investing in undervalued companies from around the world. While the Company’s primary objective is capital growth, the Manager is also focused on preserving capital. The Manager seeks to mitigate the risk of capital loss by employing a range of strategies including the use of cash and adjusting cash levels, reallocating funds from overvalued to undervalued stocks and short selling, both individual stocks and indices. The Manager typically endeavours to maintain a cash level of 15%-30% to provide downside protection as well as provide the ability to take advantage of investment opportunities when they arise. The Manager has a long-term, contrarian approach to investing with the Manager seeking out companies who’s business and
growth prospects are temporarily undervalued by the market. The Manager has a flexible mandate with stock selection based on bottom-up fundamental analysis as opposed to a top down approach with little regard to the benchmark index. This results in the portfolio being highly differentiated from the benchmark index with regards to company, sector and geographic allocations. The Manager’s fees are in line with its listed actively managed peers with the Company paying a management fee of 1.10% p.a. and the Manager eligible for a performance fee of 15.0% of the outperformance of the benchmark index.

An investment in PMC is suited to an investor seeking an actively managed portfolio that provides differentiated exposure to the global equities market. Given the index unaware investment style and flexible investment mandate, the Company will invariably have a portfolio that is compositionally different to the benchmark index and other actively managed listed global equity mandates. The value based investment approach of the Manager means investors should have a long-term investment horizon to reap the full benefits of the underlying investment strategy. Such a strategy will see the portfolio underperform during certain market cycles, particularly during periods where the market is being driven by growth and momentum thematics. The portfolio has historically and is expected to continue to provide capital preservation in down markets and is therefore suited to those investors looking for exposure to a portfolio that will limit losses in down markets. We do note however, that the share price does dislocate from the portfolio during certain periods and therefore the shareholder returns may not reflect the same level of capital preservation as provided by the portfolio.

Independent Investment Research (IIR) has maintained its Recommended Plus rating for Platinum Capital Limited (ASX: PMC). The contrarian, value based investment approach of the Manager has seen PMC’s portfolio lag the benchmark index for over a decade and highlights that an investment in PMC is for long-term, patient investors that are seeking downside protection with the strategy consistently generating relative outperformance in negative markets. The protection in negative markets is a key contributor to the long-term outperformance of the strategy. While the strategy has underperformed, the Manager has stayed true to name and continues to invest in out-of-favour areas of the market that the Manager believes are undervalued. This has resulted in the portfolio being heavily underweight the US and overweight China. As such the relative performance of these markets will be a key driver of returns moving forward. As has been shown historically, the premium/discount at which the share price trades is driven by the relative performance of the portfolio. We expect this to be the case moving forward with demand for the Company likely increasing in the event of US market weakness. We note that the Company provides a differentiated exposure to both the benchmark and its peers and as such may provide an element of diversification to an investors global equity allocation.

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