- Friday 17 January 2020
- 0 Comments
Greetings everyone and welcome to the First Edition of our Quarterly Investment Newsletter.
It’s been a turbulent and exciting year for investors, and indeed for Curran Futures. Over the last 12 months we launched a new brand and undertook a comprehensive review of our business model. We sought many of your opinions as part of that process and are hugely appreciative of all the feedback we received. We’ve listened to what you had to say and hopefully this is the first of a number of positive developments that you’ll see.
In this newsletter we’ll address a number of investment topics, including the exciting upcoming launch of a brand new ‘Green Portfolio’, and hope that some or all of them are of interest to you. As always, we look forward to your comments and questions, and will endeavour to continue the process of improving your investment experience with Curran Futures into 2020 and beyond.
CHANGES TO OUR INVESTMENT MANAGEMENT SERVICE
At Curran Futures we like to think of ourselves as a premium ‘Financial Planning and Investment Management Firm’. While we’ve always been vocal about the first part, our role as partner and guide on your investment journey is something we believe we can improve on, and today I’m delighted to announce our first steps.
In 2019 we reached a headline figure of €40m AUM (Assets Under Management – how much money we look after on your behalf). We believe that achieving this goal is testament to our philosophy, process and performance, but most importantly we recognise that it is because of the trust you place in us as investment advisors.
We also believe that in order to maintain this trust, it is necessary to apply the resources necessary to ensure a consistent high level of service, in this case a dedicated in-house team whose sole responsibility is managing your money. This includes:
- Identifying and developing new investment opportunities
- Introducing appropriate strategies to you and reviewing them regularly
- Communicating our investment approach, including performance, benchmarking and broader themes in a consistent and straightforward manner.
Maintaining our aim of promoting from within, I’m delighted to announce that Gary Browne has been appointed to the role of ‘Portfolio Analyst’. His accounting background and obvious demonstrated abilities in this space make him the ideal candidate.
Working with myself, as Chief Investment Officer, we will sit on a newly established Curran Futures Investment Committee, which will include an Investor Representative and independent member. Both existing and future investment strategy will be reviewed and signed off by this committee and I look forward to sharing further details with you at the next Quarterly Review.
What a difference a year makes.
Had we been sending you this communication in January 2019, the tone would have been markedly different. Then, previous weeks of market sell-off resulted in a negative overall year in 2018 and the outlook was bleak according to most commentators. We had a number of clients contact us to ask whether they should exit investment markets entirely and revert to cash, and thankfully we persuaded most to sit tight.
So of course, it should be no surprise that 2019 delivered one of the best years of market performance in recent times. As the graph below demonstrates, all major assets and markets had positive years, none more so than U.S equity, reminding us that most of the time the news we see, read and tweet is simply noise.
So what does this mean for 2020? Very little of course.
As always, there is very little we can extrapolate from recent investment performance as a means of making any realistic projection for the future. From our perspective, we maintain the consistent approach of rebalancing, ensuring that those assets that outperform their long-term averages have their gains solidified by investing in assets that underperformed. This is our core focus for Q1, and you will be hearing from us directly very soon to that effect.
INNOVATE FUNDS: INTERNAL & EXTERNAL BENCHMARKING
Our own range of market investments, known as the Innovate Funds performed in line with their underlying asset & risk profiles and as such, those with higher % in equities outperformed the ‘lower risk’ ranges, as you can see in the below graph.
As we tell clients all the time, our benchmarks for comparison are the markets themselves. Because we are Passive, Market-Cap Weighted Managers* our goal is not to beat the stock-market but to get as close to its underlying performance as possible. We do this by choosing the most cost-effective solutions and ensuring that our clients get the most efficient investment vehicles possible.
Nevertheless, it is absolutely worth seeing how we compare to the most common funds available in the Irish Market. Thankfully we have been able to get access to this information and below is our performance placed alongside the most common funds of equal risk profile. As I remind investors regularly, we’re not doing anything significantly different (at least from these funds), we just do them better through lower costs, less active trading and better structures.
INNOVATE GROWTH COMPARISON;
INNOVATE 80% COMPARISON;
*if you don’t know what that means, we’d love to meet with you and explain it, along with any other questions you might have.
COMING SOON; 'INNOVATE GREEN' ESG FUND
In the coming weeks we will be launching our first ever dedicated ‘Ethical/Sustainable/Green’ (ESG) fund called ‘Innovate Green’ with a major media campaign.
The whole area of ESG is very popular at the moment and so it is unsurprising that most investment firms are keen to link themselves with funds that they can market in this manner. However, what we noticed in reviewing them is that they tend to work on an 'Omission Basis’, which means that they simply remove those companies from their portfolio that they believe are not ESG Compliant. The ridiculous nature of this approach was shown when we reviewed one of the largest ‘Sustainability Funds’ in Ireland and noticed that Exxon (yes, that Exxon!) were in the portfolio because of the work they do in the renewables space.
So, as we discovered when we first sought a Global Equity Fund, sometimes you just need to build it yourself. After extensive development, review and testing we are delighted to present a fund that appeals to our core philosophy (low cost, liquid, diversified) with a focus on only those companies whose business model is based on delivering solutions to climate, water, energy and other ESG areas.
The most remarkable thing about this portfolio, other than the ethical standpoint it offers as an investor, are the steady, long term returns that have outperformed global equities. See the below chart for proof;
INNOVATE GREEN PENSION COMPARISON:
INNOVATE GREEN CGT COMPARISON:
In a world where our choices are stark when it comes to prioritizing our wealth over the future of the planet, we believe that a paradigm shift is coming in market focus and that dedicated ESG companies will lead the way.
GREEN REIT: A SUCCESS STORY FOR CURRAN FUTURES INVESTORS
One of the major successes of 2019 for our investment clients came with the sale of Green REIT. This property fund was in a number of our CGT Portfolios and returns for investors ranged from 10 – 35% depending on when the share was purchased.
Since then we have been looking for a suitable replacement and are delighted to announce that we have approved two very different funds, both of which are ready to be placed into our client portfolios from today.
We will be speaking with the clients who profited from the Green REIT sale very soon and asking for a decision on which combination of these stocks is best for them.
- Kennedy Wilson is a global real estate company which predominantly owns multi-family (apartments) and office assets across west coast US, London and parts of Europe. In addition, the group offers real estate services to institutional and financial companies across the globe.
- KW’s asset base is no better exemplified then by reviewing their assets in Dublin which include the Shelbourne hotel, Capital Dock, Baggot Plaza, Clancy Quay and Vantage, Central Park.
- Kennedy Wilson Europe was acquired by Kennedy Wilson (KW). This was opportunistic by KW US post referendum sterling weakness.
- Asset base consists of 28,781 multi-family units (14m sqft), 192 commercial units (12m sqft) and some non-core retail (4m sqft) and hotel assets (3m sqft). 94% occupancy.
- Their portfolio is diversified across the US (48%) UK (24%), Ireland (23%) and Spain/Italy (5%). Office and residential assets make up over 80% of their assets.
- KW’s $5.7bn of net debt is 94% fixed or hedged at an average interest rate of 3.9%- and 5.3-year term. Loan to value is approximately 55%.
- KW recorded $713m in adjusted EBITDA on an asset base of $16bn AUM. They paid out c.78% of income as a dividend in 2018 = 4%
- $250m buyback ongoing and trades at significant discount to market value of its asset base
- 30% upside to average analysts target price. Technically sitting on 200dma
- Greencoat Renewables is Ireland’s largest Wind Power Generation company with 411MW of wind assets currently. With the renewables industry expected to grow toward 8GW by 2025, we expect Greencoat Renewables to grow toward 1GW over the medium term. It’s transparent and predictable cash flow make Greencoat’s dividend yield of 5.7% very secure.
- Greencoat’s business model of acquiring and managing wind assets which generate government guaranteed cashflow via the REFIT regulatory programme is not dissimilar to a REIT with government tenanted assets only that the growth outlook for wind power generation assets is structural and not cyclical driven. Over the last three months the Irish government has come out with their climate action plan and the new EU chief sealed the job by making environment and climate a priority. With continued government support, the industry looks ripe for growth with Greencoat extremely well positioned to benefit
- Assets are typically guaranteed for 15 years by the manufacturer and insurances exist to further reduce business risk. Under REFIT, cash flows are also guaranteed for 15 years.
- Greencoat shares have corrected from a peak of €1.16 to €1.10 this morning. At current levels investors should get a minimal dividend yield of 5.7% and if our twelve month target price of €1.25 is achieved, investors should see 14% capital upside. Over the medium term, we expect the dividend yield to rise and our long term fair value to increase toward €1.45.
- Greencoat sold 140m shares at €1.055 in an oversubscribed equity placing in March. As a result their balance sheet has been strengthened and are well placed to acquire an additional 150-200MW of assets before additional capital is needed. Greencoats portfolio extends across Cork, Galway, Kerry, Kilkenny, Wexford and Cavan.
- Greencoat Capital manages Greencoat Renewables and Greencoat UK. Given Greencoat UK is now a £2.2bn FTSE 250 UK company, management have shown their ability to scale up in similar regulated markets. Greencoat Renewables is permitted to acquire assets in Europe outside of Ireland which adds to growth outlook.
- Due to electricity demand from data centres, Amazon has committed to investing in Irish Wind farms.
- Neoen’s, the French renewables company, acquisition of eight wind farms in Ireland which were developed between 1998 and 2012 implies that they place greater value to the ‘repowering potential’. Basically, they expect the life span to be longer than expected and that corporate cash flow agreements will replace government agreements and will be equally as attractive. If so, there is hidden value in Greencoat Renewables existing assets.
- Greencoat has a capital markets day and interim results in September. In the meantime, acquisitions could be announced.
STRUCTURED PRODUCTS & PROJECTS
Curran Futures offer a wide range of bespoke investment strategies for clients who have a specific requirement, including short term access, asset backed security or income generation.
We are continuously undertaking due diligence on the many opportunities that come across our desk. Going forward, our Investment Committee will have a strong mandate to filter and evaluate all investment products in this space, and we look forward to presenting them to clients on a case-by-case.
Contact Us if you have a particular requirement for your money beyond long term growth.