An actuary by training, Douglas first joined Platinum in 2003 as an investment analyst, having spent some time at the Commonwealth Bank as a product actuary and, prior to that.. More
Investment specialist, Douglas Isles, explains how to think about total return (income and capital growth) when investing in international equities.
The Platinum Trust Funds must distribute their income and net realised gains within the Australian tax year in which they are earned. In recent years, the distribution profile has, for some Funds, been more volatile than many investors had come to expect. The more recent “hunt for yield” has made this more of a concern, but in reality, total returns are the key.
The total return can be utilised to provide income and growth requirements as needed. The focus on yield and predictable investments has resulted in many of the better opportunities in markets (as of June 2013) within lower yielding and cyclical stocks. Hence, the income and associated distribution issue will likely persist.
This factsheet tries to help explain the current lower distributions and their inherent volatility. For further information on Platinum’s philosophy and portfolios, please email Douglas Isles, Investment Specialist on email@example.com
International shares tend to pay lower dividends than Australian shares; a function of pay-out ratios. Many overseas companies invest more back into their businesses, while some prefer to buy their own stock. Tax regimes influence capital allocation decisions for corporates. Franking credits only apply to Australian shares; for Australians investing in international shares this is not a consideration.
Total return is the key objective of the manager, and this cannot be emphasised enough. For all but 0% tax-payers (who are neutral) there is a fiscal preference for long-term capital gains over income, but note that stocks are not retained in the portfolio for tax reasons – the investment case is key.
In buying “neglected” stocks, Platinum captures dividends, growth and the revaluation of prospects – the last is a major component. The dividend yield of global markets is c. 2% in 2013, long-term trend earnings growth adds 2% plus inflation, while the Platinum International Fund has delivered 13% pa since 1995. The dividend stream received by Platinum International Fund since inception demonstrates the rising trend that one would expect to receive from a portfolio of good businesses.
Platinum employs risk management strategies, particularly short-selling and currency management. Short-term instruments such as index futures contracts and foreign exchange forwards by their nature have a meaningful impact on the income profit and loss. Such techniques often act like insurance with small losses in many environments and lumpier “payoffs” when markets sell-off, such as in 2008-09.
The realisation of capital gains and losses is driven by stocks achieving target price levels, or being removed from the portfolio. Stocks are evaluated on a 3-5 year investment horizon; the average holding period is around two years in the Platinum International Fund. Realisation of capital gains is likely to be more prevalent in strong markets, when stocks tend to be more fully appreciated. In any year the contribution from managing risks and realising capital gains is likely to outweigh (in either direction) the dividends received by the Fund, which are relatively stable.
As at 2013, for several Funds, there are historical losses on the income and/or capital accounts that have not been fully recovered. It is also worth highlighting in a strong year like 2013, the reappraisal of the prospects of the companies in the portfolio far outweighs any income that could be derived from owning international shares.
DISCLAIMER: The above information is commentary only (i.e. our general thoughts). It is not intended to be, nor should it be construed as, investment advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances. The above material may not be reproduced, in whole or in part, without the prior written consent of Platinum Investment Management Limited.
It’s all about YOU
Using Data to Enhance a Fundamental Investor’s Edge
Australasia’s Best Sporting Team 2019 : Melbourne Storm
Building a Champion Team
Thinking like a Private Owner
Platinum Asset Management Supports Action to Remove Ushioda and Yamanashi from Lixil Board of Directors
Proposal to remove refundable franking credits can adversely impact LIC investors
Australasia’s Best Sporting Team
We use technologies, such as cookies, and process personal information, such as IP addresses and cookie identifiers,
to analyse traffic to our site, personalise advertisements and content based on your interests, measure the performance
of our advertisements and content, derive insights about the audiences who visit our site and see our advertisements
and content, and to build target audiences on social media. We share this information with our social media and analytics
service providers. Click on the adjacent button to consent to the use of this technology and the processing of your
We use technologies, such as cookies, and process information, such as IP addresses and cookie identifiers, to personalise
advertisements and content based on your interests, measure the performance of our advertisements, derive insights about audiences
who see our advertisements, and to build target audiences on social media. We share this information with our social media and
analytics service providers. Click on the adjacent button to consent to the use of this technology and the processing of your
Some cookies are needed to make our website work and can't be turned off. But we need your consent to use others that are not essential.
These cookies are needed to run our website and to enable your device to move from page to page without having to log in repeatedly.
These cookies remember your region or country, language, accessibility options and your settings. This also includes
things like your User ID on the logon page
These cookies tell us how customers use our website. We study and profile this data to help us improve our products and performance.
These cookies help us decide which products, services and offers may be relevant for you. We may use this data
to tailor the ads you see on our own and other websites and apps. We may also use this data to build target
audiences on social media. We share this information with our social media and analytics service providers.