Well my jaw really dropped this morning when I saw a distribution statement from Perpetual Wholesale Industrial Share fund for a client with a distribution amounting to over 20% of the fund’s value. Perpetual had flagged a higher than usual distribution in their May – “Investing Matters” newsletter but the large distribution still caught most people by surprise.

Perpetual Wholesale Industrial Share Unit Price

Following the distributions hitting the bank accounts to-day I was one of the callers searching for an explanation from Perpetual. Well they got their act together and this afternoon  (15th May 2014) they issued a statement and while I am a bit annoyed about how it was processed I think the Fund Managers have hit the nail on the head and are doing what we pay them to do i.e. Manage the risk in the portfolio and take strategic positions.

Their explanation of the reasons for the huge capital gain component of the distribution was clear and unambiguous.

What factors have driven the high distributions?
The Australian sharemarket has performed strongly over the past year, with the S&P/ASX 300 market up 10.1% over the 12 months to 30 April 2014. Both funds have performed exceptionally well over this period – the Perpetual Wholesale Industrial Share Fund has returned 12.9% over the past 12 months, and the Perpetual Wholesale Australian Share Fund has returned 14.9%.

Within this environment, we have adhered to our strong selling discipline of rotating into stocks with more attractive valuations and have realised profits in many of the largest overweight positions in the two funds.

Where have we realised capital gains?
Perpetual believes that the major Australian banks are now some of the most expensive banks in the world, and have reduced our exposure in these stocks over the past year accordingly.

Telstra has been a large and successful investment in the funds over the past five years. Over this period, the stock has gone from being one of the cheapest telecommunications stock in the world to being one of the most expensive. Earnings and dividends have remained relatively stagnant throughout and we have reduced our exposure in the stock.

Fox, previously part of News Corporation, was another large weighting which has performed strongly (+100%) and has subsequently been de-listed in Australia. We have deemed it prudent to reduce exposure to Fox as it leaves the Australia Stock Exchange.
Large selling of Crown and Resmed driven by valuations of these stocks also saw large capital gains in the funds.

Perpetual’s move has mirrored my own feelings on some of the Top 20 stocks over the last 6 months and I am pleased they have been pro-active in their funds management.

My one concern for Perpetual is that while many have distribution reinvestment plans in place, others don’t and I can foresee that many will not reinvest cash distributions back to this manager and will look to use the distributions to add diversity to their portfolios via international or mid-cap stocks. It’s a shame that a positive move by the fund manager may result in negative funds flow.

I am happy to disclose that this fund has been a core part of many of my clients portfolios for more than 15 years and their track record has been excellent.

I also wonder if the sell down by Perpetual and others has masked the effect of the huge move from term deposits to direct shares by retail and SMSF clients  in search of yield. There could be pain ahead for those late on the bandwagon.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

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