WCM Global Growth Ltd (ASX: WQG) is a listed investment company (LIC). Should you consider adding it to your portfolio?
Who is WCM and what do they do?
WCM is a leading independent fund manager who has been appointed to manage and invest the portfolio. WCM has successfully managed investor money for over 20 years and now has assets under management exceeding $35 billion (AUD). WCM’s interests are strongly aligned with its investors as it is 100% owned by its employees.
WCM is appointed by the manager, Contango International Management Pty Ltd., a wholly owned subsidiary of Contango Asset Management Ltd. (ASX: CGA).
Essentially WCM will be responsible for investing the portfolio, whereas Contango will oversee WCM and has the power to terminate WCM (subject to termination fees etc.). Termination of WCM is highly unlikely in my view, not least because the LIC bares WCM’s name.
What is WCM’s investment strategy and how have they performed?
Per WCM’s prospectus, WCM’s investment strategy is to “invest the Company’s Portfolio in quality global growth businesses with high returns on invested capital, superior growth prospects and low debt”. Companies in the portfolio are also required to, “maintain a durable and growing competitive advantage, or growing economic moat”. The portfolio will be diversified across sectors including information technology, consumer sectors of staples and discretionary, healthcare, financials and industrials.
WCM’s Quality Global Growth investment strategy has delivered a return of 12.8% p.a. (gross of fees, in AUD) from inception on 31 March 2008 to 31 March 2017. Over 5 years to March 2017 this strategy has returned 17.8% p.a. (gross of fees, in AUD).
WCM’s strategy has outperformed their target benchmark over the last decade, the MSCI World ex Australia Index (Morgan Stanley Capital International All Country World Index ex- Australia with gross dividends reinvested reported in Australian dollars and unhedged).
Over the past 5 and 10 years to 31 March 2017, its returns (before tax, in AUD) have exceeded the Benchmark by 1.8% p.a. and 5.5% p.a. respectively. Of course, as the saying goes, past performance does not guarantee future performance.
Is Now A Good Time To Buy WCM Global Growth Ltd Shares?
As of January 31 2019, WCM’s reported post-tax net tangible assets (NTA) were $1.184 per share. Based upon the current share price of $1.05, this represents a discount to post-tax NTA of about 11%.
WCM is currently undertaking a share buyback which commenced in June 2018. In WCM’s 2018 annual report, chairman Valentina Stojanovska confirmed the purpose of the buyback is ‘to take advantage of the deep discount of the share price relative to NTA. This Buyback Program is ongoing and reflects the Board’s commitment to delivering improved returns to shareholders’.
Overall I believe there is a strong case that this discount to NTA will narrow and that WCM will provide strong returns over the longer term. For these reasons I have recently purchased shares in WCM and will hold them in my portfolio for the longer term.
Disclaimer: At the time of writing, William owns shares in WCM Global Growth Ltd.