We welcome the Company Chairman talking to Flagship Investment’s shareholders through this interview.

Further information about Dominic and other FSI Directors can be found here.
Find the full transcript below:

Q: About yourself and your background?

My name is Dominic McGann and I’m the chair of the board of Flagship Investments or FSI but my background, my day job is as a partner of Michael Robertson Lawyers, which is a large commercial law firm in Queensland, New South Wales, Victoria and the Australian Capital Territory. I’m often what is referred to as a front-end lawyer and work to obtain agreements for infrastructure renewables and resources projects whether from traditional owners, landholders or relevant state and local governments. So I’m a front-end lawyer that does a lot of negotiating.

Q: When did you first become aware of FSI?

I have a long association with Flagship’s (FSI), having originally worked with Manny [Pohl] on the float of what was then the Wilson Investment terrain fund limited back in 1998 and happily, I’ve been associated with the entity ever since and actually recently went back to look at one of the very early annual reports and I can report that if nothing else many hasn’t aged a day. As is often said nothing’s ever certain but if you look back over the performance of FSI over the years I think it’s fair to say it has a sustained above-market performance and that’s, I think, principally drew to two things the particular methodology around management and real discipline in applying that methodology.

Q: What attracted you to the Company?

So I was always attracted to the approach that Manny and the team have. It’s principle based and it’s also very disciplined. Why I’m attracted to it is because it is one of the key elements of our broader economy but it is also it’s very complex and it is it really rewards a strong methodology with discipline but also patience. One of the things that particularly interests me about the industry is the tension between a methodology on the one hand and sentiment on the other and really having the discipline to stay attached to the methodology and not falling with sentiment. So it’s a complex industry but it’s one that certainly interests me and I gain an appreciation of every day my discussions with Manny and the balance of the board.

Q: What do you aim to bring to the board as Chairman?

Well the board of FSI is three it’s Manny as the Managing Director, Sophie Mitchell and myself. In addition, we have a very talented Company Secretary Scott Barrett and an Alternate Director and Angela Obree. So there’s a lot of talent around the board table at any time and the approach in that the situation as the chair is really to simply allow the talent to realize itself and to adopt a very collaborative approach at the board. it doesn’t take a lot of effort but I should say because each of Manny, Sophie, Scott and now Angela have a very collaborative approach so it’s really about ensuring the environment encourages and allows collaboration and for the talent to be fully realized.

Q: A little about yourself outside of the work environment?

Putting aside the fact that some people accuse me of regarding work as a pastime when I’m not at work there are probably two things I do more than anything. One is reading. I read very broadly and the other is I like to exercise regularly and just at the moment in terms of the book I’m reading it’s a particular book called the Evolution of Beauty by a professor from Yale University, Richard Prum and what it explores is the distinction between what’s called adaptive evolution as opposed to aesthetic evolution. And aesthetic evolution gives rise to beauty. Adaptive evolution gives rise to the survival of the species and in a sense, there’s a resonance with FSI because one of the things that FSI does, is not to simply stay on a well-trodden path it’s always willing to look at new stocks provided as I’ve said before it always meets a particular methodology and performs over time.

We would like to welcome our new Non Executive Director, Angela Obree talking to Flagship Investment’s shareholders through this interview.

Further information about Angela and other FSI Directors can be found here.

Full transcript:

My name is Angela Obree and I’m a non-executive director of Flagship Investments also known as FSI. I spent the last 25 years or so in management consulting predominantly in the financial services industry based in London in the UK. My focus whether working with the executive teams or the boards has been on strategy risk and compliance.

Q: How did you first became aware of Flagship Investments?

I became aware of Flagship Investments right at the ice age, I’ve been lucky enough to know Dr Manny Pohl for many many years. I heard about Flagship right when it started back in the early part of 1998 and I’ve been following its progress and successes ever since.

Q: What interested you in Flagship (Investments) over that time?

I’m sure like everybody else and the other shareholders it’s been the decided performance both in terms of capital and dividends to shareholders but more than that and for me, it was also I really like the professional and disciplined manner in which the portfolio is managed.

Q: What do you hope to bring to the board of Flagship Investments?

I was honoured to and to be asked to consider the role and mostly because I resonate very much with the values of the company both in terms of their investment principles and also um because of the calibre and integrity of the management team. It certainly makes my job as a board member much easier.

Q: Tell us about your experience working with boards of investment companies?

I’ve been really fortunate in my career that in the last 25 years I’ve got to work with various boards around the world, you know in London in South Africa and Germany in the US. My role has been on the other side actually of the war table which has been to work with boards to develop a strategy to mitigate any risks and manage compliance and so forth.

Sitting on a board you get to see the business from all aspects and get to make that kind of you know high-level decisions that genuinely drive where the business is going and you don’t always get that on the other side as the executive, you get told what to do. So I quite like that element of it but in this business, it is so well managed by you know EC Pohl we would take a lot of you know guidance [obviously from] I mean we obviously you know around the strategy and so forth but in terms of decisions and investment decisions happy that’s left to the executive team to Manny and so forth.

Q: What are your thoughts on the journey ahead?

Now that the convertible notes has been successfully taken up I feel very likely to be part of this exciting journey as we watch Flagship Investments move into the next stage.

Q: Can you tell us something about yourself?

Outside of work I really really enjoy being outdoors whether it’s on the beach or on a mountain bike and I’ve taken part in a couple of triathlons. I’m not a good athlete whatsoever,
but what gets me to the end is just high energy levels and high levels of enthusiasm.

Dr Manny Pohl AM, Managing Director of Flagship Investments Limited (ASX: FSI) and CIO and founder of ECP is interviewed by the senior analyst at Pulse Markets about the current market and FSI.

Conversation points

  • Introduction to Flagship and ECP
  • Why has Flagship been one of the top-performing Funds in Australia? @ 2:30s
  • Why do you have a bias towards Growth companies? @ 3:45
  • 12 months ago you wrote an article that was very positive about forwarding earnings particularly in quality growth companies – how do you see the market looking ahead? @ 5:45
  • Flagship has been delivering top returns for over 20 years, what is the secret to its success, and can it continue? @ 7:30
  • The disciplined process to investing @ 8:30
  • How can fund managers keep rejuvenating their own skills? @ 9:15
  • How were you the best-performing fund manager during the GFC? @ 10:15
  • How are you managing inflation risk? @ 11:15
    What would worry you more than inflation? @ 12:20
  • How can people invest in Flagship? @ 14:05

Watch the interview on Youtube here or click the image above.

Important Note: This interview is provided for information purposes only. It should not be construed as financial advice or an investment recommendation. Past performance is no guarantee of future performance. Consult a professional financial expert before making any investment decision.

Shareholders of Flagship Investments Limited (ASX: FSI) would be aware of Flagship’s long-term performance record.

LIC Specialist Bell Potter released their 2020 report into LICs noting the Share Price performance of LICs within their research universe. Their tables identify that Flagship Investments outperformed all peer Large and Medium cap focussed LICs overtime periods 1 year, 3 years, and 5 years- validating the investment philosophy of the portfolio manager EC Pohl & Co and the skills of the investment team.

Flagship’s 3 Year and 5 Year returns of 17.9%pa and 15.7% pa are more than double the average return of peer Large, Medium, and Small-cap investing LICs.

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Source: Bell Potter LIC Report February 24 2021.

Understanding The Drivers Of Flagship’s Investment Performance

Flagship has delivered a strong performance to shareholders since it first listed in December of 2000. Bell Potter LIC/ ETF Specialist Hayden Nicholson recently interviewed Dr Manny Pohl AM to discuss the Company, its investment team, and the processes that have generated this consistent outperformance.

The interview can be viewed at the link below and for your convenience, we provide timestamps to the conversation:

  • Origins of Flagships in the ‘90s, the conundrum for new fund managers and investment approach @ 0:00​
  • Investment Style and the value of forensic research in bottom-up stock picking (including the training of buy-sell vs sell-side researchers) @ 3:00​
  • Investment Process: top quartile performance over 20+ years @ 4:20​
  • How the FSI portfolio differs from ETFs, passive and also active managers @ 5:00​
  • Not building portfolios that generate low tracking error- delivering outperformance to investors instead @ 6:30​
  • Being in the index does not mean you are a good investment @ 7:15​
  • What we want from the management team of companies we invest in @ 7:45​
  • The importance of strong balance sheets when markets have a crisis: growing economic footprints @ 8:40​
  • Origins of the “Zero management fee”. Motivated to make money for investors @ 10:00​
  • Capital management in LICs and in FSI @ 12:20​
  • Building a stable a loyal register- having the right shareholders @ 15:30​
  • Never undertaking strategies that disadvantage your shareholders @ 16:00​
  • Role of Dividends. FSI approach to creation, payment & Special dividends @ 17:30​
  • 12m month market outlook: FSI focus is always on the stocks in the portfolio. Cash in economy + Replenished balanced sheets + technological acceleration @ 20:00​
  • FSI portfolio companies are strong- the real question is: What will the multiplier be, what are the P multiples? @ 24:00​
  • Risk-adjusted IRR avoids falling for value traps @ 25:00​
  • Two recent positions in the portfolio: Nuix and Serko @27:20

Access the full report by contacting the author:
Hayden Nicholson, ETF/LIC Specialist: hnicholson@bellpotter.com.au
Bell Potter Securities Ltd: Level 29, 101 Collins Street, Melbourne: www.bellpotter.com.au

Pohl position: fund manager bets on Seek in race against short sellers

Lucy

By: Lucy Battersby
November 8, 2020
Link to the original article

Veteran fund manager Dr. Manny Pohl AM is sticking with one of his best bets in the market, Seek, calling the short seller attack against the online jobs classifieds operator a cheap shot.

Pohl was an early backer of Seek, with the company’s shares sitting in his portfolio since they listed at $2.10 in 2005. It’s a punt that has paid off in spades, with Seek’s shares trading over $22 and the company delivering a steady flow of dividends.

However, Seek has come under fire this month from Texas-based activist fund Blue Orca, with the short seller alleging that Seek’s Chinese subsidiary Zhaopin was laden with fake job ads.

According to Pohl, the attack highlights the core problem with short-sellers. “[Seek] have been talking about that for years. Now somebody has taken what is a fact in the business and blown it into a whole big story and shorted it to make some money out of it. And that is the fundamental issue that I have with shorting.”

“I detest that part of short selling,” Pohl says. Short sellers make a profit by trading on the expectation of a falling share price.

The South African emigrant is well known as the manager of Hyperion Asset Management from 1996 to 2012, when it was part of the Wilson Asset Management family. Pohl left Hyperion in 2012 and purchased Pinnacle Private Equity, renaming it EC Pohl & Co. However, he now admits that those two years in private equity were “a furphy” to fulfill a non-compete clause on talking about ASX-listed companies.

EC Pohl & Co has since become ECP, which manages about $2.5 billion of institutional money. ECP also manages Global Masters Fund and Flagship Investments, which spun out of Wilson’s in 2012. It has a bottom-up long-term stock picker approach that held Commonwealth Bank, Rio Tinto, Domino’s Pizza, Macquarie Group and Afterpay as its top five stocks in June.

Last year, ECP’s listed investment company (LIC) Barrack Street was renamed ECP and launched a new unit trust sold through Copia to chase more retail investment money. ECP only holds 30 ASX-listed companies at any time but constantly reassesses each company’s weighting depending on expected returns.

“We are bottom-up, methodical,” Pohl says. “We forecast to our level of certainty how much money we’ll make and then we put our money into it.”

The fund was in 20 percent cash in February thanks to high valuations, then bought more shares when prices tumbled due to the coronavirus pandemic.

Generally, the fund only sells if there is a major change within the company. For example, Pohl has no intention of selling out of dairy company A2 Milk despite the company getting caught up in the growing trade dispute between Australia and China. Shares have dropped 30 percent since July and were last at $13.71. “The fact that sales (to China) are declining because the Daigou channel is no longer functioning the way that it should, for us, is not necessarily a sell … it just affects our weighting.

“Things that force us to sell a stock are, for example, a big change to the management team. Because we base all that we are doing on the management managing the business and we are expecting a certain outcome,” he says.

Large acquisitions are also an automatic sell for Pohl, who cites Reliance Worldwide’s expansion into the UK as an example.

Meanwhile, he is optimistic Australian businesses will pull through the pandemic, especially given the generous JobKeeper program and a surprising response from the banks. “The difference this time in COVID is that the banks for once – I never thought I would see the day – are actually being accommodating and have been helping people.

“Is that a result of the royal commission or government pressure? But the banks this time around are the ones looking to help you as opposed to pulling the plug out and historically they always pulled.”

The combination of JobKeeper, unemployment, and the economic destruction caused by COVID-19 lockdowns has created an unusual situation in 2020 – ultra-low interest rates and cashed-up Australians stuck at home with nothing to do. This has led to a huge increase in people playing the stock market hoping to make some quick money.

Pohl believes two seemingly contradictory things about this situation; that day traders risk losing all their money, and that equities are risk-free. A recent front-page article blaming ultra-low interest rates for pushing investors into “riskier assets” sent his blood boiling.

“The assumption is people looking for yield are going to be forced to start to invest in shares,” Pohl says. “And the assumption is that that is more risky. And it’s just not. If you do your homework properly if you do what we do – analyse the companies and build it from the bottom up – they are absolutely no risk.”

On the other hand, he also has a cautionary tale of a friend who lost everything through day trading.
Pohl paraphrases a Warren Buffett quote: “the stock market is a place where there is the continual transfer of wealth from the amateurs to the professionals”. (The quote is actually “from the impatient to the patient”).

“From day to day, the prices go up and down, that happens to everybody. In the GFC the portfolio went down 15 percent as soon as it hit. In the October crash in 1987 the markets were down 15-20 percent over two days. Yes, the price goes down. But if you have done your homework and the business is sustainable and they have got a strong balance sheet … they survive these things.”

Lucy Battersby
Lucy Battersby has covered trends, technology, and telecommunications since joining The Age in 2008.

As stage one restrictions are lifted in Australia and we feel there is light at the end of the tunnel it is interesting to observe the reactions and actions taken by the investment community over the last 3 months. Trend data suggested that retail investors had become substantially more active across the securities market. This included increased trading frequency and the number of different securities traded per day, while the duration for holding securities decreased. This activity prompted ASIC to release a public warning about the risks involved.

But, investing in the stock market doesn’t have to be risky. Knowledge and experience are strong factors to mitigate the risk. We take a moment with our Manager, Manny (EC Pohl & Co), and ask – what does a long term investment manager do when there is so much volatility in the markets and uncertainty across the globe?

Has COVID-19 impacted the investment philosophy? Did the process change at all over the last 2-3 months?
As companies and countries responded to meet the health concerns of the community we conducted a thorough assessment of our investee company’s prospects in the current climate. Our investment portfolio comprises high-quality, low capital-intensive growth companies that have a sustainable competitive advantage. During the current challenge, we made sure that the competitive advantage was still relevant, that the company had sufficient capital to survive the downturn and maintained our discipline to the process.

Essentially saying that we made sure our investments still met our investment criteria, but our criteria did not change. We don’t know how long the current situation will last, but our investee companies are still in a position to provide excellent investment returns over our 3-5 year investment horizon. We are a long term manager so the fact that there is some short-term volatility does not impact the way we assess our investments.

We’ve heard that Warren Buffett is currently sitting on a large portion of cash – have you made a similar move?
Generally, our cash levels are maintained in accordance with our investment mandate, for example, with Flagship Investments Ltd the guideline target is 5% with a maximum cash holding of 20%. Some clients are very strict in holding to the limit, which means that as investment values change, we respond appropriately adjusting the portfolio in-line with the mandate. Other clients are more flexible with the limits, which means we can manage the portfolio in accordance with the internal rates of return (IRR). This means that when the IRR decreases we start to hold more cash, which did occur from December 2019 to Feb 2020.

Given that the market has broadly decreased from the highs in February, our IRR has increased significantly and many of our high-conviction investments are cheaper than at any time in recent history. This has presented a unique buying opportunity which is implemented in accordance with our model portfolio construction.

Understanding that we are not out of the woods yet are there any learnings/observations to date from the COVID-19 experience?
We have witnessed an incredibly unique global event which has had wide-ranging impacts on all elements of society. People are thinking about health and wellbeing as a priority, our communities, our businesses, the way we work, the way we interact, the things we value have all been disrupted in some way. And, we’re seeing individuals, communities, companies and all levels of government doing the best they can to work through this period balancing short term and long term priorities. We are incredibly grateful for the hard work of all members of society in doing their part. For our part, as the Manager of Flagship Investments Ltd and as custodians of shareholder wealth we have focused on doing our best during this challenging time and producing the best portfolio returns possible.

We have remained focused on the business fundamentals, diligently implementing our proven investment process and supporting our business partners as best we can.

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