Let me declare upfront – I have a personal and financial interest in the success of the Switzer Dividend Growth Fund. I am a Director and in effect a part owner of the responsible entity, Switzer Asset Management. So, no question that I am conflicted.
With that disclosure out the way, here is my road test of the Switzer Dividend Growth Fund.
The Switzer Dividend Growth Fund
The Switzer Dividend Growth Fund aims to provide investors with tax effective income and long-term capital growth by investing in a core portfolio of blue-chip Australian shares. The portfolio will be managed to deliver capital returns in line with the market, while providing investors with an attractive income stream paid quarterly.
It will invest in a portfolio of quality, high-yielding Australian shares with an emphasis on companies that are paying fully franked dividends and which have the ability to grow these dividends over time. Typically, this will be approximately 30 to 50 stocks drawn from within the largest 200 companies, which have:
- sound balance sheets;
- desirable dividend streams and the capability to grow dividends while maintaining a sustainable payout ratio;
- dividends that are fully franked or close to fully franked;
- moderate to low volatility; and
- strong secondary market liquidity on the ASX.
The Fund is somewhat unique in that it is one of the first funds in Australia to explicitly adopt the ‘dividend growth’ mantra, a very popular and fast growing investment category in the USA. It will also be quoted and traded on the ASX.
Switzer Asset Management will manage the Fund and has appointed an Investment Committee comprising Peter Switzer, Charlie Aitken, George Boubouras and yours truly to do this. The Investment Committee will be supported by the investment management team at Contango Funds Management.
While Switzer Asset Management has limited funds management experience per se, having been recently re-configured, the Investment Committee members have considerable equities market experience and expertise. Further, Contango, led by MD and Chief Investment Officer George Boubouras, is the investment manager of two very successful listed investment companies, Contango Microcap (CTN) and Contango Income Generator (CIE), as well as the manager of several institutional equity mandates.
Following a path that has been pioneered by Magellan and others, the former with the spectacularly successful Magellan Global Equities Fund (ASX Code MGE), the Switzer Dividend Growth Fund will be quoted on the ASX under the stock code SWTZ. This means that investors can buy or sell units on the ASX through a stockbroker or share trading account, with settlement through the CHESS system. Investors will also be able to see the prices at which other investors are prepared to exchange Units.
In addition to publishing an end of day NAV (net asset value) per unit, Switzer Asset Management will also publish an indicative NAV throughout the trading day in real time. With the Fund providing support as a market maker, investors should be able to trade their units (sell their units or buy more units) at a price that is very close to the underlying NAV. No premiums or discounts.
Distributions will be paid quarterly, in January, April, July and October. A distribution re-investment plan will also be available.
Although the PDS makes no forecast about distributions, given the style of the fund, investors should expect a distribution a little higher than the current ASX 200 yield. This probably means around 4.5% to 5.0% pa, franked to around 80%.
The investment management fee is 0.89% pa, including GST. There are no performance or other fees.
This fee is about middle of the range. Lower than many active equity funds, but more than some of the broad-based listed investment companies and of course, more than ETFs that passively track an index.
Who will it suit?
The Fund will be well suited for equity investors who desire tax effective income, including SMSFs. The quarterly distribution should be popular with these investors.
Further, because the Fund will be managed with the aim of delivering capital returns in line with the market, the Switzer Dividend Growth Fund should also be able to be used as part of a “core” equity holding for those investors using a “core and satellite” investment approach, or who want to complement individual stock holdings.
How to invest
The initial offer is due to open today (30 January) and close on Friday 17 February. Quotation and listing on the ASX is scheduled for Friday 24 February. Thereafter, investors will be able to purchase units on the ASX through their stockbroker or share trading account.
To take part in the initial offer, investors will need to review the Product Disclosure Statement (PDS) and completion an application online or on paper. This, and more details, are available here. The minimum application is $2,500.
As always, please review the PDS carefully, and if you need assistance, please consult your financial adviser or other investment professional.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.