Income and value investing helps this Perpetual fund offer investors big yields

• Name of the fund and ASX ticker: Perpetual Equity Investment Company (Quoted Managed Fund) (ASX: PIC)
• Asset Class: Australian and global equities
• Investment objective: To provide investors with an income stream and long-term capital growth in excess of its Benchmark over minimum 5 year investment periods.
  
• Fund Page: Perpetual Equity Investment Company Limited

The Perpetual Equity Investment Company recently celebrated its 10th birthday listed on the ASX and Sean Roger has been appointed its Co-Portfolio Manager, alongside the investment group's head of equities Vince Pezzullo. 

"I've been lucky enough to be part of the Perpetual Australian Equities team for the last 11 years and to learn off some really good investors," Roger tells Livewire.

"I've been through a well-trodden path at Perpetual, which is spending some time on the dealing desk then as an analyst for the broader team, and I've spent some time working on the long-short funds as well. I've been working with Vince [Pezzullo] on the PIC for a while now."

Roger adds that the fund's core mission is to provide tax-efficient, fully franked dividend income and capital growth to investors. Its 10-year track record of returns equals a compound 9.3% per year net of fees, versus 7.5% for its benchmark - the S&P/ASX 300 Accumulation Index (ASX: XKO). 

Structure and philosophy

The fund can hold up to 25% cash and typically holds between 20 and 40 stocks, with a preference for mid-cap companies that offer defensive profit and dividend streams. 

The fund's mandate also means it can invest up to 35% in overseas equities, providing optionality and an ability to enhance returns through allocation to global markets.

"The two core pillars of the investment process are quality and value. For a position to be investible it needs to pass Perpetual's four quality filters," says Roger. 

"A strong balance sheet, quality of management, a sustainable business model, and recurring earnings. 

And the outcome of those filters is that we tend to be invested in companies that are more established and defensive throughout cycles", says Roger

High income returns

The heart of the investment strategy is consistently identifying high-quality businesses to buy on reasonable valuations, as this should translate into the ability to return big cash dividends to investors twice a year, Roger says.

As at December 31 2024, the fund offered a grossed-up trailing yield of 9.6% when including the tax benefits of franking credits attached to distributions, or 6.8% net of any tax benefits. It aims to frank dividends to 100%, or the maximum extent possible. 

"Income and a growing income stream over time is a key focus for the fund," says Roger. 

"The fund owns a lot of established businesses that often have healthy balance sheets, and that enables them to pay fully franked dividends and when the fund receives those dividends that's one part of us passing that back onto investors."

The second way the fund generates income for investors is by taking profits on investments when it sees fit under its investment process and then returning some of that capital to investors to contribute to the high yields historically offered. 

Cash to defend against downturns

As at the middle of March, the fund had around 8.5% in cash and Roger says this is partly because share market valuations looked expensive going into February, with some pockets of value in the small and mid-cap space. 

As of today, the Co-PM is bullish on all of the fund's holdings and names listed retail giant Premier Investments (ASX: PMV) as a key pick, after the Solomon Lew-led business merged its Apparel brands division with iconic department store operator Myer (ASX: MYR). 

“They’ve got two very high margin businesses in Peter Alexander and Smiggle, and a large shareholding in Breville with a net cash balance sheet,” Roger says.

Other core fund holdings include mining giant BHP Group (ASX: BHP) and Chemist Warehouse owner Sigma Group (ASX: SIG). Overseas it owns New York Stock Exchange sports betting giant Flutter (NYSE: FLUT) as the fast-growing business behind the SportsBet, Fanduel, and PaddyPower brands. 

Investors can buy and sell shares in the listed fund via a standard share trading account, financial adviser, or stockbroker. Its net tangible asset value is also published daily on the ASX.

To find out more about the Perpetual Equity Investment Company (ASX: PIC) and the opportunities Roger sees, watch the Fund in Focus interview above. 

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Perpetual Equity Investment Company Limited (PIC)

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