14-Apr-2020: BAF March 2020 NTA Backing Report
Due to 57% of the Alternatives Fund’s (BAF's) portfolio being in cash (25.4%) and Water Fund investments (32.1%), their pre-tax NTA decreased by only 1.94 cents per share, or 1.73%, to $1.1033 per share in March. This is in line with my estimate during March that they'd probably end the month being worth around $1.10, hence $1.10 is my valuation for BAF. I do NOT think that NTA is likely to fall further in April, certainly not if the back half of April is as good as the first 2 weeks. The Agricultural and Water investments within the portfolio (approximately 42% of the overall portfolio) have felt little to no impact to date, with Water having a strong month in March. Demand for farm produce has not fallen, and all of the export channels remain open. The portfolio also has a number of unhedged investments across the broader portfolio, in particular investments into the US (esVolta, Cove). These were insulated to a degree by the 13% or so fall in the Australian dollar over the last quarter (6% fall in March). However, there are certainly significant negative impacts in the other parts of the portfolio, and the portfolio managers and the Board have been taking action to mark down carrying values as a result. The bottom line however is that the NTA of BAF fell by less than 2% in March as I had expected (see my valuation), and that compares VERY favourably with other LICs, and underlines the value of having exposure to Alternative Assets, most of which are NOT correlated to share market movements. You can argue that cash performed even better, however, cash has less upside from here. Despite the fund having an NTA of just over $1.10 on March 31, their SP closed the month at 65.5 cps, being a 40% discount to their NTA.
BAF's last closing price before this announcement (Thursday's close) was only 1 cent higher at $0.665. They're up around +7.5% today at $0.715, but that's still a 35% discount to their NTA, which would be at least $1.10 now. That's still a very significant discount. Remember too that the management of this fund is being transferred to Geoff Wilson's Wilson Asset Management soon (as confirmed again in this update - link above). That will be, in Wilson's own terms, a catalyst for a positive market rerating, one of the things his team look to identify when assessing potential investments for their 6 LICs - BAF will be their 7th LIC (listed investment company) and will be renamed the "WAM Alternatives Fund", removing the "Blue Sky" reference from the fund name. The ticker code will also be changed. I doubt whether this fund will be trading at a 30% to 40% discount to their NTA when they are being managed and marketed by WAM. The management transition (including the BAF EGM) will probably take another couple of months, but they are pushing hard to have it all finalised by June 30 obviously.
Disclosure: I hold BAF shares in two of my portfolios, as well as on my Strawman.com scorecard.
