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Investment Objectives

The following are comments of a general nature in relation to MFF’s historic investment objectives and procedures. Please refer to recent and historic releases from MFF for details in relation to MFF’s portfolio and performance, and for current information including discussions of risk factors. Please also note that these comments do not represent investment advice. MFF has had two broad investment objectives for its investment portfolio:

  1. To maximise compound risk adjusted after-tax returns for Shareholders by identifying and investing in a minimum of 20 stock exchange listed international and Australian companies with a focus upon those assessed to have attractive business characteristics, at a discount to their assessed intrinsic values.
  2. To minimise the risk of permanent capital loss for Shareholders.

MFF's historic investment objectives have been underpinned by the investment philosophy outlined below. These comments which date from MFF's inception are general in nature, and are subject to changes in portfolio, polices and markets over time.

Identifying quality companies in attractive industries

The assessment of companies and the industries in which they operate focusses primarily on considerations such as the sustainability of any competitive advantages, whether the company earns high returns on invested capital, whether it is likely that the company can continue to deploy capital at high rates of return, the assessed inherent business and financial risk of the company, whether the company has scale advantages, the impact of technology on the company, whether the company will be a beneficiary from globalisation and whether the company’s management is assessed to be honest and capable and focussed on long-term shareholder value. While MFF may invest in companies operating in any industry or industry segment, the focus will be on the following industries or industry segments: banks and general financials; food and beverage producers; retailers; personal and household goods; support services; ports, toll roads and vital infrastructure; and monopoly and duopoly systems.

Assessing value against price

MFF will seek to focus upon outstanding listed international and Australian companies at prices which are considered to be below the intrinsic value of those companies. Investing internationally and in Australia.

MFF will seek to invest internationally as well as in Australia. MFF believes that it is desirable to invest internationally as Australian equities comprise only approximately 2% of total world market capitalisation and the Australian market, therefore, necessarily offers investors limited opportunities for diversification. The focus will be on investment opportunities in countries with a well-established rule of law and regulatory oversight.

Preserving capital and minimising risk of loss

MFF believes that it is sensible to seek to minimise the risk of permanent capital loss and the establishment of prudent investment parameters is intended to assist in mitigating this risk. MFF considers that risk is reduced by investing in outstanding companies at prices below their assessed intrinsic value. Market conditions from time to time make this extremely challenging. It also usually also conflicts with return maximisation.

Selling discipline

MFF will seek to have a rational selling discipline and assess whether to sell investments in the investment portfolio where it believes that:

  • the value of a company materially exceeds the price that a prospective purchaser would pay for the whole company, adjusted for potential restructuring, re-leveraging or synergy benefits;
  • the medium to long-term underlying fundamentals of a formerly impregnable business franchise of an investment portfolio company have materially weakened;
  • the directors and/or management of an investment portfolio company behave against the interests of shareholders;
  • there are other more attractive opportunities available, particularly having regard to the primary investment objective of holding a minimum of 20 investments in the portfolio; or
  • we have been wrong about the business economics of a company or the company has not performed to expectations.

Foreign currency hedging

Currency hedging is permitted. However, it is not anticipated that non-Australian dollar denominated cash-flows and investments will be hedged while original exchange rates and economic conditions prevail. In changed exchange rate or economic conditions, MFF may utilise currency hedging.

Committing to accountability to enhance performance

MFF believes that high standards of accountability, via disclosure and transparency, benefit investors. A transparent disclosure regime requires MFF to exercise prior due care and diligence to avoid or, at least, minimise investment mistakes. MFF believes that investors will support an investment fund that provides timely, detailed disclosure on a regular basis, both when events are favourable and when they are not. MFF believes that high levels of transparent disclosure and accountability may translate into better investor ratings of assets and profits than would be the case if disclosure levels were lower or there was less local investor accountability.

Investment limitations

MFF is subject to additional investment limitations which may change from time to time, as determined by the Directors. These limitations include:

  • individual investments in the portfolio will not, without the prior approval of its board of directors, exceed 10%, and in any event will not exceed a maximum of 20%, of the portfolio value at the time of the initial investment;
  • at no time will MFF own (directly or indirectly) more than 10% of any company or other entity in which it invests; and
  • 90% of the portfolio value comprises permitted investments as defined in the Income Tax Assessment Act.

Borrowing limitation

MFF may borrow against all or any part of the portfolio, and pledge securities in the portfolio, provided that at the time any new borrowing is entered into, the aggregate of those new borrowings and any pre-existing borrowings must not exceed 20% of the portfolio value.