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2023 Djerriwarrh AGM recap

2023 Djerriwarrh AGM recap

2023 Djerriwarrh AGM recap

We take a closer look at some of the matters raised by our shareholders at our 2023 Annual General Meeting, from the share price and our approach to ESG, to our level of holdings in the materials and energy sector.

How does Djerriwarrh approach ESG issues?

The subject of ESG (environmental, social and governance matters) is often raised at meetings with shareholders. While Djerriwarrh is not structured as an ESG fund, this does not imply a lack of concern or consideration for ESG matters within our investment approach.

We have a structured investment framework for assessing companies for our portfolio which focuses on multiple key factors. One of these factors pertains to the sustainability of the company’s business model.

As Djerriwarrh primarily adopts a long-term investment approach, our aim is to invest in companies that can sustain their business model and grow their profits over the long term. Should a company struggle, say due to environmental concerns, it will likely affect its competitive position and its long-term prospects.

Companies require a social licence to operate and we believe that companies need to be responsible citizens by treating their staff, suppliers, and the environment responsibly. These are the expectations we hold for the companies that we invest in. Furthermore, social issues have consistently held significance in our assessment of companies. As an example, Djerriwarrh refrain from investing in companies exclusively engaged in the gambling sector.

We constantly seek continuous improvement from the companies within our investment portfolio, including those in the oil and gas sector. We expect these companies to improve their carbon footprint ̶as it is an integral component of their social licence to operate into the future.

We have always considered governance an important part of assessing a company. We are attracted to companies with outstanding management teams and boards with strong governance processes, whose interests are closely aligned with shareholders, and who act in the best interest of all their stakeholders, including their employees, customers, suppliers, and wider communities.

In the future, reporting of social and environmental issues will be influenced by the development of standards by the International Sustainability Standards Board (ISSB). Their potential introduction in Australia should help investors make more informed decisions on these issues based on company disclosures arising from these standards.

The adoption of ISSB standards may require us to assess the carbon intensity of our portfolio. We currently receive information from multiple sources concerning this and we do know that due to the nature of the companies we hold, our carbon footprint is substantially below that of the benchmark S&P/ASX 200 index.

In summary, the factors that make up ESG have always been embedded in our process of assessing the long-term prospects of the businesses we seek to invest in and their ability to grow successfully.

Why is the Djerriwarrh share price trading at a discount to NTA?

In the current period of strong inflation, high interest rates, and investor uncertainty, many ASX-listed LICs are trading at discounts to their underlying value or NTA (net tangible assets per share), including Djerriwarrh.

The share price is trading at a discount despite the underlying strong performance of our portfolio and our feedback from financial planners and brokers is that retail investors are broadly shying away from investing in equity markets.

In the past, some investors ventured into the equities markets because low interest rates made it challenging to obtain a sufficient income from bank deposits. However, there has been a notable shift in this dynamic with the increase in deposit rates.

Current macro-economic events that have disrupted share markets have also made some investors feel comfortable with the risk free interest rates on offer from banks.

Consequently, listed investment companies across the board have seen their share prices fall. Our experience tells us that this is cyclical; there have been periods in the past when the Djerriwarrh share price has traded at a premium compared to NTA.

We continually provide the market with transparent information regarding Djerriwarrh’s performance and where the share price trades relative to the NTA. We continue to run the portfolio in a manner that we believe enables us to meet our objectives, and we continue to do as much as we can to promote the attributes of investing in Djerriwarrh to the wider investment market.

Why was Djerriwarrh underweight in high-performing sectors such as resources last year?

On average, Djerriwarrh has been underweight in the materials and energy sectors over the last three years at a time when these sectors have performed strongly as a result of geopolitical events and the surge toward new economy commodities such as lithium.

Whilst we have some exposure, particularly around the large resource companies, these areas of the market are invariably more cyclical.

At Djerriwarrh, our focus lies on identifying companies that can deliver consistent performance over a longer term.

We prioritise quality companies that have the potential to sustainably increase their earnings and dividends over the long term and which have an attractive options market which contributes to Djerriwarrh’s enhanced yield.

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