Cadence Capital Limited (CDM) Earnings Call Transcript

Ladies and gentlemen, welcome to the 15th Annual General Meeting for Cadence Capital Limited. I'd like to thank all the shareholders for attending today, and in particular, to welcome you shareholders who may be joining us for the first time. My name is Karl Siegling, and I will be chairing today's Annual General Meeting. I'm joined by fellow Directors: James Chirnside; Wayne Davies; and Jenelle Webster. I'm also joined by portfolio managers, Charlie Gray and Jackson Aldridge, who will be assisting in today's presentation and taking you through some of our more detailed stock picks. Also joining us today for any questions regarding the company's financial statements is Chris Chandran from Pitcher Partners, our company auditors. Our agenda today will begin with a prerecorded investor presentation. And following this presentation, we will move back to a live environment where we will look to answer any questions you may have either typed into the Lumi platform that we're using or that you may have present us via info@cadencecapital.com.au. You will be able to type in any further questions that you may have during this presentation, and that is into the Lumi platform we're using. Details of how to do this can be found in your notice of Annual General Meeting. With regards to the formal part of the meeting, Boardroom has recorded all proxy votes that have been sent through to them. Shareholders participating in this AGM today do have the ability to enter their vote via the Lumi platform in the event that they have not already sent in their proxy votes. Once again, details of how to vote on the Lumi platform can be found in the Notice of Meeting sent to you. The results of today's voting will be announced on the ASX after the close of this meeting. We will now move on to the investor presentation. I'd like to go through a company update and then portfolio update, in which a number of our portfolio managers will be presenting particular stocks. And then we will move through to questions. And finally, we'll go through to the AGM resolutions, the formal part of this presentation. Turning now to the slide with performance update. This should be familiar to people that get the monthly newsletter. You can see that for the month, the fund has had performance of 2.4% against a market of 2.2%. Year-to-date, the fund is up around 16% against the all ordinaries accumulation index, which is up about 3.6%. The year's biggest contributors to performance have been Pinterest, Resimac, ARB, Pointsbet, AP Eagers and Money3. Our biggest attractors for the period have been EML and WTC. The next slide is a very, very important one at the moment, which is the CDM discount in premium to NTA. We're trying over time to illustrate how a listed investment company trades relative to its underlying NTA. And I think you can see here that we've put 3 bubbles around periods of: in the first instance, trading at a discount to NTA; in the second instance, trading at a significant premium to NTA; and in the third instance, trading at a significant discount to NTA again. If you go back to the inception of this fund, there are 2 more bubbles where we traded at a very significant premium to NTA and then a slight discount to NTA. So the concept of a fund trading at a discount or premium to NTA is not uncommon with listed-investment companies. But importantly, as we've been saying to all of our shareholders over time, this does change, and you can see definitely an inflection point in the fund's performance now with the discount to NTA contracting and simultaneously the performance improving, which we've just been through. So on the next slide, and we have been asked a number of questions in relation to this. What are we doing to compress the discount to NTA? The things that we have been working on for a number of years and that have been previously outlined, I'll just summarize here. Currently, we're trading at around a 15% discount to NTA. An actual fact, when I looked at the screens this morning, that was slightly less than that. It was about 14%. And that's after the NTA hasn't risen significantly. In fact, from those deep dark days at the beginning of COVID, the pretax NTA has almost doubled for the fund. So -- and in addition to that, we've implemented a share buyback for the company. And today, the company has bought back 11% of daily traded volume. Financial year-to-date, we have bought around 15% of the daily traded volume in the stock. Clearly, we don't want to buy too much of the stock because we don't want to dictate the price, but we want to participate in buying shares back to benefit all existing shareholders. And as we've stated here, the buyback assists all existing shareholders. Obviously, those shareholders that are selling at a discount to NTA don't benefit from that buyback. And the ongoing acquisition of shares is occurring by Board and management. You'll see in the announcements that occur on the ASX that we are constantly giving shareholder updates as Board and management are buying shares at a discount to NTA. We see that as a compelling investment opportunity, not only to be buying into a fund that is significantly outperforming the all ordinaries accumulation index at the moment, but also trading at a discount to NTA. The focusing on turning performance around has been a significant feature of the fund over the last 18 months to 2 years, and the fund is starting to perform well and has done particularly well this calendar year. We have significantly improved the risk profile of the fund as well. And you would have heard us over the last year talking about the improvement in liquidity for the fund. And that improvement in liquidity continues. And the equity of this portfolio is significantly better than it was a year ago and significantly better than it was 2 years ago. And also, we have to improve diversification in the portfolio, which is significantly helping with volatility of the performance of the fund. Turning now to the investment manager update. I'll take you quickly through the top 20 holdings, and then we'll go into more detail on Resimac, Credit Corp., Costa Group, Lynas, Bingo and Aristocrat Leisure. So following on from that diversification and risk slide, you can see here that our top 20 shareholdings now are much more diversified and liquid than they previously were. In fact, 80% of this portfolio could be liquidated in less than 1 week, trading at only 30% of the volume of those stocks. You should also see here a significant diversification in sector, country and investment style - anywhere from the motor industry turnarounds that are occurring in Australia to the agricultural turnaround that's occurring in Australia, the diversified financial services trend changes that are occurring in Australia to international online companies such as Alibaba, Qualcomm and Tencent Holdings. So quite a significant diversification and quite an improvement in liquidity. Turning now to one of our top positions in the portfolio. And one that you would have heard me talk about previously, which is Resimac, which is a company that lends money to people to buy houses. And as I have previously stated, this was a company that was very, very cheap and growing significantly. And in the last week or 2, the company has actually come out and had another upgrade. The upgrade points to the fact that the company could potentially earn $100 million of net profit after tax and is trading on a market cap of around $800 million. This puts it on a PE of around 8x, growing at approximately 50% per annum over the previous 2 years and the next 2 years combined. This is an incredibly good PEG ratio and good operating and free cash flow yields. Now what is happening here? As you all know, there's been significant inquiries into the major banks in Australia and a number of banking inquiries and also capital adequacy improvements. And all of this has led to the traditional banks in Australia, experiencing significant earnings growth slowing or earnings growth actually being eliminated, dividends falling and the -- actually, the price of these shares moving closer to their net tangible asset backing than they had previously traded at. This slowdown of earnings for the big banks is creating opportunity for those competitors to the big banks. And an example of that is Resimac. So Resimac is picking up market share, not only in near prime, but particularly in prime mortgages in Australia. And that trend looks to continue. The company is very well run, has a good strategy and a good management team and will -- and looks to continue to be growing into that prime sector. At the moment, it is only a mono lender, i.e., it only lends to how -- people to borrow -- to buy houses, I beg your pardon. But there is talk in the future of moving into other asset classes, but that's going to be a slow, deliberate and disciplined process. And so it will take quite some time before it is no longer what we call a mono lender. We have spoken about the stock extensively, as I've said, and we bought the stake of -- our significant stake of National Australia Bank at around $0.50. We had a smaller position at $0.40 and using the process, of course, we've been adding to that position over time. But nonetheless, because the overall position has tripled and nearly quadrupled in value, it's become a bigger part of the portfolio. This really is an example of what Cadence Capital is set up to do. The second stock I'd like to talk about is Credit Corp. Credit Corp is a company that we've known, again, a diversified financial service company, is a company that we've known really for more than a decade. And more recently, during the COVID, the share price of the company fell from around $30 to, I think it got as low as $10 or $11 and they raised money in the low teens. Now because we know the company reasonably well, when the opportunity arose to participate in that capital raising, we were well positioned to analyze the company and to look at that capital raise in detail. And the conclusion was that, yes, the business had been temporarily impacted because COVID is temporary. But over time, particularly in the 2021, 2022 years, the business would recover. We like the management team there and think they are very, very strategic. We particularly like how disciplined they are because the name of the game in debt ledgers is to buy them cheaply and run them efficiently. If you pay too much money for a debt ledger and then don't run it efficiently, you don't make money. And time and time again, Credit Corp have proven that they are very disciplined in their debt-ledger buying and that they run an efficient business. They have a more maturing business in Australia and a business that is new and relatively new in the U.S. and growing. So we think that we've come into the stock at around, I think, $12, and that was a compelling long-term valuation. Not that compelling on a short-term basis because, clearly, their earnings were affected in the year that COVID hit the most, i.e., the financial year that's just ended. But going forward, this was an opportunity to invest into a compelling business and a compelling management team at a good valuation. And so whilst COVID has been, in many respects, very bad for portfolios, this is a very clear example where we've had an opportunity that has arisen as a result of the COVID. Now you can see on the next slide, we've put that -- we've shown you the share price movement for the company. You can see that it got to the mid-$30 and then fell as low as well. Actually, you can see on the chart here, it fell to below $10, and we stalled at our first position at $9.67 and then added to the position, not only in the placement, but also added to the position over time. And we think that, that the company has a huge potential in the long term. I'd like to turn now to Jackson Aldridge, who is going to take us through another few stocks. Thank you.

My name is Jackson Aldridge, Portfolio Manager here at Cadence Capital. The first stock I'd like to talk about is Costa Group. Karl just alluded to before in the previous slides that the agricultural sector was really on the nose in 2019, given a number of kind of major factors being fires, droughts, hailstorms, extreme weather events that really put the entire sector on the nose. And we saw a number of the stocks get completely decimated. You look across the sector, they really struggled. And in fact, the first stuff I want to talk about is Costa. We're actually short this stock back in May of 2019, post 2 earnings revisions, downward earnings revisions. And we felt there was a number of factors that continued to play out, and the worst hadn't happened for these guys yet. The balance sheet was stretched still and a further earnings revision downward would put the balance sheet in extreme at an extreme issue and then probably force a capital raise. And that played out from our short perspective. So the position worked really well for us. And as conditions normalize for the sector and for the company itself, we covered that short position. And we stayed in touch with management throughout the past few months and saw a renewed momentum in pricing in a number of the conditions, and what were tailwinds in 2019 given how hail damage, water pricing pressure, underlying commodity pricing pressure, we thought would be a significant tailwind into the back half of calendar year '20 and really flow through into calendar year '21. So Costa is Australia's leading grower, packer and marketer of fresh fruit. As I said, we initiated a long position, post 3 downgrades and capital raise. We felt the balance sheet was in a much better position. So what the -- one of the main attractive points here for looking forward into FY '21 and beyond is a lot of the CapEx and the growth CapEx has been spent over the past 2 to 3 years for this company. And that's, in effect, what put the balance sheet at risk per se. And the earnings haven't really flowed through for the investments have been made. So you can see in the column on the left-hand side, it's a PE of 22 in FY '21, growing quite quickly with a PEG of less than 1. But we feel like that the investments that have been made aren't fully generating the level of earnings that may flow through in the outer years. So we still see upside in the shares despite the significant rerate. You can see on the chart on the slide with the chart, we entered the position at $2.88 and the shares as of today are trading over $4. But we still think there's further upward momentum in the stock. We've spoken to management quite recently. Pricing across a number of the sectors in avocados, in berries, in tomatoes and mushroom, just all up significantly on PCP. And as I mentioned before, the there's significant tailwinds flowing through that were headwinds in 2019. The second stock I'd like to talk about, and it's one we've been mentioning in our top 20 holdings and has been a really positive contributor to the portfolio over the last 6 months is Lynas Corporation. So Lynas is a fully integrated producer of refined rare earths and is actually the largest outside of China. And I think that point there outside of China is probably what investors maybe not have missed, but where the really strategic importance of this business and the asset is really significant in our view. COVID, over the last 6 months and then renewed geopolitical tensions between the U.S. and China and even more so in the Southeast Asia sea, you've seen commodities and certain things becoming a sticking point in political tensions. And given the strategic importance of rare earths and what they go into, given its electronics, hybrid vehicles and what's a significant tailwind for the businesses in electric vehicles, military weapons, and then it's also a significant input into the green energy technologies, you can see why it's a sticking point for geopolitical tensions, and it's such a strategic asset. So as I said in the points there, the key product that Lynas produces is NdPr, which is a critical import into permanent magnets that, as I mentioned, that flows through, and that's a critical input into those technologies that I just mentioned. What's really important and may have kept investors away from the company in the past is the level of debt. And so recently, this year, they undertook a $425 million capital raise, which funds the entire CapEx program that they've got planned to increase production, bring stuff back to Australia from Malaysia. So we feel that now the company is net cash, that previous issues about balance sheet being stretched has been [ alleviated ]. And more importantly, and I think this highlights the strategic importance of the business and the industry is Lynas has recently signed a Phase 1 contract with the United States Department of Defense for a heavy rare earths facility in Texas. So we think this is the first of many as there's more tenders to go in the heavies and the lights. So we feel like there might be a strew of positive news flow out of that. And I think this highlights the strategic nature, as I've been mentioning that the U.S. Department of Defense is really acting on this industry now. And then the last point, I guess, is NdPr pricing remains relatively low compared to historical levels and global forecast from analysts out in the industry. And we feel that given the production increases that Lynas is planned to put through in the next few years in the CapEx program, the significant leverage to this price increasing. And we've seen in the last 3 to 4 months, NdPr pricing is relatively strong, should I say, but we feel like there's much more to go in that pricing element. So I'll now pass it over to Charlie Gray to talk about some more stocks, and then we'll touch up an outlook and continue the presentation.

Thanks, Jackson. My name is Charlie Gray, Portfolio Manager here at Cadence Capital. 2 stocks I'll talk about today are exploratory positions in the portfolio. Stocks that we've owned previously, but recently reinitiated positions. The first stock is Bingo Industries, ticker BIN. This is a stock that we scaled out of in late February and March, and it has been significantly impacted by the COVID pandemic as construction came to a halt in Sydney and Melbourne. But now we feel it's a good opportunity going forward. The thing that we like about Bingo, in particular, is this significant investments that they've made across the past few years into recycling facilities in Melbourne and Sydney, which really have quite high returns and high operating leverage. So when the recovery does come, they're in quite a strong position to take advantage of that. The most significant investment that Bingo made was the acquisition of the Dial-a-Dump business last year, which enabled them to get the Eastern Creek facility or Ecology Park that they now call it. And this, with additional investments into a recycling asset called MPC2 really underpins what we believe in the company's aspirational target to over double the current EBITDA over the next few years. The other point that we make here is the interest rate reductions that we've seen over the past 6 months from the RBA and the budget measures outlined by the government are both supportive for the infrastructure and residential property sector, which we believe Bingo is well placed to benefit from. The next stock that I'll be talking about is Aristocrat Leisure. And it's another recovery story, another business that was impacted quite significantly across the past 6 months, which we believe the outlook for recovery is strong over the next couple of years. Aristocrat is a leader, a global leader in land-based and digital gaming operations. And one thing in particular that helps Aristocrat through this last 6 months is its significant investments it's made into its digital business over the past 5 or 6 years. It's made a number of large M&A transactions, and it's invested internally a great deal of capital into growing this business, and it now comprises over 40% of the operations. The other interesting thing that we've seen across the past 6 months for Aristocrat is its market share gains of recent years have actually accelerated. As casinos have reopened, they really reallocated spend to the best-performing machines, of which Aristocrat has is quite a few. So if we look out over the next 12 to 24 months, we see that as casinos reopen and get back to more normal operations, that Aristocrat will continue to take a good share of that growth and expand into adjacencies where they're making further investments into other products and the digital business also has a strong growth outlook. The other point we make is the balance sheet has been -- isn't in quite a good position. So there is scope for that company to make another significant acquisition, particularly in the digital gaming part of the business. And the final point here really is versus where this company was, say 10 years ago, were outright sales of slot machines were the majority of the business. Now you've got over 2/3 of the business and growing at a faster rate coming from the digital gaming business and from the participation model where they're clicking the ticket on existing machines, which we believe justifies a rerating potential of the shares relative to where it used to historically trade. Thank you. I'll now hand back to Karl.

Thanks, Charlie. We thought it would be a good idea to spend a few slides on COVID now and actually how our process worked in relation to the COVID-19 pandemic and then to take you through where we think the outlook looks for the 6 months to one year ahead. So the next slide is our portfolio exposure slide and really a very important slide during this pandemic period. You can see if you look across the scale here that we came into the pandemic December, January, February of this year, about 10% to 15% cash, meaning we were 80% to 85% invested. That's quite -- that's what we would call reasonably fully invested for our process. And as share prices started to fall and there was more and more uncertainty in the world, we moved increasingly to cash. In fact, we got to a situation where we were only 40% invested, which means we were holding 60% cash. That was very important for outperforming the all ordinaries accumulation index because, obviously, as the index is falling and you're holding mostly cash, you outperform the index. But more important than that was the period when the stock market started to recover. You've often heard us talk about the point of maximum pessimism. At the point of maximum pessimism, when the market stopped falling and started to rise again, we invested back into the marketplace. We had a similar experience during the global financial crisis. There, we moved to 20% invested or 80% cash and then quickly moved to over 100% invested. During this pandemic, we moved from 40% invested to 80% to 90% invested. We were almost fully invested at one stage and then back to holding 10% cash. That process allowed us to significantly outperform during this period of uncertainty. The next slide actually takes us through how we are thinking about COVID-19. Now obviously, we're not scientists or trying to invent a vaccine or have some kind of expertise in the sector. But really, the important thing I want to stress here is just some of the common sense things that we're taking away from COVID. So it started with the idea that -- and with that, there was going to be a scenario like I've described loosely as Armageddon, the pandemic would last forever or close to forever. More than half the world would get COVID-19, I think an expert said in February and a significant percentage of the world's population would die. Now those extreme views are not views that we readily share, and we didn't really agree with that scenario. The -- we agree -- we thought that the pandemic and much like the Spanish flu or pandemics before would eventually peter out and that the world will be turned to some form of normal and inverted commerce. Conversely, more recently, there have been suggestions that the vaccine has been discovered, everyone will get the vaccine. We'll all move back to a normal and inverted commerce world, and everything will be okay. And hopefully, that coincides with Christmas and the New Year period because those are periods of celebration for us. Now we don't share that view either. Our view is, obviously, somewhere in between that. The vaccine is going to take time to discover, time to manufacture, time to implement. And then, of course, yesterday, I heard a very prominent speaker on this say, well, it's all very well if Australia doesn't have any COVID-19 or New Zealand doesn't have any COVID-19 or Korea doesn't have any COVID-19. But if you do something normal like travel to a country where people do have COVID-19, you can expect to get the COVID come back and reinfect the population. So normal is some ways off for us. However, what these times teach us, and they've taught us over and over and over again if we choose to learn the lesson is that these periods of crisis, test business models and they accelerate change within the environment so that you can have periods where a company that was doing particularly poorly, it gets hit by a crisis and goes out of business. Conversely, a company that's starting to do well and has a new emerging trend behind them, does even better due to the crisis. And these are really the opportunities that we've been trying to seek and talk to you about. And of course, everything changes as the crisis passes. So our investment process, I think I've said it here in simple terms, except that some of our best performers prior to the pandemic became some of the worst performance. Then some of the worst performers temporarily became the best performers. And those temporary ones will become the worst performers again, and so some of the worst performers will become the best performers again. And that is the nature of investing. It is cyclical in nature, and we're seeing here that during this time, these pandemic times, there are extremes that are causing these cycles to be shortened and compressed. I think the last point I wanted to make is I spent some time in on the day before, just going through the correlations between a country that has a lot of COVID and their stock market or a country that has not much COVID and their stock market. I'll just give you 2 examples. The U.S. is, as we've seen it, rampant with COVID, and they appear to have a little control over the infection rates there at the moment. And yet their stock market is making all-time highs. Australia really, in many respects, has COVID under control. Our numbers are extremely low. We've -- that's been very, very well handled. We are an island. We've stopped people from coming on to the island essentially. And what has that done for our stock market? Not much. Our stock market fell and hasn't even recovered to its previous highs, let alone making new highs. So maybe we need to start thinking a little bit more about what are the things that are causing the stock mark to go high and make -- reach new highs, maybe it's not COVID or maybe it's something to do with COVID. Turning then to the outlook, and that actually starts to address some of those issues. Obviously, global markets, as I've been outlining, have recovered significantly since the point of maximum pessimism in March. And in hindsight, that's been a significant investment opportunity. And fortunately, we benefited from components of that recovery. But more recently, we've seen that there is increased volatility in the marketplace, and there is a little bit of a whipsawing effect going on as the believers fight with the nonbelievers about a world in which we recover, and we're no longer grouped by the COVID pandemic. And really, these next few points are extremely important in trying to rationalize what's actually happening. We're looking at a world where interest rates are near 0 or 0 in some countries. Countries are printing money, and there's huge government stimulus. Australia has announced significant interest rate cuts more recently and significant government stimulus. And that is obviously assisting the country and the economy. The second and third wave of the pandemic in Europe and the U.S. are being much talked about, and they obviously are more significant than the first wave, and this is going to have some lasting effects on the economy. But then that has to be balanced against 0 interest rates, government stimulus and all the things that governments are doing around the world to assist the economies of the world. And more recently, obviously, we've had all the talk of the vaccine, which is a significant positive and very, very good for the world at large. And so we just have to monitor in a realistic way, how that vaccine is going to be -- go through its discovery phase, how it's going to be implemented and how long it's going to take and how widespread that vaccine inoculation will be. And obviously, we've just seen a change in the government in the U.S. as well. So there have been a number of significant changes in the world. And nonetheless, we're seeing the markets move in some places and reach new highs and recover significantly in other parts of the world. We're obviously well placed for a recovery here in Australia. And interestingly, we haven't reached new highs, as I mentioned, but we should at least see ourselves recovering to previous highs. And so that creates an imminent investment opportunity here in Australia. And obviously, there are significant market share opportunities taking place as business models change and as certain sectors are getting their competitive edge is getting eaten away at. So that's emerging trends. I mean our job is fund managers to go out and find those opportunities, and that's what we're doing every day. And clearly, profit slumps can surprise the downside and profit recoveries can surprise on the upside. And no more so than what we've seen in the last 6 to 12 months as analysts try to grapple with how bad the profit falls are going to be due to COVID, and then how much the recovery will be on the other side of COVID. And we are all a little bit biased. We think of the numbers as being so much worse on the way down and then -- and on the way up, we think, oh, they just won't recover. And then when they're fully recovered, we dream of a world where numbers are going to be so much better. The reality, of course, is somewhere in between those extremes, and that's what we're experiencing. So for our part, the funds improved liquidity, improved diversification. And our movement into these new positions and out of some of the old positions that have performed well for us and are starting to falter will be the next phase of, we hope, of performance for the fund. Ladies and gentlemen, that concludes our presentation. I would now like to take questions. And the process for that is we can answer your questions that you've typed into the Lumi meeting platform or that questions that you may have previously sent by info@cadencecapital.com.au. We will try and answer as many of those questions as possible. And then we will move on to the formal part of the meeting. Thank you very much for your time.

Thank you. We will now begin the question-and-answer session.

We're obviously moving on to the live portion of our AGM, where we're going to be answering all our questions that we've received. As Karl mentioned earlier on, [Operator Instructions]. I've received a few today. I've also received a few earlier on that were sent by e-mail to info@cadencecapital.com.au. When I've received questions that are similar, what I'm doing is I'm just choosing one of the questions, and then we'll obviously just answer that one question. So we'll kick off with a topic that I know Karl actually covered in the presentation in some detail. But since we've been asked 2 questions on this by 2 different people. I think we'll just answer it. Well, one of the questions here was, it's about the NTA discount. It said, the token implementation of the share buyback has not been successful in reducing the NTA discount, what different action or strategies will be pursued to reduce the NTA discount? Have you considered shutting the fund and distributing the NTA to shareholders? Karl, do you want to answer that?

Okay. Well, I mean, the part that's probably the easiest to answer is that second limb there. Have you considered shutting the fund down and distributing the NTA? We have considered that and decided we weren't going to do that. And I think we discussed that a year ago at the AGM, and we discussed it again in a Board meeting the year before that and probably again 6 months ago. The reasons we're given a very, very, very clear and haven't changed. We've got a tax asset there that's extremely valuable. We've got a fund that's up and running, and we don't want to destroy value for shareholders. That is for all shareholders. And we don't want to be a force seller of our entire $320 million portfolio on one day and just in the end, have to sell our entire portfolio and discount to NTA. That obviously makes no sense. So back to the first part of the problem, which is trading at a discount to NTA. This is not an isolation question where you say, "Oh, I'm trading a discount to NTA. I'm trading a premium to NTA." There are graduations of this problem as well. When we started out, we're trading at a 22% premium to NTA, then at 25% premium, then a 27% premium. Then back to 21%, 15%, 10%, 5% in an NTA. And then you go to NTA and then a discount to NTA. And then you have periods of extreme, what I call as, periods of extreme pessimism when all the animals get together and decide it's the end of the world. And it's -- the key emotion there is fear. And you get the NTA discount to around 40% or 50% during the global financial crisis. And then again, in this pandemic in February, you get people to the stage where everyone in the world is going to die from COVID-19. There's going to be nothing left on earth, and it will just be, well, Armageddon, I think I used those words before. So none of this then turns out to be the case. You go from a 50% discount back to 40%, 30%, 20%, 15%. For a moment there, we're at a 10% discount to NTA. I think we're at about 12% or 13% discount to NTA. And all the while, you're buying back shares at discount to NTA and increasing shareholder value for existing shareholders and giving new shareholders the opportunity to buy into a fund with a diversified portfolio that's performing well at a discount to NTA. And all the while that you're doing that, as a Board and management team, you're explaining to people that you're buying back these shares, and that it is also very important to put it into context. If you're performing very well, you have a higher probability of, generally speaking, trading at a premium. And if you're performing poorly, you'd trade at a discount. Now I think we can say in 2017, at the end of that calendar year, this was about the best -- one of the best-performing funds in the country. We then had a very poor year and then became an underperformer for a period of time, and now we're having periods of significant outperformance again. And so I think that there's a very strong likelihood that the discount to NTA will track performance. And also buying back the shares has the benefit of adding accretion to the NTA. We are also, as a management and Board, buying shares because we think buying things at a discount to NTA is better than buying things at a premium to NTA. And we're encouraging anyone that's interested in actually purchasing shares, not selling shares. And obviously, we're communicating to all of our shareholders. There's [ -- many people have ] received our newsletter. There's 13,500 people get our newsletter. And there's a small percentage of those who write to us about, for example, closing the fund down and destroying the tax asset or doing a knee-jerk reaction sale of the entire portfolio at a discount with prevailing value. But the majority of shareholders are not in that camp. And so we're managing for all of the shareholders. And so there is no plan on foot to turn the prospectus that was written 15 years ago for a medium- and long-term investment strategy into a short-term strategy to sell our shares today and do anything different or distribute the assets. I will say, just as an observation, that these lines of questions tend to come about when we're trading at a discount to NTA, not when we're at a premium to NTA. People do not want the fund closed down when you're at a premium to NTA. They want to close down when it discount to NTA. The other time that people really are more heightened to these issues when you try to get a big discount to NTA rather than a premium. So that people are more -- to have a stronger desire to sell their shares at a discount when the market is down, and buy shares at a premium when the market is up. My suggestion on them, as always, is you may be better off buying after the market has fallen and recovering at a big discount to NTA and selling at peak periods when you're at a huge premium to NTA. So in actual fact, the analytical thing to do is exactly the opposite of the emotion that you're experiencing. So if the emotion that you're experiencing is you want something done immediately about the discount to NTA, the analytics would say buying at a discount to NTA is better. I hope I've answered a few of those questions because there's a few along those lines.

Yes. Karl, another question I've actually received from an investor. They asked, and you must probably the best person to answer this. It's asked, please, can you give us an update on our legacy Arq position? Have we now fully exited this?

Yes. So in the -- what was called the Arq position and then renamed WCG or Webcentral went through a strategic review and sale of the underlying assets and then ultimately, the sale of the core business. There were 2 potential buyers of the business. One was a private equity firm, private-backed equity firm out of America, out of New York called Web.com, and they bid cash for the business. The second bid came from a company called 5GN, an Australian-listed company and was a scrip bid. And we have accepted shares in that -- in 5GN. That's a bigger, more liquid company now. And we stand to benefit from the turnaround of those assets over time. I think you'll see that the assets are already starting to turn around because now that the debt has been repaid, which was the issue that was really keeping the business hamstrung. The new management team really has an opportunity to improve the bottom line there. And so we have a 1% position in 5GN, which we could liquidate very, very easy. It's a very liquid company. I have -- I think if you read the ASX, I have resigned on that Board, and I'm no longer involved in the business. I don't need to be anymore. There's a management team running it. And that then becomes the end of what I can say, hand on heart, is probably the worst investment I've ever made. And so as I jokingly said, I think a year ago, I will write a book on -- I mean, I haven't got time to do it now. There's just too much going on in the marketplace. But I'm sure that when we do right, it will be all of those same mistakes that you hear people make over and over and over again. But of course, we do learn from our mistakes. And I'm pleased to say that the whole episode in inverted commerce is now behind us.

Thank you, Karl. I've received another question, and it's around independents and conflicts of interest. So I think what I'm going to do is obviously pass this to one of our independent directors to answer. The question is, do you buy or sell shares for non-Cadence entities, including personal trust and funds? How do you allocate share allocations between personal accounts, Cadence Opportunities Fund and Cadence Capital Limited? And how does Cadence Capital independently assess the appropriate action in negotiation with Cadence Asset Management. Jenelle, do you want to...

Thanks, Wayne. So all directors purchased either personally or through trust, super fund vehicles after a broker. This is the same broker that conducts the share buyback for the company. And the average time of the daily purchases is allocated evenly across any purchases of that state. So for example, if myself, Karl, Wayne and the company share buyback this way, then that average cost to be allocated across the 4 [ mass ] purchases. In regards to share allocations across personal accounts, the Cadence Opportunity Fund and Cadence Capital. When, for example, the manager purchases, say CBA shares for both Cadence Capital and Cadence Opportunities Funds on the same day, they are allocated at the average price on a pro-rated basis to the size of the company. And in regards to, I guess, the question I'm assuming in regards to personal accounts, in order that any of the employees in the manager to purchase shares on the share market, there's controlled [ price ] that they have to apply to purchase those shares. And the levels of authority as per the delegations in our [ controller's manual ], the delegated authority needs to approve B2B transactions before the transaction transpires. These purposes are also subject to a third-party compliance reviews. This is part of Cadence AFSL compliance requirements. And this particular third-party company come in each quarter and they monitor the trades and audit the approval of these trades in accordance with the control for the delegated authority. In regards to the last question, which was around, how does Cadence Capital independently has set the appropriate action in negotiations with Cadence Asset Management? This is assuming in relation to perceived or actual conflicts of interest. Those directors that there is either a perceived or actual conflict of interest are asked to remove themselves from the room and any voting in anything where there is a conflict of interest, and there's been many occasions when that's taken place. I think that's -- have I answered all the questions, Wayne?

Yes. Thank you, Jenelle. Yes. I've got another question here from a shareholder. Congratulations on a credible performance in a difficult year. Karl's answer to the first point would suggest that it is better for shareholders to buy shares rather than now than to support a future equity raising of it at a premium. Would that be accurate?

I think that's absolutely true. I think for the -- for any of these listed-investment companies, and we're a big group now. There's a big cohort. There's many, many companies listed on the stock exchange, many closed-end listed investment companies. And yes, buying them at a discount is better than buying at a premium. There is a proviso on all of that, though, which is the first part of the question that I answered. And that is, is the underlying fund manager or asset manager performing? And so you need to then form a longer-term view on whether that fund manager can perform. And that's probably the format question you better ask yourself before you even start to address premiums or discounts for a particular fund is, do you think that, that fund manager has the capacity to perform? And if your answer to that first question is no, then you probably don't want to buy those shares under any circumstances. But if the answer to that question is yes, then you're better placed by the discount to NTA and a premium to NTA. That's a good question, that's quite a long-term question, too.

Yes. All right. There's a couple of questions here, which I'll just jump in and answer. The first question was from a shareholder saying, "Have you considered converting the LIC structure to ETF" and in brackets, "in a way that would preserve the value of the tax asset as other LIC managers are doing? This would not require the sale of the existing portfolio and would permanently remove the NTA discount." So that statement for us isn't quite correct. For us to actually -- if we change the structure to another structure, that would be a tax event for ourselves, even if we kept the portfolio in its entirety. So as it stands by changing our structure to another structure, as suggested here, would actually be a tax event for us, and we would not be able to carry forward that tax loss in the new structure. So for us, it would make sense when the asset most probably isn't so large or there is no tax asset that potentially we could look at the tax structure then or the structure of the asset then.

There's another underlying thread to that question that might not be immediately obvious, and that is that the listed-investment company is a closed-end structure and the exchange-traded fund that I've seen the majority that are converting to are open-ended. And so the question is a philosophical one. Do you want people at the point of maximum pessimism and maximum fear back in February during COVID-pandemic-Armageddon scenario? Do you want people liquidating their portfolio and selling their shares at that point? If you do, you set up an open-ended ETF structure. If you don't, then you're having a close-ended investment company structure. That's at least my interpretation of the issue is allowing people to follow their strong desire to liquidate at the bottom and by the top. Creating structures that encourage that is really not a long-term investment.

Can I just add to that, Karl? It's James Chirnside here. High-end structures will always offer, unless the exchange closes, liquidity during times of panic. And whereas, as we saw in the [ GSE ], particularly, a really large number of open-ended structures closed for redemption and subscription. And some of those have various illiquid assets parked in so-called side pockets, which years later they were still unable to liquidate. And it was -- some funds were closed roughly, literally years. So I think the benefit -- long-term benefit in the case of Armageddon is that closed-end funds can offer investors a way out if they have to.

Yes. And then, of course, you forget about that, it's more than a decade ago now. But really, this illusory redemption facility just disappeared quite illusory.

Yes. And there is a huge number of ETFs which are open-ended structures and fund, which in the case of a very difficult -- protracted difficult period of market conditions will offer no liquidity whatsoever to the investor.

I think the other thing to bear in mind is that we're going to be investing for a long time. So it's not always just best to go with the thing that's trendiest at the moment. I mean when we started this fund all those years ago, the thing that was popular were leveraged long funds. And then when it all went bad, the thing that was popular were short-only funds that didn't last long. And then there were these things called market neutral funds. And then that didn't work out. And then they were doing these 130-30 funds, which were fully invested but a bit extra long over extra shorten. That died a natural death. And then you'll go through the periods of pre-IPO funds. And then you'll have pre, pre, pre-IPO funds, and then you'll have an early stage venture, and we'll be just going through these cycles. And it'll all be trendy and then we'll look back at it in hindsight and go, well, how did it all work out, changing our strategy every 2 or 3 years. We will only know that in a decade, yes.