Fact Check: Platinum International

On the face of it, the Platinum International Fund has achieved its objective “to provide capital growth over the long term by investing in undervalued companies around the world”. But upon closer inspection in FE Analytics, it’s a qualified pass.

Capital growth over the long-term

With annualised returns of 10.55 per cent over the decade to May’s end, Platinum International has broadly fulfilled this objective as it is ranked eighth out of 122 funds in the ACS Equity – Global sector and has turned an initial $10,000 into more than $27,000.

The fund has no formal benchmark but both its PDS and portfolio manager, Clay Smolinski, relate it to the MSCI AC World Index. Over 10 years, it has beaten this measure by around 2.5 percentage points annualised.

This is down to the fund’s strong performance during the Global Financial Crisis (GFC), with Smolinski noting that it protected clients’ money quite well. FE Analytics shows it has a 10-year maximum drawdown of 17.30 per cent, lower than its average peer (30.30 per cent) and the MSCI AC World (26.85 per cent).

Performance slips a little over more recent time frames, however, as Platinum International is behind the MSCI AC World over three and five years by around one percentage point annualised. These returns are still strong enough to put the fund in its peer group’s second quartile.

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Smolinski put this down to its avoidance of the US post-GFC: “From 2010 onwards, we generally thought, look, the US has gone through this large period where you know there was a huge debt run up, [and] we thought the US economy might take some time recovering.” 

However, with the European sovereign debt crisis and problems in Japan and China, America turned out to be one of the best performing markets over that time.

Despite this, Platinum International’s compounded returns of 13.9 per cent over the last five years means investors would’ve almost doubled their money in the fund, which Smolinski says is “very, very satisfactory”.

While the industry largely does not view the fund as an absolute return strategy, it’s worth keeping in mind that Platinum says that it invests for absolute return, as opposed to benchmark-relative performance. Smolinski says that Platinum International has showed “fairly stellar performance” when looked at in this way.

We used FE Analytics to review the fund over all the one-year periods spanning back to its launch in April 1995 and it compares well to its peers. Platinum International has made a positive return in 79.7 per cent of all 12-month periods, fractionally above 72.6 per cent for the ACS Equity – Global sector.

Investing in undervalued companies

The Platinum International Fund gets a qualified tick here too.

FE Analytics shows its largest single holding was Samsung Electronics (as at 31 May), accounting for 3.07 per cent of the portfolio. Alphabet was second, with 2.74 per cent, while Facebook was also in the top 10.

Of course, these top holdings only represent a small portion of its overall investments. But such a strong presence of some of the biggest tech companies in the world hardly screams “undervalued”.

Smolinski points to the nature of the companies as an explanation.

He believes that Samsung is “the very classic definition of value, so Samsung has been one of the most incredible companies over the last 20 years ... and it is trading on a six or seven price/earnings (P/E) ratio”.

The heavy investment in Facebook is reflective of the fund’s approach to value investing. Smolinski finds that stocks that are either being overlooked by the market or are facing uncertainty or really big change best capture value.

As Facebook faces tough questions on data protection and its business model while the prospect of regulation looms, Smolinski puts it in the uncertainty category. He predicts that its strong sales growth will see it go from a P/E of 20 in this uncertain period to a P/E of 15 or 10.

So, while it’s a big stock to hold, it does seem to meet the undervalued objective.

The fund also has 18.03 per cent of its gross assets in North American equities, which is widely seen as an expensive market. 

However, Smolinski says this allocation (which is already an underweight) doesn’t compromise the fund’s value bent and is mainly accounted for by the short positions the fund holds there. Excluding these, Smolinski said the fund is left with just under three per cent net exposure to the US market.

The fund’s high weighting to China is also worth noting as it shows that its undervalued claim largely checks out.

The Chinese market has been treated with fear over the last three to four years. Smolinski said its resulting cheapness meets his search criteria for overlooked stocks