Dear investor

This issue of the newsletter includes an update on the Fund’s portfolio and its performance for the quarter ended 31 December 2020. I'm also delighted to share that the Fund donated nearly $528k to our portfolio charities last quarter, bringing our total donated since inception to $13.8m.

In this issue, we speak with Frank Macindoe, one of Australia's leading financial advisers and a portfolio manager and responsible manager for the Third Link Growth Fund. The Fund has been investing with Frank since the very first day of its inception, so we asked him about his investment style and why he supports us.

Thank you for investing with Third Link and allowing your fees to make a difference.

Regards,
Chris Cuffe AO, Founding Director and Portfolio Manager
Third Link Investment Managers Pty Limited

Portfolio update

The objective of Third Link Growth Fund (“the Fund”) is to provide a well-managed investment in Australian listed shares. To achieve this, the Fund extensively invests with professional third party investment managers.

As at the end of December 2020, the portfolio was invested as below:

Changes to the portfolio, excluding movements in our cash investments, include paying an income distribution of 0.59 cents per unit for the period 1 July to 31 December 2020. In the quarter to 31 December, the Fund also made a full redemption of the investment in the Ethical Partners Australian Share Fund and made initial investments in the ECP Growth Companies Fund and 1851 Emerging Companies Fund.

A description of each of the fund managers we invest with can be found on our website. Each of these managers rebates their management fees and performance fees, effectively meaning they are managing the assets of the Fund for free. It is through this extraordinary generosity, together with that of other service providers, that Third Link is able to make sizeable donations to the charitable sector without diluting the returns to investors from the Fund.

Fund performance

The aim of the Fund is to outperform, after fees and over rolling five year periods, the S&P/ASX 300 Accumulation Index¹. As at the end of December 2020 the Fund performance relative to the Fund benchmark was as below:

Figures greater than one year are expressed as annual compound returns. No allowance is made for tax. The benefits of franking credits from dividends received have not been included.

¹ The S&P/ASX 300 Accumulation Index covers the largest 300 shares listed on the Australian market. Being an accumulation index, it measures changes in both the value and income of the shares.

² February 2012 reflects the date when the Fund's investment strategy changed from multi-sector growth to Australian equities.

The longer-term performance of the Fund continues to be very pleasing. This has been achieved because of solid long-term investment results by the fund managers utilised by the Fund, validating their continuing inclusion.

This result also continues to demonstrate that our active approach to adding value for investors over the long term is proving to be rewarding.

Frank has considerable personal involvement with the not-for-profit sector and is a portfolio manager and responsible manager for the Third Link Growth Fund. The Fund has been investing with Frank since the very first day of its inception.

We asked Frank about his investment style and why he supports us.

You have been investing in equities since 1976 and have quoted Oscar Wilde in saying that ‘experience is simply the name we give our mistakes’. What has experience taught you in how you make investment decisions?

Frank: As there is so much noise in the short run, I have found concentrating my efforts on finding investments that can be held for the long-term (five years or more) has worked best. Every five to 10 years there is a big cyclical move or regime change and you have to be prepared to adapt to those.

So, on the one hand, you form a five to 10-year view and not let yourself to be put off course. But you also balance that with the fact that you might be wrong or there may be a regime change. You have to try to be open-minded, to do your thinking and constantly re-examine your investment thesis.

The game of bridge is a good analogy. You have your bidding system and if it doesn’t work out one night, that’s ok. But if it doesn’t work three or four nights in a row, then maybe you might need to revise your strategy.

If you have had a bad quarter with an investment strategy or even a bad one or two years with the same strategy, you might not change. But if it’s still not working after three years, you have to start thinking maybe it’s wrong.

As far as possible you have to disentangle your ego from the process. Too often not enough emphasis is given to managing a portfolio as opposed to a random collection of stocks. Third Link’s portfolio has 20-25 stocks and the aim is to choose companies with different theses and drivers, and the winners more than compensate for the odd inevitable loser. You have to accept you will never get 100% right, that’s for sure.

Third Link invests around a quarter of our Fund’s balance with you, as the diversified portfolio of Australian equities you manage continues to significantly outperform the index. What does it take to maintain such impressive results over the long term?

Frank: Not letting short term worries and fluctuations dominate your long-term view; I don’t put anything in there that I don’t expect will produce better than market long-term returns. For example, there is a number of infrastructure and health stocks in the portfolio – in the short run their prices can be heavily influenced by things like interest rates but which are irrelevant to the long term growth outlook; one’s toll roads and another’s an airport. Healthcare is supported by an aging demographic, and generally, when people get wealthier, they spend more on healthcare. I have a number of these kinds of themes, expressed in different ways.

One of the key things for me with the Fund is that it’s not influenced by the composition of the index – I’m just trying to make money for Third Link. Having a patient investor like Third Link as the client makes this easier.  If your average fund manager performs badly for a quarter or two, well, the asset manager will get rid of them. I had a clear understanding with Chris Cuffe from day one that my job was to make money for the Fund, not to match the index.

Third Link exists because of the generosity of fund managers like you. Why did you decide to support Third Link?

Frank: I think the Fund was a great idea to leverage the skills of those who take part and it has raised a lot of money; $13 million-plus and counting.

Third Link is a win/win/win; it provides a secure income stream for not-for-profits, it leverages skills and experience and has produced a good return for the investors.

Third Link can say to a charity, we’re going to support you for two, three years, knowing they have a reliable source of funds to make those donations. With COVID especially, that is invaluable to charities, it makes their enterprise so much easier to manage and helps them to focus on their mission, rather than having to put all their energy into fundraising. That remains as true today and it did when we started in 2008, perhaps even truer.

Thank you, Frank, for your continued support of Third Link.

Important Information: This information has been issued by Third Link Investment Managers Pty Ltd (Third Link), ABN 31 128 965 702, AFSL 321311 as investment manager of the Third Link Growth Fund (the Fund). This information provided is general information only. It does not constitute financial, tax or legal advice or an offer or solicitation to subscribe for units in the Fund. This information has been prepared without taking account of your objectives, financial situation or needs. Before acting on the information or deciding whether to acquire or hold a product, you should consider the appropriateness of the information based on your own objectives, financial situation or needs or consult a professional adviser. There can be no assurance that the Fund will achieve its targeted rate of return and no guarantee against loss resulting from an investment in the Fund. All investments carry risks. Past fund performance is not indicative of future performance. Bennelong Funds Management Ltd (BFML), ABN 39 111 214 085, AFSL No. 296806 is the Responsible Entity for the Fund. Applications can only be made on the application form dated 22 October 2018 accompanying the Fund Product Disclosure Statement (PDS) dated 22 October 2018. Potential investors should consider the PDS and the Additional Information to the PDS (AIB) before deciding whether to invest, or continue to invest in the Fund. The PDS and AIB can be obtained from www.thirdlink.com.au or by contacting Third Link.

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