Platinum Asset Management's main global equities fund may be battling to beat its benchmark, but founder Kerr Neilson is calling the currency markets to perfection.
In the fund's half-year results, it was revealed that Platinum "moved almost all" of the company's cash balance and that of its funds out of US dollars and into Australian dollar term deposits.
Platinum's half-year accounts show that its term deposit balance increased from $138.5 million to $234.5 million as it moved money into Australian dollars.
It's a trade that ran counter to the consensus at the time, as talk of rising US interest rates and inflationary policies under Donald Trump made long US dollar bets among the most crowded trades in global markets.
"What we sensed was there are a couple of tendencies when the US starts to tighten, that the currency goes a little softer," Mr Neilson told analysts in a briefing on Friday.
Typically rising US interest rates results in reduced interest rate differential between the US and Australia, forcing the Australian dollar higher.
"Our view was with the continuing improvement in China you saw the prospect of the terms of trade turning positive, so we did this for both for own cash and our funds," he said.
"We are not making the case for the Australian dollar to be a fundamentally strong currency so at some stage may reverse that decision," he told analysts.
Since mid-December, the Australian dollar has gained almost 5 per cent versus the US dollar as it rose from US73.5¢ to US77.1¢.
The successful closing of the long US dollar trade added $22 million to profits, the company said.
The inspired currency trade was a rare bright spot in a tough half year for the global equities manager that has suffered from investor redemptions.
The underperformance of its benchmark International equities fund had compelled some investors to redeem their assets, resulting in a 13 per cent decline of funds under management to $23.2 billion over 12 months.
Mr Neilson however remained confident that Platinum's investment process was resilient, and pointed to the strong performance of its regional funds as evidence that its stock picking skills were sound, even if it incorrectly under-weighted the surging US stock market.
Over a five year period Platinum's International Fund has underperformed the global benchmark by 1.4 percentage points per annum, while it's Japan, Europe and Asia funds have beaten their benchmarks by 9.4 per cent. 4.4 per cent and 2.2 per cent.
Platinum remains underweight in US stocks, which it believes are expensive relative to other markets.
The flagship International equity fund currently has a 36 per cent weighting towards Asian markets with Hong Kong and Chinese shares accounting for about seven per cent of the fund's investments.
Mr Neilson said that their quantitative models are advising them to allocate 40 per cent of the fund to Chinese stocks, but because of "clients' emotional position with regard to China, we would be reluctant to go that high".
Fee revenue and net profits declined in line with the decline in assets. Fee revenue fell 13 per cent to $155.1 million compared to the December 2015 half, while profits after tax fell 15 per cent to $93 million.
The company's strong cash position afforded it to the ability to pay a fully franked dividend of 15¢ implying a 6 per cent yield based on the current share price.
Platinum shares traded 3.65 per cent higher on Friday at $5.10. Platinum shares have traded as low as $4.64 and as high as $6.75 over the last year.
