Overview of Corporate Governance
Corporate Governance aims to protect shareholder rights, enhance disclosure and transparency, facilitate effective functioning of the board and provide an efficient legal and regulatory enforcement framework. Good corporate governance should encourage shareholder participation and provide proper incentives for the board and management to follow objectives that are in the interests of the company and its shareholders.
Recently, there has been a significant amount of research into the correlation between corporate governance and performance. A March 2009 Treasury Working Paper titled “Corporate Governance and Financial Performance in an Australian Context” concluded that:
"Companies with better corporate governance outperform poorly governed companies, particularly in relation to earnings per share and return on assets. Furthermore…companies that are fully compliant with the ASX Corporate Governance Principles perform better than companies that are only partially compliant."
The company believes that relatively high levels of corporate governance tend to lead to better long term investment performance.
BACKGROUND TO THE FUND
The global financial crisis and recent high profile corporate failures such as ABC Learning Centres and Allco Finance Group have highlighted the need for investors to consider corporate governance policies and practices to help determine the companies to invest in. There also have been a number of recent empirical studies, by academics, brokers and research firms that suggest a positive correlation between good corporate governance practices and procedures and good corporate financial performance and shareholder value.
Australian Governance Masters Index Fund Limited has been established to address these findings. The Company provides Australian investors with the opportunity to gain access to Australian entities which are considered to have relatively high levels of corporate governance as ranked by the Manager’s analysis whilst seeking to promote adherence to corporate governance best practice recommendations.
The Company will pursue an Australian index style of investing with a corporate governance bias as an integral part of its investment strategy. Index funds by their nature favour long term holders of securities as they are based on a strategy that results in much lower portfolio turnover than that of active funds. A relatively passive investment style regularly outperforms active management approaches over the longer-term.
Each entity within the S&P ASX 100 Index will be ranked on a relative corporate governance basis. The manager will use a range of third party research along with its own analysis to rank the entities on a comparative basis. The bottom ranked 15 to 25 entities will be excluded from the investment portfolio and the Portfolio weightings will be adjusted to reflect the exclusions.
As a result, the Company expects to hold securities issued by approximately 75 to 85 entities at any time, all of which will be securities within the S&P ASX 100 Index.
The investments of Australian Governance Masters Index Fund Limited will be managed by Walsh & Company Asset Management Pty Limited.
The primary role of the Manager is to:
- Construct the initial Portfolio of investments in accordance with this Prospectus.
- Monitor and rebalance the underlying portfolio.
- Ensure the cash component of the Portfolio is managed and in the most appropriate account.
The officer of the Manager with primary responsibility for the Portfolio of the Company will be
Like all investments, an investment in the Fund carries risks which may result in the loss of income or principal invested. In addition to the general risks of investing, specific risks associated with investing in the Fund include, but not limited to, equity risk, market risk and financial market volatility risk. For further information about the risks of investing in the product see Section 4 of the Prospectus.