Good morning everyone, and thank you for joining us. My name is Gerald Stack, and I'm the CEO for MFF Capital Investments. Today, I'm joined by Chris Mackay, MFF's Portfolio Manager and Executive Director, Investment Capital, Andy Macken, who's the CIO of Montaka Global Investments, and Julia Baine, Head of Strategy and Corporate Development. Today's briefing is gonna have three components. Firstly, I'm going to begin, and I'll give a brief overview of the business. I'm gonna discuss our key investment objectives and approach, and I'll give an update on recent financial performance. I'll then hand over to Chris, who will provide an update on MFF's investment portfolio and the outlook for investment markets. Finally, we'll open the door to shareholder questions, which you're welcome to submit at any time during the webinar via the Live Q&A tab on the right-hand side of your screen.
All right. Let's move to our overview of the business. MFF's objective is to build lasting wealth for shareholders and primarily through long-term ownership of advantaged businesses. This objective has not changed since inception, and it remains our North Star. MFF today is one of Australia's largest investment companies and has market capitalization of approximately AUD 2.7 billion. It has a long-term track record of compounding shareholder capital. Net assets after tax totaled roughly AUD 412 million at 30 June 2013, and they've grown to AUD 2.6 billion at the end of December.
There's been an additional focus on growing dividends over time, and those growing dividends have been 100% franked over the last five years, and today are backed by approximately AUD 270 million in franking credits and profit reserves of approximately AUD 1.7 billion at the end of December. Total dividends since 30 June 2013 have been AUD 1.045 per share. Importantly, over the last 12 months, investing in internal capabilities has broadened our platform and better positioned the company for sustainable long-term growth, and we'll touch on this later on. Let's move to our objectives and approach. Our objectives are twofold and have been the same since inception. That is to maximize compound risk-adjusted after-tax returns and to minimize the risk of permanent capital loss.
We do this through a three-part investment approach. The approach is unconstrained, disciplined, and long-term. Let's deal with those in turn. The investment approach is unconstrained. We follow a flexible capital allocation, and we adapt to evolving markets and opportunities. Historically, the path we have chosen to take to achieve our objectives has typically been through investment in large capitalization, extremely high quality, large listed global equities. The investment portfolio has included other opportunities outside of this core allocation from time to time. We continue to see attractive investment opportunities across investment markets. Secondly, the investment approach is disciplined. We have an analytical focus on opportunity cost, quality, and value, and we benefit from a capital structure that supports patience and selectivity. Finally, our investment approach is long-term. We follow an investment mindset that favors duration and enables the power of compounding.
Our focus is unashamedly on the long-term returns to MFF shareholders. Let's talk a little bit about the half-year results. Net profit before tax for the six months ended 31 December were approximately AUD 300 million. Net profit after tax was AUD 210 million, and the difference, cash tax paid of AUD 89.7 million, reflects the fact that MFF is a regular taxpayer, and as a consequence, we derive franking credits that we distribute to shareholders through franked dividends. Our investment assets at the end of December were AUD 3.1 billion. Net assets, AUD 2.6 billion, with the difference primarily being net deferred tax liabilities. That is the tax we would have to pay if we realized the investment portfolio today. Let's touch on dividends.
Dividends for the half-year, the declared dividend was AUD 0.10 per share, and the MFF board has noted that it intends to increase the rate of the six monthly dividend to AUD 0.11 per share for the period ending 30 June 2026. The chart on the table shows that annual fully franked dividends have grown from AUD 0.065 for the calendar 2021 to an expected AUD 0.21 for calendar 2026. That five-year compounding year represents 27% annual growth rate. Over that time, dividends have been 100% franked. We have a long-term track record of franked dividends.
Today, those dividends are supported, or the outlook for dividends is supported by AUD 267 million of franking credits that are available to MFF or AUD 0.4527 per share, and retained profits and profit reserves of AUD 1.87 billion, more than AUD 3 a share. All right. Let's talk a little bit about capabilities and growth. Financial year 2026, the focus has been very much on building internal capabilities to enable both prudent risk management and long-term growth. There's been a transition to an in-house operational services model, and that transition is now largely complete.
Global equity research capabilities were extended by the acquisition of Montaka Global Investments roughly a year ago, and we now have senior leadership in place across the business, across finance, accounting, tax, risk, operations, and strategy. There were 17 full-time employees at the end of 2025, and today that we have 19 full-time employees. I note that while we've invested internal capability, the objectives for our business remain unchanged. We seek to grow lasting wealth for shareholders by investing in advantage businesses to go back to our first slide. Now, on Montaka, let's deal with that specifically. Montaka is a specialist global equities manager. It manages high conviction, long duration, benchmark unaware portfolios and has a focus on identifying long duration transformations and profitable opportunities within those transformations.
There are six members of the investment team, and they manage assets of approximately $300 million. Montaka has in our view an impressive ability to identify long-term structural transformation and the beneficiaries of that transformation. Chris and I have both found their research to be insightful and to demonstrate original thought. For those on the call who haven't come across Montaka before, I'd encourage you to review Montaka's investment research, which is available on their website. To go back over this slide, while we've built internal capability over the 12 months, our objectives remain unchanged. We continue to seek to grow lasting wealth for shareholders by investing in advantaged businesses. With that, I'm gonna move over to Chris.
Thanks, Gerald. Before starting, I just wanna touch on something that might appeal to some of the older people on the call. MFF and Montaka both want to demonstrate that they're differentiated from most managers, and one of the key points is selectivity in terms of quality of companies and their sustainable advantages. Overnight, a business called Lycra went into bankruptcy. For those of you who are younger, it's L-Y-C-R-A. That demonstrates that many companies do not last the distance, and therefore, our approach and our focus is differentiated in trying to find the businesses that are able to sustain for the longer term. Now, moving on to the detail. Our key message today is optimism for the opportunities ahead, despite many risks and challenging circumstances around the world.
If we dig a little deeper, today's messages are about the portfolio include some contrasts. Wonderful, strongly performing portfolio companies, but without the mouth-watering bargains of years and decades past. We expect great opportunities, but in order to keep investment math in our favor, patience, process, and discipline are required, as well as adaptability to respond objectively to business, risk reward, and market price changes. Also, we can't help it that lower prices get us excited, but they concern most in markets. We have scale, but also extreme portfolio liquidity, and we're able to act quickly. We're a long-term investor, but we manage for risk and for future opportunities and have sold and paid tax in the recent frothy markets.
In contrast with outstanding companies and innovations, various political, geopolitical, fiscal, and regulatory situations around the world are dreadful, many getting worse with material downside risks extending well beyond noise in markets. At our core, our processes matter for each and every MFF investment and for the portfolio as a whole. MFF seeks compounding gains over time, and we are risk-conscious. We seek to avoid permanent losses of capital, make money over time, retain gains, and build upon them for the benefit of holders over rolling target periods of three to seven years for MFF. That's clear. It's simple to say, much harder to execute, and crucial for longer term investing. MFF's approach and processes have proof of concept. MFF is also paying steadily increasing fully franked dividends, as mentioned by Gerald. Talking of dividends, this month, we became entitled to over
We become entitled to over AUD 5 million of dividends from portfolio companies, and next month, a little more. Although large amounts and growing, they are incremental in compounding AUD 3 billion of investments over time. Far this month, we've also deployed about AUD 100 million into the lower market prices. Structure. Structure influences processes. We won't have excessive debt, don't have outflow redemptions, margin calls, and the like, and we have no excuses when quality bargains are around. We have duration on our side. We can and have held businesses for a decade or more as business value compounds. We have three broad categories. Firstly, advantaged, high return on invested capital, cash generating businesses with sustainable advantages, ideally that have already won in their markets and with additional scale and roll-outs, adjacencies or flywheel and other profitable growth levers.
Ideally, with millions or billions of habitual customers, as is the case for so many companies in our portfolio. Imagine a company being paid more than 900 million times a day, or more than 300 billion times a year. Yes, that is one of our portfolio companies. Profitable growth has been a massive performance differentiator since the GFC, with globalization, technology, and financialization being obvious drivers. We continue to favor this as interest rates remain controlled. A core principle is that superior long-term shareholder returns follow sustained superior returns on capital, profitability and cash flows. If purchase and holding prices are satisfactory or better. Sustained profitable growth has been beyond historical precedent for some of our portfolio companies. A number have earned well over $100 billion per annum.
Sustained winners may be underpriced as, for example, they invest heavily in capital and operating expenses for future growth and may appear nominally expensive in current profit terms. Some have rolled out expanded core businesses and adjacencies for years. Even experienced analysts mistake expansion capital expenditure for much more limited stay-in business capital expenditure. Also, even the highest quality companies move up and down market prices 50% or so in a year. A recent study found that a multi-decade sustained winner was only at record prices approximately 7% of the time, but 20% or more below previous peaks for 40% of time. Thus, even the best are hard to hold if market prices are your guide rather than there to serve you.
Our second category, we sometimes seek to invest in advantage businesses that are more cyclical or lack the extraordinary network, geographic pricing power, or flywheel benefits of Category 1. Such investments worked for decades, but now make most sense when they are out of favor and inexpensive. Our focus and duration may give us perspective advantages compared to the market. We do few of these and automatically compare buying or holding them with the opportunity costs of alternatives. Thirdly, we may seek opportunistic absolute bargains for money-making, where we perceive margins of safety, particularly price, to be so extreme that business quality risks appear to be covered massively. During the nineties, there were many of these, including failed IPOs where sometimes panicked and forced index and other sellers dump at half the price of a year or so earlier.
Examples include low growth consumer type companies or oil producers. Businesses with regular demand but low growth through a cycle. We have been inactive in this category, but have no idea what might be presented in the future. In all cases, prices matter. Obviously purchase prices, but also for holding and for selling. Hence, MFF's focus on quality business performance is supplemented by our value market price awareness. Over years, we've received very valuable opportunities from market price fluctuations. We're analytical, liquid, conservatively financed and able to move. We don't seek to time markets, but view prices against risks, probabilities, future profitable growth potential, and alternative opportunities, including a view on potential future opportunities. During calendar 2024 and 2025, elevated asset market prices increased risks, reduced price margins of safety, and reduced probability assessment of future returns.
Hence, from 1 July 2024 to end February 2026, MFF had portfolio sales of approximately AUD 1.72 billion, and that's on a AUD 3 billion portfolio value now, so very significant. The proceeds have provided funds for future reinvestment and dividends, and that's even after paying approximately AUD 261.1 million in cash taxes, including AUD 5.53 million next week. Do the math at 0.3, and you can see the very significant gains we have achieved. Although such cash gives optionality, it is a wasting asset with socialist and populist governance.
In the depths of the market in 2022, we were at our director-agreed borrowing limit of 20% of investment assets and moved to about 10% cash prior to the most recent market sell-off, where net cash has been reduced to approximately 5%. We confirm our regularly stated mid-cycle approximation of borrowings at 10% of investment assets has been sensible for MFF and its structure. In note 6 to our recent accounts and each half-year, we detail the portfolio movements. Turning quickly to broader markets. Political and geopolitical disasters damage market prices, as does inflation and cost of living pressures. Market price movements are exaggerated compared with underlying valuation changes. This continues with price value comparisons almost entirely ignored by near term, not near-term oriented algorithmic AI and momentum trading.
The majority of index hedging institutions, hedge funds with tiny time frames and this generation's technology-enabled instant traders from around the world, not just the U.S., but from Korea to India, China, Eastern Europe, Latin and South America to name a few, all desperate to get rich quickly without the challenges and benefits of delayed gratification. Noise and pundits are everywhere dragging money to chase the next new thing, often at far inferior returns on capital and business strengths than is prudent. Our quality filters avoid many crappy assets, and over-optimistic turnarounds and companies which do not provide protection during severe downturns. Jumping in and out of asset classes and geographies, whether via ETFs or otherwise, is not, certainly not a guaranteed route to wealth. The current fetish for Europe, emerging markets, commodities, and CapEx-intensive companies in aggregate might be suboptimal over the longer term.
Bad political leaders so weaken societies that the next waves of populist, socialist despots or dictators and individual economies might be worse. We may not have seen the end of the Asian financial crisis. Turning briefly to current economic and market conditions. We focus on companies that we expect to win through cycles. Of course, cycles and other variables impact earnings and valuations. For the category two we described earlier, we need to have more regard to market, business, and economic cycles than for a company growing at double digits in most conditions. Having said that, forecasts are dangerous, particularly when rigid, incorrect anchors to adaptation. Here goes with what might be considered a few central cases and parameters. Current economic conditions obviously are challenging, with commodity inflation adding to cost of living and business costs.
We're typically looking well past near-term events and cycles, but note that the AI build-out has years to run and government stimulus spending continues. Credit may become a systemic issue, but is not at this stage. Relatively strong economic conditions continue to allow for near-term repayments, but refinancings may become more difficult as the credit vehicles face redemptions. Some have bad credit standards, and banks follow JPMorgan in tightening lending to the vehicles and regulators watch for damage to voters and superannuation funds. Although U.S. large bank credit quality has generally remained high, some asset chasing by some lenders around the world indicates looser standards, certainly compared with close to zero loan growth for years post-GFC. Inflation and interest rates are important factors in business and valuations, and credit issues may cause a reduction in velocity of money as occurred through and after the GFC.
Housing has been weak in the U.S., including because the U.S. 30-year mortgage has stayed at or above 6% per annum. The move by some lenders to adjustable rate mortgages represents up to about 10% of new loans. Obviously, housing is a significant cyclical industry. Some focus is on risks that some companies are materially over-earning compared with reasonable through cycle estimates. Soon, investors will be focused on the U.S. midterms and eventually on the risk of an administration without pro-business agendas, but with precedents of ignoring rules and conventions and with fiscal repair requirements, budgetary constraints increasing. The U.K. is a current example. AI is scaring a majority of U.S. voters, including for employment concerns, adding to the mood for change.
Although profits and economies in the U.S. in particular have held up to record levels so far, the breadth and volume of speculative and illiquid instruments will cause unknown levels of knock-on effects in the event of a combined economic downturn, profit downturn, and resultant market downturn. Some portfolio companies are adopting AI to help reduce costs, improve productivity, improve revenues, increase prices, increase profit per customer, improve customer satisfaction, and to increase near-term estimates of lifetime customer value. Customers, competitors, of course, are also fast adopters. For various companies, AI will be an expenditure for little or no benefit, no sustainable market or price advantage, and at most, a necessary stay in business expenditure. Small business adoption is rising despite skepticism and annoyed workforces required to retrain and adjust. Hyperscalers may be favored as they deliver network solutions at scale.
For example, Google Gemini delivering for Apple and saving billions in R&D and CapEx. Uncertain overall. It's uncertain overall as to where to next. It's not yet played out who are the medium-term AI winners and losers, but there will be losers. Will core AI be competed away by a decent, cheaper ubiquitous AI service and LLMs or what model? What if Amazon, Google, Microsoft and Apple again deliver excellence at extreme scale? Obviously, innovation, current innovation is not limited to AI. Even within AI, there is commoditization and cost reductions for LLM models. Innovations and cost reductions in fiber to reduce overheating and better facility with data and systems compared with copper. We can cover risks and errors in the Q&A section. A benefit of our clearly defined focus is no need to reach for more difficult successes.
Of course, errors over many years include where we misunderstand sustainability of advantages, regulatory impacts, the effects of competition on the innovator's dilemma, or simply bad governance or management, including bad mergers and acquisitions or failing to avoid excessively charismatic CEOs. With that, our 100% feet-on-the-ground CEO, Gerald, and I would like, would look forward to responding to questions.
Thanks, Chris. We'll now move to questions from shareholders and investors. Julia Bain, MFF Head of Strategy and Corporate Development, will facilitate this section of the briefing. Chris, myself, and Andy Macken, the CIO of Montaka, are all available for questions, and we'll endeavor to address as many of the questions as time permits.
Thanks, Gerald. As a reminder, you can submit a question by using the Live Q&A tab located on the right-hand side of your screen. Where multiple questions are submitted on the same topic, we may consolidate these so we can address them as efficiently as possible. Our first question is, "Mastercard and Visa make up 16.6% of the portfolio. Is their moat still as strong as ever?
The answer is yes. Visa was the example I gave of 900 million paying transactions a day. That may actually exclude some of what is called value-added services. For both Visa and Mastercard, value-added services, different names, where that's services in addition to just clipping the ticket on the payments that go through. The types of services include fraud, data, assisting with marketing and things of that nature. They now represent circa 30% of the revenues of both and are at comparable profitability rates to Mastercard and Visa's underlying businesses, which have operating margins of circa 50% or more.
In short, there continues to be growth in those value-added services at well into double digits, sometimes exceeding 20%, but generally about 15%. Spending growth on the card networks has been high single digits in recent times and is expected to continue. We see them positioning and repositioning well for each new wave. Overnight, of course, Mastercard has bought BVNK, which is one of the stablecoin infrastructure providers, and that will be slotted into the system around 200 countries. We think that they've had a really good acquisition and innovation ratio as well. Having said that now, the both of these companies are up well over 10 times from original cost.
We've had steadily increasing dividends over an extended period of time. We have managed downwards the percentage of the portfolio to levels where we're now comfortable. You'll see from Note 6 to the accounts that we didn't change either Visa or Mastercard through the six months ended 31 December. Thank you.
Thanks, Chris. Our next question is, "How are you thinking about the outlook for software companies as AI capabilities continue to improve, particularly for traditional SaaS business models?" Andy, I'll direct this one to you as I know this is an area that you and the Montaka team have been thinking about recently.
Yes. Thank you very much. Of course, the context here is that most software companies have seen their stock prices fall quite substantially over recent months. Essentially, the market has extrapolated forward recent advancements in AI, particularly coding and productivity agents, and come to the conclusion that there will be little economic value left in software applications going forward.
This is the SaaSpocalypse as it's become known, and it takes on a few different flavors ranging from the notion that, you know, coding agents can simply recreate traditional software applications, so companies and even consumers will simply create their own versions, to, productivity agents won't even need existing applications anymore because they will be so intelligent that they can just, you know, create the logic of each workflow from first principles, all the way to even if traditional applications do survive, white-collar workers will be largely replaced by AI agents, and so employee-based pricing will result in falling revenues for traditional software vendors. There's a lot there, a lot of complexity and game theory to wade through. You can see why many investors simply sold their shares from the uncertainty alone.
Here's what I would say based on Montaka's analysis. We have seen a handful of babies thrown out with the bathwater. AI will certainly disrupt many businesses, but for a select few, their competitive advantages will likely strengthen in an agentic world. The market today has not made this distinction, so there are competitive advantages on sale today. Let's just dig into a couple of examples briefly. In enterprise software, advantages associated with trusted distribution or proprietary datasets will likely strengthen in an agentic world, and this is because these attributes become even more valuable in this new world and can't easily be recreated. Trusted distribution includes the attributes of agent coordination, evaluation, governance, security, and monitoring.
An alternative world of unconstrained agents deployed across organizations and proliferating with ubiquitous access to internal datasets and software tools, we actually see as very low probability for at least three reasons. Number one, the inherent safety and security characteristics of AI agents mean they cannot be assumed by their users to be fully trustworthy, so deploying unconstrained agents across your organization poses an enormous security risk. Number two, there simply won't be enough electric power available in the U.S. for mass deployments of this nature, you know, across organizations for quite some time, and this is because the compute intensity of using agents is typically hundreds of times higher than simply using chatbots.
Number three, enterprises have already realized that in order to unlock real value, they actually need to get AI into the hands of all employees, not just a select few in the IT department. To do this, the AI models themselves need to be harnessed in the existing mission-critical platforms that employees already use every day. We see these trusted incumbent platforms with very large existing enterprise customer bases as the highest probability candidates to solve this agentic distribution problem. This includes businesses like Microsoft, Salesforce and ServiceNow. This assessment is consistent with the decisions being made by the numerous customers that we have interviewed, as well as larger industry surveys.
For those businesses with proprietary data sets such as S&P Global or Intercontinental Exchange, we think will also thrive because AI agents still require the right data to analyze, and without the right data, they're not particularly useful. Similarly in consumer software, we also see a handful of competitive advantages on sale today. Take Meta and Tencent. Their competitive advantages do not stem from their code, but rather their enormous networks of users and their proprietary data sets. Take Spotify. Its competitive advantage has little to do with code, but rather the proprietary preference data of its 750 million users. Even Australia's REA, which owns realestate.com.au, is protected from this world of AI disruption in our view, and here's why.
REA's advantages also have little to do with the code that powers its app, but rather its flywheel that connects its extreme user engagement to property listings and vice versa. That's how we're thinking about this. We are carefully testing each thesis on a case-by-case basis, focusing on the trajectory of competitive advantages in this new reality, and also talking to customers to see how they are actually making decisions. We see a lot of durable competitive advantages on sale today. Back to you, Julia.
Thanks, Andy. Our next question is, what is the rationale behind MFF's investment in L1 Group?
Why don't I start? They're a superb group of investors. They're well-driven. We like the alignment. We like them as a standalone investment. We've obviously known them well and dealt with them over an extended period of time. We've tested and found that they've been an excellent partner to people with whom they've partnered in their business. We felt that we could get the share allocation in the placement post the takeover of Platinum, who we've also admired over decades, on satisfactory terms. Sensible combination or benefits for us, but financially sensible in particular.
Perhaps I'll just add as well, Chris, one of the things that was stark for us in our analysis is that the range of strategic options they have available to them, some of which have played out in the time since we've become investor, we've only been invested a short period of time. They've got a range of attractive opportunities that are available to them, and they're going after those in a disciplined way. We're quite excited, really, about the future for L1.
Thanks, Chris and Gerald. Our next question is, Chris, we note the addition of two Wilson Asset Management LICs to the portfolio. Could you please outline the rationale for these investments?
In aggregate, they're tiny, first of all, so people have to observe context. I joined what became UBS on 1 May 1994, and slightly before that, we did a major raising for a corporate client while I was at a boutique investment bank, and one of the parties that joined was Bell Potter, and another was Pru-Bache, run by Geoff Wilson. Since what became UBS, we were running at about 100 underwritings a year, and Geoff and Pru-Bache participated in at least 20, if not 30 of those and delivered, to my knowledge, on every occasion. We've had a very long-term and positive relationship with Geoff, which I guess stretches back for a number of decades.
These two vehicles, we also like the thinking behind WAM Global, their investment processes. There might be some things that we could over time do together where we could be complementary to them. Who knows? We've not put that on the table. WAM Strategic was underpriced, decently managed, so potentially attractive. I go back to the initial comment, these aggregate 0.2% of the portfolio. We previously, particularly coming out of COVID, had invested in three or four vehicles, and those investments have proved successful. They included PM Capital at that time.
Thanks, Chris. Our next question is, with the strong growth of dividends, what do you think is a sustainable level of dividends for MFF?
Over time. I think it's too early to set that. If you'd asked me five years ago, I would have thought AUD 0.10 per half-year was a sensible upper limit. It's a matter over time for Gerald and the board. We could, having regard to our portfolio, continue to increase over a period of time, but let's take it six months by six months.
Thanks, Chris. Chris, could you comment on the thinking or rationale behind the recent addition of MOGL to the MFF portfolio?
Gerald mentioned and Andy just demonstrated the Montaka team's outstanding. That they provide a differentiated thinking. I've been on record for a long period of time about not preferring vehicles which just have single shot where they're going, their so-called best ideas. We've seen failure not failures or underperformance of those sorts of vehicles. We prefer getting the thinking of high quality teams in a portfolio context. Investing in one in MOGL gives us that exposure. Again, I'd note that it's a relatively small investment at just under 1%, and we think it fits in nicely. There's some complementarity of their holdings and it makes us think about them as well.
Thanks, Chris. We have another question for Andy, which is, as Montaka looks across markets, where are you seeing the most interesting opportunities?
Yeah, we've been a little more active of late as the market has thrown up some great opportunities, in addition to the businesses we already own. We believe the recent pullback in Intercontinental Exchange represents an attractive investment opportunity. The competitive advantages of Intercontinental Exchange stem from its exchanges and clearing businesses and its growing proprietary datasets. We are particularly optimistic for its energy futures and options business. We see the structural expansion of gas-based energy capacity in the U.S. as a key tailwind. Of course, unlike most businesses, Intercontinental Exchange benefits from market volatility, which of course there is plenty of today. We also see the recent pullback in Uber as an attractive investment opportunity.
Uber's competitive advantages stem from its large scale networks and flywheels between users, drivers, merchants and advertisers, particularly as they interface with the complex and messy real world. These are similar to the advantages of DoorDash, which we already own, and our analysis suggests these advantages will likely thrive in an agentic AI world. Finally, the other opportunity I wanna call out is BAE Systems, the U.K.-based defense contractor, which we bought earlier in the year following Trump's attempted takeover of Greenland. We see a requirement for long-term acceleration in defense spending by most countries, and we also believe that a lot of non-U.S. militaries will seek to diversify away from U.S. defense contractors over time. This dynamic should really benefit BAE Systems, which is a large scale, best-in-class defense contractor with significant diversification across technologies and customers all around the world.
Of course, if and when wars break out, as one clearly has, BAE tends to be negatively correlated with most other stocks, which brings some diversification benefits to the portfolio as well. Back to you, Julia.
Thanks, Andy. Our next question is, Chris, are you willing to share any thoughts on the MFG and Barrenjoey merger?
I and we have a lot of friends in both Magellan and Barrenjoey. We wish them extreme success. We've known a number of the principals for, again, for decades, similar to the answer I gave earlier. They're very talented on both sides. There's a lot of talent available on both sides. There were some institutional constraints impacting Magellan in recent years that may not have allowed it to achieve its potential. Barrenjoey, somewhat under the radar, has developed its business and has expanded materially. In order to be the next Macquarie, as people are saying, they have a lot to do. They need to get a lot right. They've got the potential and they've got the talent to be able to do that, and I think the Magellan team is materially additive to it.
Thanks, Chris. Our next question is, would MFF consider pre-IPO or private investment opportunities or is just listed equities the focus of our portfolio?
Well, we do consider unlisted investments from time to time, and we would look at pre-IPO, but we've got to be careful of the definition. The best companies in the world are often the ones that are right in front of you that are traded, and the alternatives are not better. Even Yale, with its famous pedigree, has not had the performance that it wanted in recent years. Giving up the liquidity benefits and the transparency benefits of high quality listed companies is something that in our mind carries a high opportunity cost. We clearly would look at it. I've jumped across and on Gerald's side, he's nodding. You know, the, w e'll look at strategic things as we continue to build out the talent within our team.
Yeah. As we talked about in the presentation, we will clearly look at opportunities across investment markets, but there's a high bar. Chris' portfolio is dominated by truly outstanding companies. We're cognizant of our objective. Our objective is to grow shareholder wealth over the long term, and we focus very much on the long term. You know, we certainly look at other opportunities, but they need to meet that criteria.
Yeah. I'd add that unfortunately I was dragged back into Magellan in 2022, and one of the structural issues was the non-listed investments that Magellan had done, which were of concern to financial planners. Clearly it appears that financially, they've been successful, but they caused disruption to the structure. That's the last thing that we would want to do. In the same way as we ease in, ease out, we'll take these things carefully.
Thanks, Chris and Gerald. Our next question is for Gerald. As MFF's new CEO, what will you focus on in your role, and what are MFF's near-term strategic priorities?
I guess my role really probably has three parts, as I would see it. First is overseeing the team and the operations, you know, as a near-term focus. The second is overseeing the long-term development of investment capabilities. Then the third is ensuring that Chris can do his job without distraction. He is the portfolio manager and he does the capital allocation. His job hasn't changed since inception. It will remain focusing on capital allocation and managing the investment portfolio. Trying to make sure that he has the bandwidth and the focus, and is free from distraction is a key part of the role. In terms of strategic direction, really nothing changes. Since day one, we have, MFF has been about growing shareholders' wealth for the long term through investing in structurally advantaged businesses and assets for that matter, and we'll continue to do the same. Nothing changes there.
Thanks, Gerald. Our next question is for Andy. Andy, could you please provide a summary of the recent drivers of MOGL's performance?
Thank you. Yes. Let me deconstruct Montaka's returns over the last 12 months. I'll also deconstruct the returns of the benchmark as well to give you an idea of what's driving relative performance. Here the benchmark we are talking about is the MSCI World Total Return Index. Before I get into it, I just wanna underscore a key message, which is this. The businesses owned by Montaka continue to perform very well fundamentally. It's just that their valuation multiples have significantly derated in recent months. When we calculate a measure of the weighted look-through revenues and earnings owned by Montaka's portfolio, we see sustained double-digit revenue and earnings growth up to the most recent quarter. What's changed is a significant decline by almost 20% in the weighted average valuation multiple of that earnings stream. Earnings power looks great.
The market is just valuing these earnings at a lower level today. To us, this means that a lot of competitive advantages are on sale today. Okay, now let's look under the hood, and remember, Montaka's strategy is built around a high conviction, long duration portfolio, and these features will inevitably drive lumpy returns over time. There will be periods on occasion when what we own doesn't perform and what performs we don't own. That's really been the story of the last 12 months. If we think about the drivers of Montaka's performance, so the 12 months to February 2026, the Montaka Global Long Only Fund, MOGL, has declined by 16% approximately in Aussie dollar terms, net of fees. There are two parts to this decline.
Number one, a significant rally in the Aussie dollar, which hurts the translation of our global returns back to our local currency. Now we did hedge out about a third of this, which helped a little bit. Number two, more substantively, just many of the stocks that we own experience declines, especially in software and financials. If we think about the benchmark index and the drivers of its performance over the same period, which it increased by 6% in Aussie dollar terms, this positive performance was powered by IT hardware like semiconductors, industrials and commodities, and even European equities.
Montaka's portfolio, concentrated more in U.S. software and financials businesses, has substantially underperformed this benchmark over this time period, and this is despite the specific businesses that we own continuing to perform extremely well fundamentally and we remain convinced are durably advantaged. Back to you, Julia.
Thanks, Andy. Our next question is: How do you see the growth in automated momentum and index trading impacting fundamental investment outcomes over the next five to 10 years?
It'll give us more opportunities. Let's move to another question. It's just for fundamental long-term investors, and so taking off from Andy's answer, if Andy and Montaka achieve 10% compound over the next decade, they will materially outperform returns from alternative asset classes, and they'll be a great success. What people muck around with in the short run will not impact that.
Thanks, Chris. Our next question is: What is MFF's investment case for owning Oversea-Chinese Banking and United Overseas Bank compared with DBS Group?
Oh, we own the three of them. One of Australia's best investors just grabbed me the other day and said that those three banks are possibly three of the best five banks in the world. I hadn't really thought of it in that context, but if you look at the advantages. Cost to income ratio is in the 40s to maybe low 50s. Growth from net interest margin and traditional banking, but also very significant inflows of wealth management fees and similar attributes. The three of them have a mix of international operations across countries right throughout Asia, including China. Not overweighted to China, not overweighted to India, but with attractive growth alternatives there. They're obviously in the incredibly advantaged and stable regime.
The way Singapore has been run over an extended period of time leaves a lot of other countries to shame. Strong, sensible, high return on capital investments, which easily fit within. It's on the borderline of the categories one and two that I described earlier.
Thanks, Chris. Our next question is: Could you please outline the long-term vision for Montaka?
Okay, I'll take that. I think first of all we wanna note that the acquisition of Montaka was an acquisition of capability, investment capability.
At zero cost.
At zero cost. Chris previously had access to the Magellan investment team. We now have access to Montaka. As we've outlined, we think Montaka's ability and focus on structural transformation and identifying long duration opportunities within that space is incredibly valuable, both for their clients but also for MFF Group broadly. We want the Montaka team to continue to focus on developing those capabilities, and if they do so, we have little doubt they'll do well for their investors and for investment broadly. At Montaka we would like progressively to grow their business over time, but fundamentally our focus is on developing that capability and integrating it within everything that we do.
Thanks, Gerald. Our next question is: U.S. holdings dominate the portfolio. Are there leaders at scale in the rest of the world which should be considered?
We consider them all the time. What I said during my part of the discussion. A lot of people mismanage money by saying, "Oh, we'll now go to emerging markets, we'll now go to Europe, we'll now go to here, there or elsewhere." If you step back and you actually look at the investment cases in a number of these alternative countries, they're poor and their top businesses are far inferior to the top U.S. businesses. Having said that, my favorite business on Earth for a very long period of time, it inspired the development of Magellan, was a business called L'Oréal. And with its relationships, a great product and the like. We still own a little bit of L'Oréal.
One of the problems in investing in European markets is when weight of money comes in, they push the best companies up to quite often premiums even to the U.S. companies. You'll see in the latest iteration, as I said, we've spent AUD 100 million this month and we spent a little bit more during February. We've added to our Allianz position, 3i holdings in Europe, and Lloyds Bank for what it's worth. We took some money off when Schroders was subject to a takeover bid.
Thanks, Chris. Our next question, and this might be our last one due to timing, is Chris, in the past, you've mentioned trying to acquire a company that could throw off continual profits which could be invested. Is this still on the radar?
I've got it sitting next to me. Gerald does his job. He outlined the vision for the company. You know, I'm looking forward to the presentation when that occurs. In addition, if something came on the right terms, we would certainly look at it. L1 is a little example of that. They presumably over time will have a very decent dividend payout ratio. The Singapore banks that we just talked about, you know, our small holdings in them, we get good dividend payout. We don't have to own all of it. In fact, we're better suited, particularly given my management incompetence, not owning all of everything. Certainly if we found the right thing. I've only been talking about it since 2013, so here's hoping.
Unfortunately, we've now reached the time allocated for questions today. Thank you to all shareholders who submitted questions. We appreciate your engagement. I will now hand back to Gerald for closing remarks.
Thanks, Julia. Firstly, I wanna thank everyone for joining us today and for your continued support of the MFF Group. If you have any further questions, I encourage you to reach out to our IR team. Otherwise, we're gonna look forward to seeing you at our next shareholder event, which will happen later in the year. Thank you, everyone.