Djerriwarrh ramps up cash war chest

Djerriwarrh is beefing up its cash position amid increasingly difficult investment market conditions, after the $1 billion listed investment company underperformed the benchmark S&P/ASX200 index during the year to June.

Djerriwarrh returned 3.2 per cent for the 12 months to June 30, which is less than than half the gains posted by the S&P/ASX 200's 6.8 per cent. Ross Barker, managing director of the LIC, said the company paid the price of not investing in stocks such as Qantas Airways and Macquarie Bank, which rallied during fiscal 2015.

"We've been overweight energy – that's been a sector that's had underperformance," he said. "We've also never been a big investor in property trusts and that performed well during the year."

The company held $41 million in cash at the end of June, more than double the $18 million it controlled in 2014. Mr Barker said investors were navigating a "very topsy-turvy market", and the chase for income had propelled the share price of yield-producing companies to increasingly expensive territory.

"We've got a fair amount of cash, but we're not going to part with it quickly. Our sense is for the year, the market's been fully valued," he said.

The LIC's underperformance can also be traced back to the large number of call options exercised during the year. Djerriwarrh invests in Australian equities with a focus on stocks where there is an active options market.

The LIC bought into Australia's big four banks, telecommunications group Telstra and CSL to replenish its holdings that were sold because of the call options.

The company also diversified the exposure of its portfolio to include insurance group CoverMore, Sims Metal and Healthscope.

Djerriwarrh 's 10 year return was 9.2 per cent to June, compared with the benchmark's 8.5 per cent.