Australian Shares Fund
The Australian Shares Fund (Wholesale) (the ‘Fund’) returned 13.4% net of fees in the financial year ended 30 June 2023, compared to its benchmark which rose 14.4%. The Australian Shares Fund (Retail) rose 12.8% net of fees for the year, underperforming the benchmark.
The Fund’s investments into the Financials, Healthcare and Utilities sectors added value, while Cash holdings, Consumer Discretionary and Information Technology detracted value.
The Fund’s large cap names outperformed over the year while small and microcap holdings performed strongly in the final quarter of 2023 as investor interest returns to this part of the market.
The Fund benefited from takeover interest, with vitamin company Blackmores, wellbeing software company Limeade, and telematics software company Eroad, each receiving bids from strategic and private equity buyers.
Australian Shares (Wholesale) Fund Performance
As at 30 June 2023*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 6.2% | 1.0% |
| 1 year p.a. | 13.4% | 14.4% |
| 3 years p.a. | 10.3% | 11.1% |
| 5 years p.a. | 8.7% | 6.1% |
| 10 years p.a. | 11.7% | 8.9% |
| since inception p.a. | 12.5% | 9.5% |
^Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 and S&P/ASX 300 Accumulation Index thereafter. Past performance is not a reliable indicator of future performance.
Inception date: 23/01/2012.
Australian Shares (Retail) Fund Performance
As at 30 June 2023*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 6.0% | 1.0% |
| 1 year p.a. | 12.8% | 14.4% |
| 3 years p.a. | 9.6% | 11.1% |
| 5 years p.a. | 7.8% | 6.1% |
| 10 years p.a. | 10.4% | 8.9% |
| since inception p.a. | 9.6% | 7.2% |
^Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 and S&P/ASX 300 Accumulation Index thereafter. Past performance is not a reliable indicator of future performance.
Inception date: 19/09/1994.
Contributors and detractors
Top 3 contributors to Fund return
+205.4%
Gentrack Group (GTK.NZX)
+119.3%
Pilbara Minerals (PLS)
+78.7%
Helia Group (HLI)
Top 3 detractors to Fund return
-67.1%
EML Payments (EML)
-57.9%
Bravura Solutions (BVS)
-41.0%
Symbio Holdings (SYM)
Contributors
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Gentrack (GTK) returned over 205% for the year as the management team continued to execute on a strong turnaround story. GTK has been able to successfully navigate additional investment into improving its technology stack, while delivering strong revenue growth and positive free cash generation. Momentum in the business enabled GTK to upgrade its revenue and earnings guidance throughout the year, with further growth expected in the coming years as its new G2 solution gains traction with customers.
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Pilbara Minerals (PLS) returned 119% for the year as the demand for lithium raw materials accelerated alongside the increasing demand for electric vehicles. Spot prices for spodumene reached a record high of >US$8,000/t in Q2, and while prices retreated to <US$4,000/t by year end, this is still ~10x higher than pre-Covid levels and has resulted in PLS generating significant amounts of free cash flow. With a cash balance of approximately $3bn, PLS finds itself in a strong position to fund an expansion in production while also returning capital to shareholder.
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Helia Group (HLI) returned 79% for the year. During the year, Helia experienced an unusually low claims environment and announced new customer contract wins. Helia returned excess capital to shareholders through special dividends and share buybacks, with further capital returns expected in the next 12 months.
Detractors
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We divested our stake in EML Payments (EML) due to lack of progress made with the Central Bank of Ireland, which has imposed growth restrictions on the Irish subsidiary. The divestment reflects concerns around timing of a resolution, significant management turnover and a reduction of growth expectations.
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Bravura (BVS) undertook a recapitalisation during the year to fund the business, replace a debt facility and implement a restructuring programme. The technology company disclosed that specific contracts were underperforming relative to expectations due to cost over-runs, resulting in a profit downgrade. We see a recovery pathway with a refreshed Board and management team with share price upside as it is trading at a material discount to its fundamental value.
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Symbio Holdings (SYM) declined 41% over the year, negatively impacted by the broader market sell-off in smaller cap technology stocks, as well as a temporary earnings impact from: 1) the delay in onboarding of a new customer, and 2) the hand back of phone number inventory by a couple of global tech customers as they looked to cut costs. These issues were resolved in the 2H and SYM’s outlook for FY24 appears positive as the company continues to grow while managing its cost base more effectively.
Gentrack (GTK) returned over 205% for the year as the management team continued to execute on a strong turnaround story.
Portfolio changes
Additions to the Fund
-
Australian Clinical Labs (ACL) – ACL is the third largest pathology services provider in Australia, benefiting from the spike in PCR testing during the Covid pandemic. While Covid related revenues have subsequently declined, we believe ACL has done a credible job in managing its business in this environment compared to peers and offers attractive valuation upside.
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Reliance Worldwide (RWC) – RWC manufactures and distributes behind the wall plumbing and heating products for a global customer base. It has new innovative products that replace more expensive copper products. We are attracted to RWC because of its strong management team, healthy cash flow and solid balance sheet.
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Orora (ORA) – ORA is a manufacturer of packaging solutions for consumable and beverage products, operating mainly in Australia, NZ and the US. We are attracted to ORA for its market leading position in its core products, consistent cash generation, and strong balance sheet. While possessing a number of defensive style characteristics, ORA also has opportunities for growth across its business.
Selldowns from the Fund
-
Helia (HLI) – HLI is a major provider of lenders mortgage insurance in Australia. After a period of strong investment performance, we decided to take some profits to reinvest into other opportunities.
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Link Administration (LNK) – LNK provides outsourced administration services to super funds, listed companies and others in Australia and the UK. We divested our stake following the failed takeover deal due to concerns on earnings risk and the Woodford issue.
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Nitro Software (NTO) – NTO is a technology company, providing software with a full suite of PDF and eSignature tools. We exited our position through acceptance of a takeover offer from Potentia, following an increase in the offer price.
We divested our stake in EML Payments (EML) due to lack of progress made with the Central Bank of Ireland, which has imposed growth restrictions on the Irish subsidiary.
The Fund’s small and microcap companies, which are typically in an earlier stage of commercialisation, are showing some signs of life, with buyer interest returning and small capital raisings being successfully completed.
Sector allocation
Sector overweights
Healthcare, Renewables (Utilities), Information Technology
Sector underweights
Consumer Discretionary, Energy, Materials
Outlook for the Fund
We are actively developing a ‘hit-list’ of mid and large cap names to buy should volatility in the macro environment translate into share price weakness.
The Fund’s small and microcap companies, which are typically in an earlier stage of commercialisation, are showing some signs of life, with buyer interest returning and small capital raisings being successfully completed. We are also seeing the emergence of private equity and strategic buyers bidding for some ASX listed companies, which today trade at significant discounts to unlisted company peers. We believe this momentum can continue, even against a challenging macro back drop.
We continue to be a bottom-up investor, actively looking for attractive investment opportunities that meet our Ethical Charter.
*Total returns are calculated using the sell (exit) price, net of management fees and gross of tax as if distributions of income have been reinvested at the actual distribution reinvestment price. The actual returns received by an investor will depend on the timing, buy and exit prices of individual transactions. Return of capital and the performance of your investment in the fund are not guaranteed. Past performance is not a reliable indicator of future performance. Figures showing a period of less than one year have not been adjusted to show an annual total return. Figures for periods of greater than one year are on a per annum compound basis. The current benchmark may not have been the benchmark over all periods shown in the above chart and tables. The calculation of the benchmark performance links the performance of previous benchmarks and the current benchmark over the relevant time periods.
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