Australian Shares Fund
Fund commentary
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The Fund has an all-cap strategy with investments spread across small, mid and large-cap names in Australia and New Zealand. Both the Fund’s large and small cap exposures both contributed positively to this outperformance.
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At a sector level, the Fund’s exposures in Materials, Financials and Healthcare drove the outperformance, while Information Technology continued to be a laggard to performance.
Australian Shares (Wholesale) Fund Performance
As at 30 September 2022*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 2.0% | 0.5% |
| 1 year p.a. | -20.6% | -8.0% |
| 3 years p.a. | 4.2% | 2.7% |
| 5 years p.a. | 7.7% | 6.4% |
| 10 years p.a. | 11.7% | 8.6% |
| since inception p.a. | 12.3% | 8.9% |
^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 September 2022*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 1.9% | 0.5% |
| 1 year p.a. | -21.1% | -8.0% |
| 3 years p.a. | 3.4% | 2.7% |
| 5 years p.a. | 6.7% | 6.4% |
| 10 years p.a. | 10.3% | 8.6% |
| since inception p.a. | 9.4% | 6.9% |
*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.
Top 3 contributors to fund return
Pilbara Minerals (PLS)
+99.1%
Genworth Mortgages Insurance Australia (GMA)
+23.4%
Cogstate (CGS)
+41.6%
Top 3 detractors to fund return
Link Administration (LNK)
-22.5%
EML Payments (EML)
-35%
Bendigo & Adelaide Bank (BEN)
-11.5%
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Pilbara Minerals (PLS) was the largest individual stock contributor to investment performance, appreciating 99% over the quarter. The increasing demand for electric cars and electrical battery storage solutions is driving up lithium demand and prices. At the same time, Pilbara Mineral is successfully expanding its lithium mining production volumes and investigating downstream lithium processing in order to meet the expected future demand and retain a higher share of the profit margins available.
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Genworth Mortgage Insurance Australia (GMA) a major provider of lenders mortgage insurance, reported a strong set of results. The excess capital position of the company is attractive despite declining house prices and the company continues to return capital to shareholders via attractive dividends and buybacks.
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We were excited by the announcement that Cogstate’s (CGS) Japanese partner and shareholder Eisai has successfully completed its pivotal phase 3 clinical study on its new treatment for Alzheimer’s disease. The study demonstrated statistical significance in slowing the decline in cognition losses and we are hopeful Eisai will have US FDA approval in early 2023. The implications for Cogstate are potentially more clinical research contracts in Alzheimer’s and the opportunity for its internet-based cognition test to emerge as the global industry standard for at-home monitoring.
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Our investment in Link Administration (LNK) has been a frustration after a UK financial regulator announced it was likely to heavily penalise a small UK trustee company that Link acquired in recent years.
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Our investment in payments company EML Payments (EML) disappointed after the company detected fraudulent activity in one of its companies.
Pilbara Minerals (PLS) was the largest individual stock contributor to investment performance, appreciating 99% over the quarter.
Portfolio changes
Additions to the Fund
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Australian Clinical Labs (ACL): We added to our holding in Australia’s third largest pathology company (by market share) Australian Clinical Labs on share price weakness. The market has been derating pathology companies as Covid testing volumes rapidly decline. We believe there is good long-term value in the company now.
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Domain (DHG): The market has aggressively derated residential internet property portal Domain as the outlook for property prices sours. We believe Domain has a strong business model and have added to our position on share price weakness.
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Mercury Energy (MCY): We have added to our holdings in New Zealand renewable energy company Mercury Energy, as we see electrification driving electricity demand for many years to come.
Reductions from the Fund
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Genworth Mortgages Australia (GMA): We have reduced our holdings in mortgage insurer Genworth Mortgages Australia (GMA) following its strong relative share market outperformance.
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Cogstate (CGS): We reduced our holdings in neurologically-focused clinical research company Cogstate after it performed relatively well over the last 12 months.
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Fisher & Paykel Healthcare (FPH): We partially sold down shares in respiratory-focused Fisher & Paykel Healthcare on concerns the company may suffer a prolonged, Covid-induced hangover in sales of both its hospital hardware and consumables.
Sector allocation
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Sector overweights: Healthcare, Information Technology, Utilities (Renewables)
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Sector underweights: Materials, Energy, Consumer Discretionary
Outlook for the Fund
The Fund’s small and microcap companies are typically in an earlier stage of commercialisation and investing in growth initiatives, which means they have been disproportionately affected by rising global interest rates.
Over the last quarter, global inflation numbers have been higher than expected, resulting in central banks around the world aggressively raising shorter-term interest rates. This has also increased the chances of economic recession, creating challenging conditions for equity markets.
However, with much of the negativity already priced into equity markets, any future easing of inflationary numbers will be warmly received. We continue to be a bottom-up investor, actively looking for attractive investment opportunities that meet our Ethical Charter.
We continue to be bottom-up investors, 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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