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11 Aug 2022 - Fundmonitors.com Spotlight Review - Top Performing Australian Small/Mid Cap Managed Funds
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Fundmonitors.com Spotlight Review - Top Performing Australian Small/Mid Cap Managed Funds FundMonitors.com 10 August 2022 |
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This FundMonitors research article puts the Spotlight on the performance of Australian Small/Mid Cap Sector over the Financial Year to 30 June, 2022. Following the Covid downturn in March 2020, the sector gained popularity with Australian investors as they looked for the significant opportunities the small cap sector can produce. However the last 12 months has, to use a sporting analogy, been a game of two halves, with the strong performance from July to December 2021 coming to a grinding halt in January 2022. This has seen some small cap stocks reduced to prices below their cash value as noted by Dean Fergie of Cyan Investment Management in a recent Fund in Focus video. As a result, many active small and mid cap funds struggled to provide positive returns in FY 2022. There may be multiple reasons for this, most of which are covered in this video, for investors and managers alike it was a tough and disappointing six months. The graph below shows the distribution of fund returns for the Small/Mid Cap Peer Group on Fundmonitors.com over the 12 months to June 2022. Of the 80 funds included in the group, just 4 managed to post a positive return, with 24 failing to outperform the index. However, the Australian Small/Mid Cap Peer Group as a whole outperformed the S&P/ASX Small Ordinaries Index over the last 5 and 10 years on a cumulative basis. The graph below shows the performance of the entire peer group over 5 years to June 2022, again highlighting the strong rally from April 2020 after the initial Covid shock, and the downturn since December 2021 as increased interest rates adjusted valuations, followed by Russia's invasion of Ukraine in late February. Given the wide variance in individual fund performances, clearly manager and fund selection is a crucial decision, even though the peer group average produced better performance than the underlying index over time. However, this is not as easy as choosing the best performing fund from the latest league table, as shown by the table below showing the Top 25 performing funds for the 12 months to June, 2022, and their performance in previous years: A key point to note is the position of funds in the table each year. Of the top 25 performing funds in the 21/22 Financial year, none appeared in the Top 25 list across all 5 years. Only 4 of them, namely Glenmore Australian Equities Fund, DMX Capital Partners Limited, Nikko AM Core Equity Fund (NZ) and the Ausbil MicroCap Fund, appeared in the Top 25 in four out of five years. Importantly, or perhaps disconcertingly, each of these funds ranked in the bottom 25 performers at least once over the 5 year period. In spite of this, and with the benefit of hindsight, an equal investment in each of these four in July 2017 would have resulted an attractive annualised return of 14.56% over 5 years, albeit with a drawdown of almost 30% in February and March 2020 as Covid hit. While it is a useful exercise to understand which funds have performed best over each 12 month period, the table below shows the Top 25 funds over various time frames, ranked by their 5 year performance. There are some familiar names from the previous table. It is also important to note that 6 funds in Top 25 over 5 years also ranked in the bottom 25 in the 12 months to June 2022. Consistency, particularly given a period with 2 separate downturns - Covid in 2020, and then inflation led increases in interest rates in 2022 - has been difficult to achieve. Given the volatility of the past 3 years in particular, is it also worth considering fund performance based on both a risk and return basis. The following chart shows the top 25 Funds over the past 3 years with their maximum drawdown shown in red. The small and mid cap sector is particularly affected by sharply falling markets when liquidity is reduced, or in a worst case environment, evaporates. Notably, a number of funds that performed well across multiple timeframes have derived their performance in different ways. The DMX Capital Partners Fund was the strongest performer over 3 years primarily as a result of having one of the lowest drawdowns in the peer group, with a Down Capture Ratio of just 51.47. Conversely, the Perpetual Pure Microcap Fund was 7th over 3 years, but with a maximum drawdown of -41.41% it had to rely on an Up Capture Ratio of 147.67 to achieve its position in the Top 10. Conclusion As much as investors, analysts and research houses enjoy the idea of lists of top performing funds, our research has consistently shown that investing in last year's Top 10 does not result in top performance in the following year! In spite of this the natural tendency of investors to chase top performing funds over a short time frame continues, often with disappointing results. So if 12 month performance is not a reliable indicator of a fund's future performance, what is the optimum time frame, or are there other key indicators involved in fund selection? Every fund's offer document contains the disclaimer that "past performance is not a guarantee….. " but every investor looks for a manager's track record as a guide. Making it equally difficult for the investor and advisor is the strong evidence that managers and funds with a track record of under three years outperform their larger peers with a longer track record. There is no clear cut answer - just as there is no clear cut "best" fund or manager. Undoubtedly diversification reduces risk, but potentially it also potentially dampens returns as well. Fund selection and portfolio composition will therefore depend on each investor's risk and return (R&R) profile, itself complicated by the fact that investors' R&R profile changes over time in line with the market outlook. The most obvious (or frustrating) conclusion from the data is that selecting funds with the benefit of data and hindsight is simple, but sadly in real time it is not so easy! All data produced in this report was sourced from the Fundmonitors.com database which provides information on over 700 actively managed funds. Funds can be selected across Peer Groups, multiple sectors and geographies, with tools that enable investors and financial advisors to search and compare funds, run custom reports and create and analyse portfolios. For more information on Fundmonitors.com please click here. Disclaimer: All information in this FundMonitors.com Sector Spotlight is believed to be correct at the time of publication. Past performance is no guarantee of future returns, and investors should make their own enquires and conduct research on any fund prior to making an investment decision. Nothing in this report should be considered as a recommendation for any fund named herein. |
11 Aug 2022 - Challenges and opportunities for global equities: Insights from our recent US research trip
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Challenges and opportunities for global equities: Insights from our recent US research trip Bell Asset Management July 2022 |
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With global equity valuations coming under pressure due to surging inflation, rising interest rates and elevated commodity prices, the outlook for investors continues to provide uncertainty. On a recent research visit to the US, Portfolio Manager, Adrian Martuccio sat down with various portfolio company management teams to discuss their outlook and business confidence, as well as the impact of inflation on consumer demand and supply. We share a summary of his views and unpack some of the ideas and themes that were addressed. Despite the ongoing list of negatives that investors are facing, there are still a number of positive items that support 'quality' when it comes to taking a long term view on global equities. US insights - what you need to know As we look at the state of the US economy, global company management teams exhibited similar viewpoints about the high likelihood of a recession with the vast majority being more sanguine that a slowdown/recession will ease supply chain bottlenecks. Many businesses believe that supply chain issues are still widespread, primarily labour driven with smaller companies, though these backlogs will likely decline by the end of the year as inventory gets replenished. As recession uncertainty continues, sectors such as manufacturing and selective retail are seeing elevated inventory levels becoming the heart of the problem in their businesses, partly due to growing backlogs, long transit times and over-ordering. Concerns are also mounting about the impact of escalating inflation levels, which has seen the US reach a 40 year high inflation level of 9.1% in June 2022. According to Adrian Martuccio, employee shortages are rife across the nation and inflation continues to be well anchored compared to last year. While investors adjust their expectations of the inflationary pressures they face, we believe that US household and bank balance sheets remain healthy. One thing is certain, a combination of soaring inflation, slowing growth and high company margin expectations is taking place, as the hiking of interest rates on equity valuations evolves into investor worries. The consensus is that company forecasts need to come down and margins across the board are far too high. Management teams believe that stock prices have factored this in, but we believe it will become difficult for companies to rally convincingly in the face of downgrades - with investors now questioning whether company earnings will moderate as both demand and margins come under pressure. Growth sectors under pressure Software and biotech industries, once lucrative and heavily weighted growth sectors, have seen valuations come under significant pressure in the listed space and private companies are now experiencing funding drying up. We believe valuations in the private space will further reduce once companies in these sectors become desperate for the next round of capital inflow or when venture capitalists decide to exit. The US is already entering a new phase of a downturn, and it's expected that there will be plenty of 'down-rounds' that will become painful from an investor's perspective. Regardless of the fact that slower or negative growth has increased materially for information technology sectors, many tech startups are starting to experience job losses as they try to reduce the bleeding of cash. It was evident from our discussions that many larger tech companies that have recently struggled to attract talent due to many startups offering stock (which are now deeply underwater as stock prices plummet),and are finding more talent coming to the market wanting a new and stable job. This instability in the US jobs market, not just in software/cloud but consumer companies, is becoming more challenging as companies find that they need to be rational with their decisions to pivot and sustain their businesses. A snapshot of how the US and global economy is performing as it signals a historic downturn
Capturing 'Quality' in a volatile and uncertain market This year's global market correction reflects several concerns about the economic future. From a stock perspective, sharp declines across equity portfolios are putting investors under severe pressure to hold long-term return potential. In our experience, lower volatile portfolios focused on high quality companies with low levels of debt and high cash flow are an essential indicator of 'Quality'. They have the potential not only to provide superior risk-adjusted returns, but they may also exhibit defensive characteristics in times of market volatility. We expect that 'Quality' as a style will generate material alpha in this current environment. How are we positioned in this environment? Our portfolios remain fully invested, and whilst we adjust our expectations for this evolving environment, our 'Quality at a Reasonable Price' or 'QARP' style (investing in high quality businesses while not overpaying for them) we believe our valuation discipline has and will continue to hold us in good stead in challenging periods. As the market experiences further weakness, there are several opportunities that we have been following and we will likely see more eventuate throughout 2022. Investors should always remember that economic downturns aren't forever and should take a long-term view on their global equities which will help to position their portfolio for an uncertain future ahead.
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10 Aug 2022 - Australian Secure Capital Fund - Market Update July
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Australian Secure Capital Fund - Market Update July Australian Secure Capital Fund July 2022 Australian residential property values fell by 1.3% in July bringing the total quarterly decline across the country to -2%. Inventory levels have also decreased significantly and have now fallen -21.40% from the mid-March peak, helping to keep overall inventory levels low whilst on the demand side sales activity over the three months to July was -16% lower in comparison to the same period last year. While national home sales are also falling from record highs, they are still +9.20% above the previous five-year average for this time of year. With interest rates expected to rise further, there is a good chance that the number of transacted sales will continue to fall as confidence continues to weigh on the housing sector. On a more positive note, however, rents across the country continued to increase through July rising +0.90% for the month to be +2.80% higher for the quarter and +9.80% higher over the past 12 months.
Funds operated by this manager: ASCF High Yield Fund, ASCF Premium Capital Fund, ASCF Select Income Fund |
10 Aug 2022 - Holding your discipline
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Holding your discipline Airlie Funds Management July 2022 |
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Portfolio Managers John Sevior and Matt Williams have worked together in funds management for more than 30 years. In this session, they discuss what it's like to invest in the current market and how it compares with past 'extreme market conditions'. In addition, they assess which ASX companies could perform in these conditions. Speakers: Matt Williams, Portfolio Manager Funds operated by this manager: Important Information: Units in the fund(s) referred to herein are issued by Magellan Asset Management Limited (ABN 31 120 593 946, AFS Licence No. 304 301) trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks.. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. |
10 Aug 2022 - Could a credit crunch be more important than a recession?
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Could a credit crunch be more important than a recession? Montgomery Investment Management 20 July 2022 Some say its two quarters of negative growth. If that's the case, then the Atlanta Fed's GDPNow tool is predicting the U.S. is in a recession. Meanwhile, the U.S. National Bureau of Economic Research says a recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months. If that's the case the 488,000 new jobs created in May would void any assessment of recession. Elsewhere, given inflation is at nine per cent in the U.S., and growth is a far cry from that number, the real economy is going backwards, validating the person-in-the-street's perception of recession. And finally, the U.S. yield curve has just gone negative, confirming an economic slowdown. Central banks are in a quandary Even though economies appear to be losing momentum, inflation remains unacceptably high. And even though we might be near a peak in inflation, the decline is unlikely to be fast enough to placate Central Banks. Consequently, I agree with the idea downside surprises in inflation are the outcome of recession, not an indicator we will avoid one - whatever your definition of recession actually is. The last time U.S. inflation was this high was 1981, but as analyst Ben Carlson points out the circumstances are very different. In 1981, savings accounts offered a 10 per cent yield (today they provide a one per cent yield). Mortgage rates then were 17 per cent, today they are five per cent. In 1981 U.S. treasury bond yields were 13 per cent, today they are at three per cent. And finally, Robert Shiller's Cyclically Adjusted P/E ratio was just eight times in 1981. Today it's still at 28 times. There are a multitude of differences today to any other time in history. Searching the past to discern what happens next may be a fools errand. Instead, I believe it is most important to look to liquidity. Giant swings in the availability of money, especially in modern debt-based financial systems, do more to explain the vicissitudes of markets than macroeconomics. And on that front, Crossborder Capital's chart of the liquidity cliff in the supply of the USD worldwide, including off-shore, suggests a major credit crunch is ahead.
Source: Crossborder Capital And according to Michael Howell, "The economic cost of this big liquidity squeeze is world recession" adding "Central Banks are making a major error by hammering down too hard on the brake. World recession is inevitable." Meanwhile the U.S. Treasury yield curve is seeing collapsing term premia. The term premium is the amount by which the yield on a long-term bond is greater than the yield on shorter-term bonds. Collapsing premia means short term rates are rising at a higher rate than long term rates. The mix of higher front-end rates raises cost of capital for corporates, while lower rates at the long end of the yield curve reflects meaningful demand for safe assets. In other words, no appetite for riskier corporate debt. In combination, it suggests a credit crunch is afoot. It's arguably much more important than whether we are heading for a recession - whatever your definition. Author: Roger Montgomery, Chairman and Chief Investment Officer Funds operated by this manager: Montgomery (Private) Fund, Montgomery Small Companies Fund, The Montgomery Fund |
9 Aug 2022 - Activism by prominent Australians
9 Aug 2022 - Will falling house prices tip Australia into a recession?
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Will falling house prices tip Australia into a recession? WaveStone Capital 25 July 2022 With the RBA tightening cycle firmly underway, the impact for Australian households is only starting to be felt. Dwelling prices are falling most notably in Sydney and Melbourne where 39% of households reside but have 53% of total housing debt1. The pace of rate hikes is at levels not seen since 1994 and combined with rising energy costs and higher food prices it is not surprising that consumer sentiment has fallen sharply as shown in the chart below.
What does this mean for consumer spending and is a recession on the cards?Relative to other developed markets, Australia's economy has been strong; boosted by high commodity prices, lower relative interest rates, a weak Australian dollar and solid household balance sheets. A lower exposure to long duration technology stocks (which have been hardest hit) has also provided some insulation from the global equity sell-off. For the six months ending June 30, 2022, the total return for ASX300 is -10.4% compared to -20% for the S&P500 and -20.3% for MSCI World. Looking forward from here, vulnerabilities are apparent and none more so than in the housing market. Having spoken to bank executives, real estate businesses and developers over the past year, we expect a contraction in the housing market. The evidence is mounting even though price falls have been modest thus far.
However, in our view, the outlook is not as grim as media reports would suggest with a fall of 15% likely over the next 18 months. This is due to the expected influx of immigration now that borders are open as well as the structural shortage of housing stock which puts a floor on house prices. While a 15% fall in the housing market would be material, there is also a wealth effect to consider. The magnitude of the hikes is massive at the margin. Even for those who do not face mortgage stress, higher mortgage payments dent consumer confidence and spending. The consequences are wide-reaching with impacts for the banking sector, construction, and ancillary businesses such as law firms and architects. Further, there is a significant refinancing event looming in 2023 as a large swathe of fixed rate loans roll off and many households will face a 40% increase in their repayments as they move to variable rates (based on current rates). History teaches us that tightening cycles usually lead to a de-rating of P/E multiples for the banking sector. While steady interest rate rises are seen as a positive tailwind, with every 25bps increase leading to a 1-2bps positive boost to net interest margins, the sheer pace of the current increases creates a different outlook. While the banking sector is already down by 10% since the start of June, and has underperformed the broader market, looking forward the downturn in the housing market will lead to lower credit growth, lower margins and higher bad and doubtful debts. According to Jarden Research, new home growth leads bank share prices by approximately 3 months and bank share prices lead house prices by 5 months given the lag in house price data and the forward-looking nature of markets. A de-rating of major bank share prices occurred in Australia during the 1999-2000 and 2009-2010 cycles when multiples fell by an average of 2.0x in the first three months after the first hike and 4.2x by the time of the last hike2. New Zealand, which is further ahead of Australia on rates is already experiencing a slowdown in credit growth. While Australian banks are well capitalised with very strong balance sheets, the medium-term outlook for their share prices will be negatively impacted by a housing downturn. A slump in consumer discretionary spending is expected as households tighten their belts. The question for investors is how much of this is already priced in? Many stocks in this sector have already fallen significantly as consumers have shifted their spending from goods to services and earnings have normalised. Despite this, in our view, the consensus forecasts for FY23 and FY24 are still too optimistic. We have not seen earnings downgrades yet and this could occur in the coming weeks. While reporting season is likely to show strong results on a historical basis, analysts will focus their attention on forward looking guidance for earnings - or lack thereof. For retailers, in addition to the rising cost of debt, analysts will be watching inventory levels. In many cases, inventory levels have been rising as supply chain issues ameliorate and are indicative of falling demand. The US provides a good indicator of the outlook for Australia given their rate hiking cycle and emergence from pandemic lockdowns is about 6 months ahead of Australia. What is evident is that retail is struggling with rising mortgage costs impacting consumers spending patterns. This is most evident for furniture, electronics and hardware sales which are highly correlated with housing growth. Whether or not we get a recession in Australia will depend largely on how aggressive the RBA is in raising rates. A neutral rate of 2.5% for example would dramatically impact borrowing capacity. Future inflation prints will determine whether the RBA stops there, and time will tell whether the current level of pessimism is overdone. As shown in the chart below, the market is expecting rates to peak in May 2023 with softer economic growth leading to rate cuts thereafter.
We have assessed the implications of a downturn in the housing market and falling consumer spending for investee companies on a bottom-up basis. We are underweight sectors such as financials and property trusts as well as those retailers more likely to be impacted by lower discretionary spending. We have long been overweight healthcare, which has proven to be resilient in previous downturns. |
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Funds operated by this manager: WaveStone Australian Share Fund, WaveStone Capital Absolute Return Fund, WaveStone Dynamic Australian Equity Fund 1 Source: Macquarie, July 20222 Source: Morgan StanleyThis material has been prepared by WaveStone Capital Pty Limited (ABN 80 120 179 419 AFSL 331644) (WaveStone). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed. |
8 Aug 2022 - The Rate Debate: Can the RBA thread the needle?
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The Rate Debate - Episode 30 Can the RBA thread the needle? Yarra Capital Management 03 August 2022 After hiking for the fourth consecutive month, the RBA's tone has shifted to suggest a pause at the September meeting is possible, reflecting in part the troubling signals emanating from markets as the US teeters on the brink of recession and conditions continue to cool across the globe. As lead indicators continue to flash red - consumer confidence remains at alarming levels and housing is rolling over - can Australia's central bank successfully thread the needle and avoid an outright stalling of the Australian economy?
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Funds operated by this manager: Yarra Australian Equities Fund, Yarra Emerging Leaders Fund, Yarra Enhanced Income Fund, Yarra Income Plus Fund |
8 Aug 2022 - 2 quality stocks for when the tide goes out
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2 quality stocks for when the tide goes out Alphinity Investment Management 25 July 2022 Warren Buffett famously said that "only when the tide goes out do you discover who has been swimming naked." We have been hitting lower tides in recent months as the world of 'free money' comes to an end, which is exposing 'naked' companies and assets that have crashed. The low tide is however also highlighting great companies with strong management teams that are suited up to steer their customers - and investors - to safety during these difficult times. Great management teams can navigate challenging periods like the present and come out stronger on the other side. There are many examples of best-in-class management teams represented across our Global and Australian funds and several management teams that have specifically done a phenomenal job managing the increasing risks. Some Australian examples include Goodman Group, Super Retail Group, CBA, Medibank, and Orora Group. On the global side, we can commend the teams at McDonalds, PepsiCo, Diageo, and Waste Connections. Below we look at 2 lesser-known domestic and global management teams. 1. Waste Connections (WCN) - Pragmatic & differentiatedWaste Connections is the 3rd largest solid waste services company in North America. They provide non-hazardous waste collection, transfer, and disposal services to millions of customers across the US and Canada. WCN was founded by the current Chairman and this entrepreneurial culture runs deeply through the organization. WCN runs a decentralised structure where decisions and PNL responsibility is pushed out of HQ and down into the operating businesses around the country. You often see this type of management structure in Scandinavian capital goods companies, but we rarely see it in the US. If done well, it creates a dynamic and flexible business that can respond rapidly to a changing environment. With the challenges that the waste companies have faced over the past 6 months, this approach has been a meaningful advantage for Waste Connections. We see the outcomes of this decentralisation through their industry leading margins and cashflow generation. WCN has industry-leading profit margins
Source: Bloomberg Further, the company generally seeks to avoid highly competitive, large urban markets and instead management target markets where they can attain high market share either through exclusive contracts, vertical integration, or asset positioning. WCN defines their markets as either "competitive" or "exclusive/franchise" based. Competitive markets are markets where pricing is a function of supply & demand and WCN deliberately focus on the underserved markets, which are less competitive. This affords WCN very strong pricing power and market shares. The remaining 40% of revenues are generated from markets they serve on an exclusive/franchise model basis, where pricing for contracts is done on a CPI-like or returns based basis. Similar to its peers, WCN has faced numerous challenges of late, including input price pressures (fuel spikes), labour shortages/higher wages (with drivers and mechanics extremely sought-after) and truck shortages to name a few. Despite this, they are managing the business well and continuing to execute on their strategy. At their recent results management achieved very strong pricing outcomes, talked to building M&A momentum, and maintained their full year FCF guidance. Waste Connections is a stable, defensive grower with an enviable track record worth backing in our view. 2. Orora (ORA) - Optimise, enhance & investOrora (ORA) is an Australia-based company that provides packaging products and services. It manufactures glass bottles and beverage cans in Australia and manages a medium sized packaging distribution services in North America. From China wine tariffs to old legacy IT systems to higher input cost pressures, the ORA team has not had a shortage of challenges to deal with over the last few years. In response, they have addressed each of their challenges in a logical and systematic way and announced a clear growth strategy for the next few years. Over the last few years, ORA has done a complete SAP integration process in the US that after some significant implementation challenges are now resulting in improved operational efficiencies and management of input cost pressures. They have also implemented a mix shift towards higher product-to-package ratios (for example the recent contract with Tesla for car parts) and enhanced their digital capabilities through an e-commerce custom design platform and diversified their product portfolio. ORA -- A quality, defensive enjoying earnings upgrades
Source: Alphinity, Bloomberg, 28 June 2022 ORA has also been able to find low risk capacity expansion opportunities such as beverage cans in Australia. Following a thorough review of some poorly judged and executed acquisitions in the US by previous management the company believes they are now ready to look at new M &A opportunities. While not without risk we would back management given their conservative approach and successful management of the company since taking the reins. Finally, and importantly, ORA is pivoting investment towards more sustainable products and operations with a clear commitment and path to net zero greenhouse gas emissions by 2050. Despite the tough environment, ORA has recently reiterated their guidance for FY22 EBIT to be higher than FY21. In combination with a robust balance sheet, meaningful returns to shareholders (both dividends & buybacks) and attractive Return on Capital (25%), we view ORA as a high quality, defensive company in safe hands. Spending more time with managementWhen uncertainty increases and the environment becomes more challenging, we make a concerted effort to spend even more time with the management teams that are steering our investments, to understand their thinking and approach to ongoing and new challenges. We meet with various members of the management teams across seniority levels, responsibilities, and divisions. Our due diligence process also includes site visits and meetings with the company's suppliers, competitors, and clients. Through the ebb and flow of investment cycles, investors should continuously focus on identifying quality management teams that can perform well during high tides, but even better during low tides. Author: Elfreda Jonker, Client Portfolio Manager This information is for adviser & wholesale investors only |
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Funds operated by this manager: Alphinity Australian Share Fund, Alphinity Concentrated Australian Share Fund, Alphinity Global Equity Fund, Alphinity Sustainable Share Fund Disclaimer |
5 Aug 2022 - Fundmonitors.com Spotlight - 21/22 Financial Year Peer Group Analysis
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Fundmonitors.com Spotlight 21/22 Financial Year Peer Group Analysis FundMonitors.com 03 August 2022 |
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The Fundmonitors.com website includes information on over 700 actively managed investment funds, with each fund categorised into one of 15 Peer Groups based on their investment universe, strategy and process. This Spotlight article focuses on the relative, and average performance of the constituent funds within each Peer Group over 1, 5, and 10 years. Market Background: Over the five years to December 2021 markets in general, and equity markets in particular, were driven by falling or rock bottom interest rates, with only two relatively short pull-backs, the most notable being the COVID induced falls in the early part of 2020. Over 5 years the so called "risk on" assets and funds fared best, as indicated by the first chart below, although the correlation between them was relatively high. Equally obvious, particularly in hindsight, was the effect of central bank tightening in the face of inflation in late 2021, with Russia's invasion of Ukraine in February 2022 further increasing inflationary risks, and a new market "risk-off" environment. As shown by the 12 month chart below, when the S&P500 fell by 20.6% over the 6 months to June, most Peer Group averages were dragged lower. As a result, only two Peer Groups, namely Infrastructure and Debt funds, with average returns of 11.3% and 4.6% respectively, finished the financial year in positive territory. In this environment, even diversification towards these two medium to long term strategies only provided limited benefit to those (most) investors with a high allocation to equity based strategies. Peer Group average performance over the 12 months to 30 June 2022. In FY 20/21 the Global Equity Long - Small/Mid Cap Peer Group (the previous year's best performer) was down 23.8%, and down 25.9% over the last 6 months. All 14 funds in this peer group provided a negative return for the year, with the best performing fund falling -10.7%, and the worst losing -43.3%. Similarly, Australian Small and Mid Cap funds were hit hard, falling -16.5% for the Financial Year. This group includes 83 funds, so investors would expect some consistency given the size of the peer group. However, this was not the case, with the top performing fund providing a positive return of +21.2%, and the worst returning -46.5%. The peer group focused on Equity Alternatives, which includes long/short and market neutral funds, performed well indicating the benefits of being able to short stocks in a negative market environment. The exception to this was Asian Equity Alternative funds. Over the past 12 months the Alternatives Peer Group returned -1.4%, and was negatively affected by the inclusion of a number of Digital Asset or Crypto funds, making up the five worst performing funds in this peer group, providing an average return of -40.7% with the worst falling -52%). Without the influence of these crypto funds, the Alternatives Peer Group would have returned over 6% for the year. The six Managed Futures funds in the Alternatives group returned an average of 19.9% for the financial year, again showing the benefits to portfolios of diversification away from equities. While the year to June 2022 has been difficult for investors, especially those with high exposure to equities, it has to be seen in the context of some previously strong years. The heat map below shows the average performance of each Fundmonitors.com peer group over the past 10 years. Each line represents a financial year, and the colour on each line varies between the darkest green for the best performing peer group for that year and the darkest red for the worst performing. This table clearly shows the value of diversification across funds, peer groups and asset classes, and investing for the longer term. It is rare to find a fund or peer group that will perform well in all market conditions, and switching funds to invest in last year's best performer is a great way to achieve mediocre performance. |
