Monthly Report

Monthly Report

April 2017

April 2017

Net Performance (After Fees) 1 Month 3 Month 6 Months 1 Year 3 Years 5 Years *Since inception (Annualised)
Concise Mid Cap Fund Return (%) 0.66 4.73 7.90 13.76 8.31 7.94 4.89
Mid Cap Masters Index (%) 1.05 6.33 9.73 16.10 11.45 9.60 3.34
Active Performance (%) -0.39 -1.60 -1.83 -2.34 -3.14 -1.66 1.55

Market Performance

Equity markets around the world generally pushed higher in April. The MSCI World Accumulation Index was up +1.48%, underpinned with strong performances on the Nikkei (+1.52%) and French CAC40 Indices (+2.83%). The Australian market, as measured by the S&P/ASX 200 Accumulation Index, rose +1.03% outperforming the S&P500 (+0.91%) and FTSE (-1.62%). Domestically outperforming sectors during the month included industrials (+4.37%), informational technology (+3.90%) and healthcare (+3.17%). Laggards included telecommunications (-9.89%), consumer staples (-2.58%) and energy (-0.63%).

In commodities, base metals were broadly weaker with zinc (-5.2%) and copper (-2.7%) continuing to retreat from recent highs. Bulks were mixed with iron ore (-14.4%) and thermal coal (-5.6%) continuing to pull back from recent highs, whereas coking coal prices (+61.7%) rallied sharply on the back of supply concerns related to the impact of cyclone Debbie. Oil prices were weaker (-3.3%) on doubts that OPEC production cuts were not enough to bring inventory levels down and gold price rose modestly (+1.4%) on elevated geopolitical risk. The general strength of commodity prices recently helped Australia’s terms of trade to a near record $3.6bn in February. Other data remained patchy. Business conditions firmed but retail sales slowed. The unemployment rate remained unchanged at 5.9% with good full time jobs growth. Core inflation remains low.

In the US, consumer confidence remains at the high levels with the April Conference Board reading the second highest since 2000. The unemployment rate dropped from 4.7% to 4.5% to be slightly above the 4.4% low set a decade ago in the previous economic cycle. The employment cost index rose to +2.4% YoY, continuing its gradual move away from the 2% annual rate that wages have largely been tracking in the post GFC period. Regardless of a pick-up in wage inflation, financial markets continue to price in only one additional fed cash rate increase for the remainder of CY17 despite the Fed envisioning three.

In China, first quarter 2017 GDP was slightly stronger than expected with the growth rate picking up to +6.9% YoY, up from +6.8% in 3Q16 and +6.7% in 2Q16. Industrial production, fixed asset investment and retail sales growth all gathered pace in March, helping to underpin the pickup in GDP.

Mid cap news over the month included TPG Telecom (TPM) announcing its intention to enter the Australian mobile market after purchasing a large block of spectrum. Beach Energy (BPT) reporting a weaker than expected result and announced capex guidance for FY17 had been lowered. Sirtex (SRX) announced a set of clinical trial results to the markets disappointment. JB Hi-Fi (JBH) announced management changes at The Good Guys business and provided a positive sales update. Coca Cola Amatil (CCL) downgraded guidance expectations due to competitive and deflationary pressures and Cromwell Property Group (CMW) proposed to acquire Investa Office Fund (IOF) for an all cash offer at $4.85 per unit.

Attribution Analysis for the month ended April 2017

Top 5 Bottom 5
Aristocrat Leisure TPG Telecom
Ardent Leisure APN ews & Media
DUET Group South Cross Media
Henderson Group Super Retail Group
Challenger Healthscope

Fund Performance

During April the Concise Mid Cap Strategy returned 0.66%, below the benchmark return of 1.05%. Key stock price moves in April included strong performance from Aristocrat Leisure (ALL), Ardent Leisure (AAD) and DUET Group (DUE). Detractors from performance included TPG Telecom (TPM), APN News & Media (APN) and Super Retail Group (SUL).

During April, Cheung Kong Infrastructure received FIRB approval for its takeover of DUET Group (DUE). The transaction in expected to complete in mid May with all major approvals now received. Our intensive research effort and travel agenda since the interim reporting season has revealed numerous opportunities for this capital to be reinvested.

Outlook

Since the end of the reporting season the investment team has conducted an extensive travel program including trips to the UK and the United States. We also have an Asian visit planned for later in the year. At the start of April the investment team travelled to the UK where many Australian Listed Mid Cap companies have direct exposure. The investment team attended 26 company or industry related meetings during the visit. The tailored trip focused primarily on the Diversified Financials, Wagering, Travel and Online Real Estate Sectors/Industries.

The key takeaways from the trip were; 1. Brexit – there are approximately 3 million EU citizens currently living in the UK. These working EU citizens contribute more per head to the UK economy than UK citizens. Sectors most likely to be adversely impacted include; Healthcare, Financial and Legal sectors. 2. UK Banking and Housing sector – the mortgage market is likely to become very competitive post the recapitalisation of the UK banks. We expect challenger brands such as Virgin Money and Clydesdale to find it hard to grow market share. 3. Funds Management and MiFID II – the sector is well advanced and ready for the introduction of MiFID II in January 2018. The impact on company profit varies, but is likely to be in the vicinity of 2-5%. The biggest impact will be on investment banks where brokerage commission could decline up to 50%.

We are encouraged that while Large Cap value came to the fore late in 2016, Mid Cap value is still yet to see this materialise by way of relative outperformance. Moreover, our Mid Cap Portfolio is well placed to benefit from this with our Portfolio trading on a lower PE and higher EPS average to the Mid Cap market. We continue to be vigilant in our belief that quality companies with solid balance sheets generating excess free cash that can be used for reinvestment for higher returns and/or debt amortisation will outperform in the medium term.

*The Mid Cap Masters Index is a price and accumulation price, free float adjusted index calculated daily for Concise on behalf of S&P. The constituent universe of index is the S&P/ASX 200 excluding the S&P/ASX 50. * The CMCF commended on the 16th of April 2008. The since inception figure is annulaised.

This publication is intended to provide general information only and has been prepared by Concise Asset Management (ABN 62 126 975 282) and (AFS Licence No. 320497), the issuer of the Fund, without taking into account any particular person’s objectives, financial situation or needs. Investors should before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. Your investment is subject to investment risk, including possible delays in repayment and loss of income and capital invested. The repayment of capital or income is not guaranteed by Concise Asset Management. Offers of interests in the Fund are contained in a current Product Disclosure Statement (‘PDS’). A copy of the PDS is available from our website: www.conciseam.com.au or contact Client Services on (03) 9642 8968. You should read the PDS and seek professional advice before making any decision about whether to acquire or continue to hold an investment in the Fund.