|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||0.48||6.03||20.20||25.33||11.75||9.05||5.25|
|Mid Cap Masters Index (%)||(-0.61)||5.77||20.20||26.26||13.19||9.15||3.05|
|Active Performance (%)||1.09||0.26||0||-0.93||-1.44||-0.10||2.20|
Australia’s equity market underperformed global share markets during August with the S&P/ASX 200 Accumulation Index posting a negative -1.55% return, below the MSCI World Index (+0.08%) and behind the US markets where the S&P500 and Dow Jones Industrial Index fell -0.17% and -0.12% respectively. The UK FTSE (+0.85%), Japan’s Nikkei (+1.92%) and the Shanghai Composite (+3.56%) were the strongest performers. In Australia, ex-50 Mid caps continued to outperform the broader market. During August, the Concise Mid Cap strategy generated a positive +0.48% return for August, ahead of the mid cap index (-0.61%) and the broader equity market (-1.55%), as measured by the S&P/ASX 200 Index. At the sector level, Information Technology (+5.11%), Energy (+2.89%) and Consumer Staples (+1.96%) outperformed, with laggards including Telecoms (-6.59%), Utilities (-5.22%) and Industrials (4.56%).
Commodity prices were mixed during August. Base metals were weaker, led by copper (-5.2%) and nickel prices (-8.6%). Gold retraced some of its recent gains (-3.4%) while crude oil prices (+8.2%) rallied off July lows. In bulk commodities, coking coal prices posted strong gains (+35.9%) on news of supply disruptions within China. Thermal coal prices were moderately higher (+3.6%) while spot iron ore prices were relatively flat (-0.7%).
In China, data on economic activity suggested a further moderation in the rate of economic growth. Growth rates across fixed asset investment (+4.0% YoY), industrial production (+6.0% YoY), retail sales (+10.2% YoY) and trade data slowed from levels earlier in the year.
US data suggests the world’s largest economy continues to expand led by growth in household spending which has recently been supported by continued increases in personal income above the rate of inflation. The unemployment rate remained steady at 4.9%, consumer confidence rose and new home sales were up 12.4% in July to a nine year high. Commentary from Federal Reserve official suggests the central bank is considering further monetary tightening with “the U.S economy now nearing the Federal Reserve’s statutory goals of maximum employment and price stability”.
Meanwhile, Australia’s central bank has continued down the path of further monetary easing with the overnight cash rate cut 25 basis points to a record low 1.50%. Data shows business confidence and conditions remain reasonable but the RBA judged that a lower cash rate would assist growth given a lack of inflationary pressure.
August saw the majority of listed companies release their financial results for the year ended 30 June. Midcap Index highlights included GWA Group (GWA), Credit Corp (CCP), JB Hi-Fi (JBH), Ardent Leisure (AAD) and Downer EDI (DOW) all delivering results which beat market expectations. Disappointments came from Estia Health (EHE), APN Outdoor (APO), Seven West Media (SWM), McMillan Shakespeare (MMS) and Blackmores (BKL). Southern Cross Media (SXL) was a standout with a solid FY16 result across the board and FY17 guidance well ahead of consensus. Solid results from Super Retail Group (SUL), JB Hi-Fi (JBH), Southern Cross Media (SXL) and Harvey Norman (HVN) were a reminder that the consumer environment is healthy in regions outside of key mining regions.
Attribution Analysis for the month ended August 2016
|Top 5||Bottom 5|
|Ardent Leisure||Gateway Lifestyle|
|Southern Cross Media||Vocus Communications|
|Super Retail Group||Adelaide Brighton|
|Fletcher Building||Iron Mountain|
|Worley Parsons||APN News & Media|
In August the Concise Mid Cap Fund returned +0.48%, 1.09% above the benchmark return of -0.61%. Best performers for the month were Ardent Leisure (AAD), Southern Cross Media (SXL) and Super Retail Group (SUL). Laggards included Gateway (GTY), Vocus Communications (VOC) and Adelaide Brighton (ABC). A pleasing aspect of the reporting season for the Concise Mid cap strategy was portfolio exposure to a number of ‘beats’ while simultaneously avoiding stocks which delivered underwhelming results.
News on portfolio stocks included;
Orora (ORA) delivered a set of FY16 results which comfortably beat consensus expectations on multiple fronts. Operating earnings, dividend payments, cashflow and gearing were all better than most expectations. Integration of prior acquisitions remain on track and a balance sheet levered well below management target’s provides ample headroom to pursue further creation of shareholder value through deploying capital into domestic projects or further acquisitions in the North American market where ORA aims to build on its exposure to packaging distribution and point of purchase display printing markets.
Ardent Leisure (AAD) delivered a strong FY16 result with all divisions growing earnings. Management announced the divestiture of the Heath Clubs which we view positively as it results in the portfolio now being strongly aligned to consumer entertainment. Additionally, the divestiture of the Health Clubs provides an attractive investment proposition whereby capital will be recycled back into the roll out of higher returning Main Event centres. AAD was a strong performer in August with solid share price appreciation and we expect the re-rating to continue. A number of positive catalysts lie ahead including an improvement in like-for-like sales trends at Main Event and the potential for capital from a Marinas sale to help fund the roll out of Main Event centres from 27 towards 200.
The August reporting season largely produced underwhelming results leading to the ASX200 declining 1.6%. Mid Caps again outperformed the broader market and over the last 12 months have returned 26.3% against the ASX200 return of 9.3%.
The last few years have been highly unusual in equity markets, where despite weak earnings growth forever falling interest rates have supported asset plays like REITs and Infrastructure together with structural growth sectors of healthcare and technology. REITS have outperformed the ASX200 by 31% over the last two years, Healthcare 41% and Utilities 26%. Over this period bad news has been good news and sharply falling interest rates have fuelled this momentum. Valuations within these momentum sectors have been aggressively driven higher such that ‘old school’ valuation methodology of earnings multiples were largely ignored and the best measure of ‘value’ became the yield spread to the cost of debt.
The last three months, punctuated by the August reporting season has shown a notable change. Bad news being bad news and good news being good news has come back in vogue. Laggards are switching roles and becoming leaders and its now value and earnings driving share prices higher. Cyclical sectors trading at large discounts to the momentum trade have driven the market higher over this period as earnings expectations within these sectors are too low. Coincidentally, perhaps, forever falling interest rates have started rising at the long end of the curve.
Mid Caps are overweight these cyclical companies relative to other sectors of the Australian equity market. Opportunities remain to identify undervalued companies which remain well positioned to deliver earnings growth within a favourable industry structure.
*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.