|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||4.52||(-2.32)||5.76||12.24||7.81||9.81||4.68|
|Mid Cap Masters Index (%)||4.02||(-0.39)||7.14||16.08||11.13||11.11||2.88|
|Active Performance (%)||0.50||-1.93||-1.38||-3.84||-3.32||-1.30||1.80|
In the December quarter the S&P/ASX 200 Accumulation Index rallied +4.4% helping the Australian equity market to post an 11.8% gain for the 2016 calendar year. Resources (+42.4%) outperformed Industrials (+7.5%) over the past 12 months. For the quarter, gains were driven by the financials, utilities and resources sectors, whereas healthcare, telecommunications and consumer discretionary were the major detractors. The Australian market’s performance relative to global equity markets was broadly similar in the December quarter. The Dow Jones Industrial Average was up 3.3%, FTSE 100 up 5.3% while Japan’s Nikkei 225 increased 4.4%.
Rising commodity prices drove the strong market performance during the year. The Base metals index rose 20.7% while spot iron ore rose 81.0% and Coal prices also delivered strong gains rising 74.7%. Oil prices rallied particularly late in calendar 2016 delivering a 12 month return of 52.4% as anticipation continues to build around the looming OPEC production cut. Despite variations throughout the year the AUD/USD currency was broadly flat finishing the year at AUD/USD $0.72.
Economic data out of the US painted an increasingly positive picture. The unemployment rate dropped from 4.9% in September to 4.7% in December. US Manufacturing PMI increased to 54.3 in December, the highest value since March 2015 while despite significant volatility in monthly data the housing market was broadly flat in 2016. The NAHB homebuilder sentiment survey in December recorded the highest reading since July 2005.
As expected by financial markets, the US Federal Reserve raised the fed funds rate by 25 basis points in December. Fed commentary suggests the future pace of hikes is expected to be gradual but also dependent on economic data which shapes the Fed’s best guess of the economic outlook.
The Reserve Bank of Australia left the cash rate unchanged at 1.50% at its December meeting. The central bank acknowledged the prospect of slowing year end GDP growth but expects the trend to be temporary. 3Q GDP contracted 0.5% with the annual figure declining to 1.8%, the lowest level since the financial crisis with contractions noted in dwelling investment, capex, net trade, government and household spending.
In December, APN Outdoor Group Limited (APO) announced a nil-premium merger with Ooh Media (OML) where OML shareholders will receive 0.83 APO shares per OML share while Corporate Travel Management Limited (CTD) acquired two companies in the UK (Redfern Travel) and Australia (Andrew Jones Travel) funded via an entitlement offer raising $71m.
Attribution Analysis for the month ended December 2016
|Top 5||Bottom 5|
|DUET Group||Mayne Pharma Group|
|Southern Cross Media||TPG Telecom|
|Worley Parsons||Gateway Lifestyle|
|Investa Office Fund||Star Entertainment Group|
|Boral||Iron Mountain Inc|
The Concise Mid Cap strategy was up 4.52% for the month exceeding the benchmark return of 4.02%. The strategy was down -2.0% for the December quarter below the benchmark quarterly return of -0.4%. Major contributors to performance over the quarter were Bendigo and Adelaide Bank (BEN), DUET Group (DUE) and Challenger Limited (CGF). Laggards were Healthscope Limited (HSO), Ardent Leisure Group (AAD), and Tatts Group Limited (TTS). For the month winners included DUET (DUE), Southern Cross Media (SXL) and Worley Parsons (WOR). Losers for the month included Mayne Pharma (MYX), TPG (TPM) and Gateway (GTY).
DUET Group (DUE) received an unsolicited, non binding and conditional proposal from Cheung Kong Infrastructure to acquire 100% of DUE’s outstanding stapled securities at $3.0 per share, payable in cash. The DUE Board has granted CKI access to undertake due diligence.
Orora Limited (ORA) announced the acquisition of Register Print Group for a total consideration of US$44m. Register Print Group is a full service provider of point of purchase retail display solutions. ORA stated the acquisition is anticipated to achieve 20% Return on Funds Employed by the third full year of ownership.
In 2016 the ASX Mid Cap 50 was the best performing segment of the Australian market.
ASX 20 Leaders 8.8%
ASX 50 Leaders 10.9%
S&P / ASX Mid Cap 50 17.8%
S&P / ASX 100 11.7%
Small Ordinaries 13.2%
S&P / ASX 200 11.8%
S&P / ASX 300 11.8%
In a volatile market, the Mid Cap 50 delivered a year of strong returns. The Mid Cap 50 is a well diversified index with no one sector dominating performance. As a result, the outlook is for continued strong earnings growth within this sector of the market.
More recently, investor focus has shifted from momentum factors placing greater importance on share price valuation. After a strong year of investor returns, earnings growth outlook and the price multiples share prices are trading on is a particular focus.
In recent months, share prices of companies missing earnings expectations have fallen multiples of the quantam of any earnings miss. While those who have benefited from the recent period of momentum outperformance are aggressively pursuing growth via acquisition, increasing the risk profile in an effort to drive share prices higher.
A disciplined approach to valuation paying particular focus to companies generating excess cash flow will outperform over the next 12 months.
*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.