|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||(-0.77)||(-1.86)||4.26||(-3.56)||5.32||3.31||3.16|
|Mid Cap Masters Index (%)||1.36||(-0.22)||5.04||(-2.34)||5.48||3.11||0.87|
|Active Performance (%)||-2.13||-1.64||-0.78||-1.22||-0.16||0.20||2.29|
The Australian share market fell -1.76% in February with the overall headline market return masking a wide dispersion of returns by sub-sector. Materials (+9.0%), Industrials (+6.2%) and A-REITs (+2.9%) all posted solid gains which where more than offset by detractors, with Financials (-7.0%), Telecommunications (-5.5%) and Information Technology (-5.1%) the major laggards. The S&P/ASX 200 Accumulation Index (-1.76%) outperformed Asian markets with Japan (-8.5%) and China’s Shanghai Composite (-1.8%) both lower. The US Dow Jones Industrial Index and the UK FTSE 100 index were relative outperformers with gains of 0.3% and 0.2% respectively.
During February, concerns around sluggish global economic growth and further tightening global financial conditions created a volatile backdrop of rising credit spreads, falling treasury yields and a weaker trade weighted US dollar. The yield on 10 year US treasuries fell below 1.7% during February, the lowest level in more than a year before rallying to close down 18bps for the month.
Commodities prices bounced off recent lows following an extended period of extreme bearish sentiment. Sentiment towards commodities improved somewhat with China making a number of confidence building announcements, including releasing its GDP growth target a month earlier than previous years. China’s government is also targeting a growth range of 6.5% to 7% for the year, which is the first officially stated range rather than a specific target since 1995. The LME Index rose +3.5%. Stronger prices for Australia’s major export commodities (iron ore rose +18%) led to gains in our currency with the AUD/USD finishing the month at $0.71.
During February, most companies reported their interim results for the six months ended 31 December. Highlights included; Orora (ORA) demonstrated its growth potential beyond the B9 paper mill synergies by announcing it has committed to invest $42m in additional glass bottle forming lines. Programmed Group (PRG) provided FY16 guidance which was lower than the market expected and announced a $75m write down to the company’s marine division which is exposed to the offshore oil & gas sector. Treasury Wine Estates (TWE) delivered on its recently upgraded guidance, producing a quality result highlighting growth in every region as well as margin expansion. CoverMore (CVO) reported 1H16 profit of $10.7m, down 27% on the previous corresponding period with significant impacts on margins in the ANZ travel business from higher claims costs. Pacific Brands (PBG) delivered its strongest set of results in some time and upgraded FY16 guidance to $73-75m. Isentia (ISD) delivered a solid set of results but underperformed with market expectations set very high, particularly on the expected margin performance. Ozforex Group (OFX) announced it has terminated discussions with Western Union following a period of exclusive due diligence. Regional banks were weaker on the back of a global macro driven repricing of credit risk and concerns around slowing volume growth.
Attribution Analysis for the month ended February 2016
|Top 5||Bottom 5|
|Healthscope||Bendigo & Adelaide Bank|
|Macquarie Atlas||Henderson Group|
|Treasury Wine Estates||Mantra Group|
|Cochlear||Platinum Asset Management|
|Vocus Communications||SAI Global|
The Concise Mid Cap Strategy returned -0.77% in February underperforming the benchmark return of 1.36%. The best performers for the month included Healthscope (HSO), Macquarie Atlas Roads (MQA) and Treasury Wine Estates (TWE). Detractors from performance included Bendigo and Adelaide Bank (BEN), Henderson Group (HGG) and Mantra Group (MTR).
Bluescope Steel (BSL) again upgraded its interim earnings number, having already upgraded its 1H16 result little more than three months prior. The stronger than guided performance is largely being driven by earlier delivery of cost reductions, a pickup in domestic sales and better margin performance. As we wrote in October, executing on cost improvements has been impressive, and continues to be so, with benefits being realised quickly. This ongoing cost improvement program not only increases the profitability of BSL domestic products but it also reduces the losses on surplus exports. Notwithstanding the current challenging, albeit improving pricing environment, positive developments continue to underpin our view that options are available to BSL provide earnings upside.
Henderson Group (HGG) underperformed last month having been swept up in a broad global financials sector sell off where tightening global financial conditions led to severe weakness in equity and credit prices for companies in the financials sector. During February, HGG reported a record FY15 profit which was in line with market expectations. The company is experiencing significant momentum in the US mutual fund market and with re-investment having already been made into staff and systems we expect this will underpin the ability to deliver significant earnings growth over time. In the near term, HGG is well positioned with surplus capital which provides capital management options including a share buyback. Longer term, HGG is well positioned to significantly increase funds under management across multiple asset classes and multiple jurisdictions.
Half Year profit reporting season took centre stage in February. Based on consensus estimates 44% of companies in the ASX 200 beat the markets expectations, 32% met expectations and 24% came in below expectations.
Calendar year to date, performance from global equities has been extremely volatile. All major global indices have delivered negative returns for the first two months of CY16. Despite this, resource names globally have bounced hard as a result of aggressive short covering and a stabilisation of physical commodity prices. The Mid Cap sector in which we operate has been significantly impacted by the rally in resource companies. After posting an 8.1% decline in January the Mid Cap Resource Sector posted a 21% gain in February. In contrast, the Mid Cap Industrials Sector posted a 3.2% decline in January followed by a 1.0% fall in February.
In our opinion, the aggressive and rapid share prices gains seen in Mid Cap resource companies is unsustainable and overdone. We believe many of these Mid Cap resource companies are still burdened with too much debt while underlying supply and demand dynamics remain unsupportive of a sustained rally in commodity prices. With the Mid Cap Industrial sector down over 4% since the start of the calendar year, the investment team sees opportunities in oversold industrials at discounted prices. As highlighted last month market estimates show mid cap industrial companies are forecast to deliver earnings growth around 8% in 2016, significantly above the 3% expected for large cap industrial companies. For the next few months we will be undertaking an extensive travel program (both domestically and internationally) focusing on value opportunities within the Mid Cap Universe.
*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.