Monthly Report

Monthly Report

January 2017

January 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 (%) (-1.33) 3.03 (-3.8) 14.20 8.62 8.00 4.48
Mid Cap Masters Index (%) (-1.17) 3.19 (-2.25) 19.83 11.85 9.37 2.71
Active Performance (%) -0.16 -0.16 -1.55 -5.63 -3.23 -1.37 1.77

Market Performance

Global markets continued to focus on the policy agenda of the new US president in January. The S&P 500 and Dow Jones Industrial Index finished up +1.8% and +0.5% respectively. The MSCI Accumulation Index rose 2.4%, while Australia’s S&P/ASX 200 Accumulation Index fell -0.8%.

When Donald Trump first won the US presidential election global equity markets rallied at his victory and the prospect of additional fiscal stimulus. As we progressed through January, however, the goldilocks conditions where markets priced the promise of US corporate tax cuts, fiscal stimulus and trade policy reform without execution risks or unintended consequences started to wane. Defensive assets had a better month; the yield on US treasuries remained relatively flat, spot gold prices rose +5.2% and the US dollar weakened with the trade weighted US dollar index off its highs and the USD weaker against the Australian dollar, closing at $0.76.

Economic data out of the US shows a lift in sentiment post the election. The ISM manufacturing composite index jumped to a two year high of 54.7 in December and consumer confidence climbed to a 15 year high in December. The December employment report showed that average hourly earnings growth rose to a post GFC cycle high of +2.9% year on year (YoY).

In China, the annualized GDP number lifted from +6.7% in 3Q16 to +6.8% in 4Q16. Data for commodity intensive areas of the economy was mixed. December property investment and starts data was strong. However, fixed asset investment growth slowed from +8.3% to 8.1% year to date YoY and industrial production growth slowed from 6.2% to 6.0% YoY.

Against this backdrop, global commodity prices posted another strong month. The LME base metals index rose +7.4% with lead (+18.6%) and zinc (+11.1%) the strongest. Iron ore prices rose (+5.6%)for the fourth consecutive month, while coking coal (-24.9%) and thermal coal prices (-12.4%) pulled back having posted sharp gains in the December quarter.

In Australia, stronger commodity prices have markedly improved our trade position with the Australian Bureau of Statistics revealing a $3.5bn surplus in the December quarter. Business confidence remains at average levels with conditions strong in property, recreation and personal services but still weakest in mining, albeit improving.

In Midcap news during January included disappointing earnings outlooks from Bellamy’s Australia (BAL), Virtus Health (VRT), and Aconex (ACX). BAL and ACX, both high PE ‘growth’ names, suffered severe falls with BAL (-37%) having announced it needs to pay penalties to suppliers and ACX (-41%) citing weakness in several areas as well as admitting original guidance was not cautious on how revenue from user based contracts grows. Bega Cheese (BGA) announced it will acquire most of Mondelez ANZ grocery and cheese business for $460m. DUET Group (DUE) announced its board recommends the bid from CKI consortium under which the CKI consortium has agreed to acquire DUE for $3.03 per share.

Attribution Analysis for the month ended January 2017

Top 5 Bottom 5
Boral Henderson Group
Iron Mountain APN News & Media
ResMed Ardent Leisure
DUET Group Mantra Group
Cochlear Star Entertainment Group

Fund Performance

The Concise Mid Cap Fund returned -1.33% in January, below the index return of -1.17%. Outperformers included Boral (BLD), Iron Mountain (INM) and ResMed Inc (RMD). Detractors from performance included Henderson Group (HGG), APN News & Media (APN) and Mantra (MTR).

Bluescope Steel (BSL) announced an upgrade to its 1H17 EBIT guidance to ‘around $600m’ up from ‘at least $510m’ citing stronger steel prices and spreads, stronger iron ore prices for its iron sands and productivity improvements, including further costs reductions. The increased returns to share holders reflect the strong execution of a highly successfully strategy implemented by a high quality management team.

Outlook

February will see the majority of companies report their 1H17 results. While the domestic economy remains sluggish, company outlook statements will be critical to determine the earnings growth profile for 2H17 and what momentum this carries into FY18 earnings.

The end of December 2016 quarter saw the return of value over growth. We are of the belief that many high quality value companies within the mid cap universe and in particular the Concise Mid Cap Strategy are still under appreciated and offer good returns with a margin of safety. Despite share price falls in mid cap growth stocks over the last few months, many are still trading on high PE’s and are likely to be sold off if lofty earnings expectations are not met. These are companies that we will continue to avoid, preferring to focus on companies that present value within industries and against peers.

As fundamental value bottom up stock pickers we will continue to focus on companies that have the ability to generate growing cash flows. We believe that it is these quality companies who can reinvest back into their business to generate superior rates of return and without incurring balance sheet stress are the ones likely to deliver the best returns in the future.

*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.