Monthly Report

Monthly Report

July 2015

July 2015

Net Performance (After Fees) 1 Month 3 Month 6 Months 1 Year 3 Years 5 Years *Since inception (Annualised)
Concise Mid Cap Fund Return (%) 4.67 (-1.99) 3.22 1.92 10.89 3.44
Mid Cap Masters Index (%) 4.34 (-2.22) 4.51 6.08 12.33 0.96
Active Performance (%) 0.33 0.23 -1.29 -4.16 -1.44 2.48

Market Performance

The Australian market was strong in July with the S&P/ASX 200 Accumulation Index up 4.4%, outperforming global equity markets which generally increased following European leaders agreeing on a pathway forward in order for Greece to access new bailout funds and stay in the Euro monetary union. Markets in the US were up; the S&P 500 rose 2.0%, the Dow Jones was up 0.4% and the NASDAQ was 2.8% higher. In Europe, the UK FTSE rose 2.7% while the French CAC40 rallied 6.1% and the German DAX Index rose 3.3%.  China’s equity market dominated headlines and fell 14.3% over the course of the month, however still remains up +66.4% year on year. 

Commodity markets remained weak. Gold reached five year lows as China reported bullion reserves lower than expected and as investors looked ahead to the potential of a stronger US dollar backed by higher interest rates. Base metals were weaker with the LME Index falling 6.2%, led by copper (-8.8%) and nickel (-6.5%).  West Texas crude oil prices fell -20.7% with expectations of additional supply from Iran entering markets.  In bulk commodities, iron ore fell 10.1% while coal prices fared relatively better with coking coal down 3.5% and thermal coal up +0.4%. 

The US economy continues to expand moderately. Second quarter GDP growth was reported at +2.3% and was close to expectations, while the final reading of Q1 GDP was adjusted up to +0.6% from -0.2%. The unemployment rate fell two tenths to 5.3% but still appears to be at a non-inflationary rate of unemployment with the employment cost index indicating there has been no pickup to this point in the longstanding 2% wage inflation trend.  Housing market data released over July was very encouraging with home builder sentiment the highest since November 2005, existing home sales at an eight year high and housing starts reported at a 1.174m annual rate, just below the 1.190m post GFC high reported in April.  

China reported second quarter growth of 7%, keeping pace with the first quarter and government projections for the year.  Some early evidence of recent monetary easing starting to have an impact may include home prices in June were up for a second straight month. June industrial production rose to +6.8% in June, from +6.1% year on year in May and money supply growth rebounded to a four month high of +11.8% in June. 

In Australia, low interest rates continued to support the housing sector and the sustained fall in the AUDUSD also contributed to business confidence reaching its highest level since September 2013. Business conditions continued to vary across industries with the services sector stronger than mining, wholesale and manufacturing.

 Midcap company news during July included Energy Developments (ENE) announced it had agreed to a $8.00 cash per share takeover offer from DUET Group (DUE) via a scheme of arrangement. Education services provider Navitas (NVT) reported FY15 profit of $91m and guided to an earnings outlook that was below expectations. Pacific Brands (PBG) upgraded its profit guidance with stronger than expected sales from its Bonds and Sheridan brands.  Tassal Group (TGR) announced it had agreed to acquire the De Costi seafood distribution business for $50m in cash plus an earn out component. Fortescue released its June quarter result, with key highlights including shipments of 42.4Mt, an operational run rate of 170Mtpa and a decline in costs of circa 14% quarter on quarter. An overwhelming majority of iiNet (IIN) shareholders approved TPG Telecom’s (TPM) cash and scrip offer of $9.55 per share.

 

Attribution Analysis for the month ended July 2015

Top 5 Bottom 5
Echo entertainment Sims Metal Management
Aristocrat Leisure DUET Group
Boral Whitehaven Coal
ResMed Inc Transfield Services
Challenger Primary Healthcare

Fund Performance

The Concise Mid Cap Fund returned 4.67% in July, 0.33% above the benchmark return of 4.34%. Stock attribution which drove performance in July included positive contributions from Echo Entertainment Group (EGP), Aristocrat Leisure (ALL) and Boral (BLD). Detractors from performance included Sims Metal Management (SGM), DUET Group (DUE) and Whitehaven Coal (WHC).  

Echo Entertainment Group (EGP) announced that its consortium has won the bid to develop a new casino at Brisbane’s Queen’s Wharf. This is a significant win for EGP and is a considerable step towards securing EGP’s monopoly in the region. The new Queens Wharf development will include a new casino, five hotels, 50 food and beverage outlets, residential property, a cinema and significant public space covering ~10% of the Brisbane CBD. While EGP’s capital commitment is yet to be finalised, we expect the project will be value accretive.  In the shorter term, EGP continues to be well positioned. We remain attracted to earnings momentum in the mass market and improving NSW consumer trends, Chinese tourism growth and EGP’s ability to take market share. 

Boral (BLD) provided FY15 earnings guidance significantly above consensus market expectations when it announced FY15 profit is expected to be in the range of $240m to $250m, with the upgrade largely due to higher property earnings.  BLD continues to track well on a number of fronts. We expect the market to absorb price increases, the favourable macro backdrop for housing activity in both Australia and the US are expected to drive volume growth and BLD can realise benefits from the new Australian bricks JV with CSR.

 

Outlook

August sees the start of company reporting season where companies report results for the period ending 30 June 2015. Recently, market performance has been driven by macro economic events notably, the potential of Greece exiting the Euro, the timing of any rate increase in the United States and the strength or otherwise of underlying conditions in China.  During August, we anticipate high volatility in share prices as earnings are communicated to the market giving investors the ability to assess a company’s performance against a subdued economic backdrop both domestically and overseas.

We are particularly interested in outlook statements and the expectations for future earnings growth and the drivers of this earnings growth.  The implications this has for future employment intentions and the underlying background for Australian corporates and consumers  will drive share market performance over the coming 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.