Monthly Report

Monthly Report

July 2016

July 2016

Net Performance (After Fees) 1 Month 3 Month 6 Months 1 Year 3 Years 5 Years *Since inception (Annualised)
Concise Mid Cap Fund Return (%) 8.47 12.92 18.71 19.39 13.42 8.32 5.25
Mid Cap Masters Index (%) 8.32 11.70 22.59 20.75 14.63 8.51 3.16
Active Performance (%) 0.15 1.22 -3.88 -1.36 -1.21 -0.19 2.09

Market Performance

Global markets pushed higher in July despite the disquiet caused by Britain’s vote to exit the European Union, lingering concerns about the health of the European banking sector and the International Monetary Fund trimming its world growth forecast for the fifth time in 15 months. The MSCI World Accumulation Index rose +4.2% with the Australian S&P/ASX200 Acc Index (+6.3%) outperforming the US S&P500 (+3.6%) and Dow Jones Industrial (+2.8%), as well as the Shanghai Composite (+1.7%) and UK FTSE 100 (+3.4%). Domestically, leading sector returns came from consumer discretionary (+8.8%), consumer staples (+8.5%) and materials (+7.8%) with energy (+0.2%), information technology (+3.1%) and telecoms (+4.2%) the laggards.

US economic data suggests the world largest economy continues to be on a gradual growth path. The initial estimate for second quarter GDP growth (+1.2%) was weaker than expected but showed strong consumption growth together with a drop in business investment and government spending. Jobs growth was much stronger than expected last month but inflation remains subdued with the core PCE price index running at +1.6% year on year, below the Fed’s 2% inflation goal.

In Australia, inflation eased to a 1.0% annual rate in the second quarter, its weakest pace since June 1999. Data out of China also suggested underlying inflationary pressures are subdued with the Chinese CPI (+1.9%) slowing for the second consecutive month to be below 2%.

In bond markets, disinflationary trends helped yields in major developed G4 economies of US, Japan, Euro Area and the UK reach historic lows. 10 year US treasuries finished the month at 1.45%, UK 10 year gilts yield just 0.68% and yields on 10 year Japanese (-0.18%) and German bonds (-0.12%) remain in negative territory. The yield on Australia’s 10 year commonwealth bonds compressed to 1.87%. Despite Australia’s narrowing interest rate differential to US rates, the AUD/USD actually rose to $0.76 with the assistance of stronger commodity prices.

Bulk commodity prices had a strong month. Spot thermal coal was up +16.5%, coking coal +10.3% and spot iron ore finished the month +6.6% higher. All base metals rose led by nickel +13.0% and zinc +6.7%. Gold traded higher (+2.5%) on the back of safe haven demand as well as major central banks (UK, Japan and European Central Bank) keeping the door open for more monetary stimulus.

In mid cap news Treasury Wines Estate (TWE) announced an underlying earnings upgrade early in the month and also announced the divestment of 12 brands deemed to be non-core. Asaleo Care Ltd (AHY) shares were sold off on the back of the company downgrading its profit expectations from steady to a decline of approximately 15%. CIMIC Group (CIM) shares also underperformed with its reported profit number missing expectations. SAI Global (SAI) confirmed it is reviewing a possible sale of its assurance business and the ACCC announced it would not block the acquisition of Asciano (AIO) by Qube (QUB), Brookfield and others.

Attribution Analysis for the month ended July 2016

Top 5 Bottom 5
Aristocrat Leisure Gateway Lifestyle
Nufarm Healthscope
Ardent Leisure Henderson Group
CYBG Iron Mountain
Maquarie Atlas Roads Orora

Fund Performance

The Concise Mid Cap Fund was up +8.47% for the month, above the index return of +8.32%. Major contributors to performance over July included Aristocrat Leisure (ALL), Nufarm (NUF) and Ardent Leisure Group (AAD). Major detractors for July were Gateway Lifestyle group (GTY), Healthscope (HSO) and Henderson Group (HGG).

News on portfolio stocks included;

Bluescope Steel (BSL) announced an additional upgrade to its FY16 EBIT guidance together with a reduction of Net Debt of approximately $600m. BSL highlighted stronger margin performance across its international businesses particularly the North Star business in North America. The revised guidance number represents a 88% improvement in underlying EBIT driven by a highly successful cost out program while undertaking additional investment in better performing geographies where BSL has a clear competitive advantage. The increased returns to share holders reflect the strong execution of a highly successfully strategy implemented by a high quality management team.

Outlook

Global macro economic events continue to heavily influence short term movements in equity markets. Accommodative policy settings by central banks while aiming to stimulate inflation provide a positive backdrop for equity market returns.  Despite uncertain short term share price performance, over the medium term investors will continue to reward companies showing sustainable growth in earnings.

Australian economic conditions remain patchy. Retail sales are slowing and inflationary pressures remain weak indicating a weak demand environment.  Accordingly, the opportunity to continue driving earnings higher remains tough.  It is in this environment where the quality of company management will dictate the future earnings growth profile.  Specifically, we are looking to invest in companies where the strategy of company management will lead to an improved market position over competitors.  As the cost of capital continues to reduce, investment decisions by company management and the return on that capital will be critical to achieve this outcome.

*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.