Monthly Report

Monthly Report

July 2017

July 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 (%) (-1.53) 0.20 4.93 0.95 7.09 10.44 4.77
Mid Cap Masters Index (%) (-0.98) 0.57 6.94 4.53 10.22 12.33 3.31
Active Performance (%) -0.55 -0.37 -2.01 -3.58 -3.13 -1.89 1.47

Market Performance

The Australian equity market fell -0.01% in July, lagging global equities. The MSCI Accumulation Index rose +2.39%, notwithstanding negative performances from Japanese (-0.54%), German (-1.68%) and French (-0.53%) equity markets. US markets where the stand out with the S&P500 and Dow Jones Industrial Average rising +1.93% and +2.54% respectively.

Commodity prices generally pushed higher underpinned by a constructive global macro-economic backdrop. Base metals rose with nickel (+10.3%), copper (+7.4%) and zinc (+1.74%) the strongest. Aluminium was relatively flat (-0.2%). In bulk commodities there were large gains for spot iron ore (+13.4%), coking coal (+20.4%) and thermal coal (+19.9%). The Australia dollar rose +4.1% to AUD/USD 0.80 by the end of July, reflecting the large rises in major export commodities (iron ore and coal) as well as a weaker US dollar.

The US economy continues to show ideal expansionary conditions; low and falling unemployment, low interest rates, GDP growth, strong consumer sentiment and low inflation. The Conference Board’s Consumer Confidence Index was the second highest reading since 2000 in July. Real GDP was estimated to grow at a +2.6% annualised rate in Q2 with consumption (+2.8%), exports (+4.1%) and business investment (+5.2%) underpinning the growth. Data continues to show a lack of inflationary pressure, which is the key enabler of the Fed’s expansionary monetary policy setting despite low unemployment. Economic releases show there still hasn’t been any significant acceleration in wage growth regardless of unemployment falling to new cycle lows. The Employment Cost Index remained stable at +2.4% YoY. Average hourly earnings confirm the trend with the annualised rate currently +2.5%.

In China, the major indicators of that economy’s health remained stable. Industrial production was maintained at +6.5% year on year (YoY), retail sales remained at +10.7% YoY and fixed asset investment moderated slightly to +8.5% year to date. Trade data was stronger than expected.

Locally, economic data releases continue to show business conditions are generally healthy and showing a more positive trend in most states. However, consumer confidence continues to track below the key 100 mark, indicating pessimists outnumber optimists.

Mid cap sector news during July included Flight Centre (FLT) upgraded earnings guidance on the back of an improvement in second half trading conditions. Myer (MYR) announced profit is now expected to be between $66m and $70m, lower than the May guidance for greater than $69m. The board of Fairfax Media (FXJ) announced it had ceased discussions with private equity parties regarding the potential for a takeover offer.

Speedcast (SDA) announced the acquisition of UltiSat, a provider of satellite services to the US government and non-government organisations. Next DC (NXT) announced a counter bid for Asia Pacific Data Centre Group (AJD) in an effort to bring data centres it leases in house. CIMIC Group (CIM) announced its 1H17 results which revealed continued growth in work-in-hand and a solid performance on margins and cash conversion. Late in the month, Webjet (WEB) announced it is in disagreement with its auditors regarding its financial statements for the year ended 30 June 2017.

Attribution Analysis for the month ended July 2017

Top 5 Bottom 5
JB Hi Fi Aveo Group
Worley Parsons Nufarm
Southern Cross Media Janus Henderson
Investor Office Fund Downer EDI
Super Retail Group Challenger

Fund Performance

In July, the Concise Mid Cap Fund returned -1.53%, below the benchmark return of -0.98%. Key contributors to performance included JB Hi Fi (JBH), Worley Parsons Limited (WOR) and Southern Cross Media Group (SXL) whereas Aveo Group (AOG), Nufarm Limited (NUF) and Janus Henderson Group (JHG) were the major detractors.

Portfolio positions exposed to the US dollar had a tougher month with the AUD/USD rising 4% to $0.80. Aristocrat Leisure (ALL) is a case in point. ALL share price retraced 10%, despite solid operating momentum right across ALL’s business units and the release of Australian industry data which shows solid electronic gaming machine market growth.

Fletcher Building (FBU) announced problematic projects in the Business and Interiors business unit has resulted in lower than expected operating earnings for the full year. In addition FBU announced that CEO and Managing Director, Mark Adamson has departed the business, effective immediately. An impairment charge of approximately $220m was also made against the carrying value of Iplex Australia and Tradelink with FBU advising that despite this it remains well within its banking covenants. While clearly negative news, FBU advised that the update has no material impact on the earnings outlook for FY18.

Outlook

The FY17 reporting season commences in August with the majority of ASX companies scheduled to report their full year results and provide commentary on their outlook for future earnings growth.

Australian economic conditions remain patchy with positive employment trends and continued improvement in business confidence offset by persistently low inflation and weak consumer confidence. In recent months, many consumer facing companies have ‘pre guided’ for lower FY17 earnings expectations while higher commodity prices will lead to higher profit margins for both miners and mining contractors.

The outlook for global economies is more positive with conditions implying global synchronous growth with many forecasts suggesting economic activity to expand at the fastest pace since 2011. The United States economy continues to show ideal expansionary conditions, recent European economic data indicates a path of slow and steady improvement while conditions in China remain healthy.

We continue to remain focused on companies with the ability to generate growing profit margins through reinvesting retained earnings into their asset base and expanding return on equity.

*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.