Monthly Report

Monthly Report

June 2016

June 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 (%) (-2.72) 5.41 6.13 15.20 11.58 6.26 4.26
Mid Cap Masters Index (%) (-1.75) 5.97 8.35 16.31 13.51 6.72 2.19
Active Performance (%) -0.97 -0.56 -2.22 -1.11 -1.93 -0.46 2.07

Market Performance

The S&P/ASX 200 Accumulation Index fell -2.45% in June, resulting in a June quarterly return of +3.94% and an annual financial year return of +0.56%. Utilities (+6.22%), A-REITs (+3.54%) and Consumer Discretionary (+0.14%) were outperformers last month, whereas Information Technology (-7.83%), Financials ex-REITs (-5.96%) and Consumer Staples (-4.09%) and were laggards. The Australian market (-2.45%) outperformed Japan (-9.63%) and European markets but underperformed US market with the S&P 500 (+0.09%) and Dow Jones (+0.80%) local currency returns edging higher.

Commodity price generally had a solid month. Bulk commodities were stronger; spot iron ore prices rose +10.7%, coking coal was +10.6% higher and thermal coal spot prices rose +7.0%. All base metals were stronger which resulted in the LME base metals index gaining +5.46%. Crude oil prices were softer (-1.06%) having posted a very strong quarterly gain (+26.8%). Spot gold prices rose +8.80% on the back of elevated demand for the haven asset in the lead up to and after the UK’s referendum on leaving the EU block.

In bond markets, safe haven demand and a softening in the Fed’s language around its outlook for rate increases continued to drive US treasury yields lower.  Yields on many developed market sovereigns continued to flatten; 10 year US treasuries closed at 1.47%, while Germany’s 10 year sovereign debt notably fell below zero for the first time ever.

In the US, the critical consumer component of the US economy has continued to produce favourable data. Retail sales have been strong, indicating solid rates of consumption growth in the second quarter. Consumer confidence is currently at an eight month high and wage inflation continues to run at +2.5%, extending the modest pick up over recent months.

In China, data on the industrial side of the economy has also been more modest of late. The bounce early in the year for data on industrial and resource intensive sectors appears to be waning, whereas consumption data continues to be healthy.  Fixed asset investment growth slowed to +7.5% YoY in May, a notable slowdown from +11.1% in March. Retail sales growth remains solid and continues at a run rate of circa +10%.

Retail sales in Australia have been slowing with the overall picture for the domestic economy best described as patchy. First quarter GDP was surprisingly strong and showed Australia’s economy grew by +3.1% YoY. The strong GDP print along with stronger commodity prices helped the AUD/USD to rise 3% in June.

In June, ALS Ltd (ALQ) rejected a conditional takeover offer from private equity firms Bain Capital and Advent at $5.30 per share. Spark Infrastructure Group (SKI) disposed of its stake in fellow utility DUET Group (DUE). Sky Network (SKT) announced it is in discussions with Vodafone regarding a potential transaction involving a combination of their NZ businesses. Mayne Pharma (MYX) announced an EPS accretive deal involving the purchase of a portfolio of generic products. National Storage REIT (NSR) announced an acquisition of the Southern Cross portfolio consisting of 26 storage assets for $285m and an additional four storage centres for $16.1m. APN News & Media (APN) announced the sale of its Australian Regional Media division for $36.6m to News Corp Ltd and Henderson Group, CYBG PLC, BT Investment Management (BTT) were sold off by investors on concerns they will be impacted by the UK’s referendum on exiting the European Union.

 

 

Attribution Analysis for the month ended June 2016

Top 5 Bottom 5
DUET Group Henderson Group
Aristocrat Leisure Ardent Leisure
Iron Mountain Challenger Financial
Tabcorp Holdings Treasury Wine Estates
JB Hi Fi Vocus Communications

Fund Performance

The Concise Mid Cap Fund was down -2.72% for the month, below the index return of -1.75%. For the quarter the fund returned +5.41%, below the benchmark return of +5.97% for the Mid Cap Masters Index. Major contributors to performance over the month included DUET Group (DUE), Aristocrat Leisure (ALL) and Iron Mountain (INM) with Henderson Group (HGG), Ardent Leisure Group (AAD) and Challenger Ltd (CGF) the major detractors.

News on portfolio stocks included;

In early June we began exiting our position in Henderson Group PLC (HGG) on the back of concern around valuation related to funds under management flows and a view that the market was underestimating operating costs for the business. The UK referendum on EU membership was another incremental negative which creates ongoing uncertainty around funds under management flows, reduced performance fees and costs.

In late June, Vocus Communications (VOC) announced it had agreed to acquire fibre backhaul provider NextGen and two development projects for $807m. VOC already owned most components of the fibre infrastructure chain (metro & offshore) but this final piece fills in the highway between metropolitan capital cities providing VOC with a combined infrastructure footprint that matches TPG Telecom (TPM) and Optus. It is rare globally for a challenger brand to have an owned network that is as good as the incumbents and the asset enhances VOC ability to generate supernormal returns on incremental corporate services revenue. Cost synergies of $30m have been announced but there are a number of revenue synergies including being better equipped to go after large enterprise and national accounts and increasing the number of buildings into which higher margin products can be sold. Ultimately the deal increases VOC capability to take market share from the large incumbents and it is this ability for continued market share gains across both consumer and corporate services which underpins our positive outlook.

Outlook

Volatility in global equity markets continued throughout the June quarter. 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.