|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||0.18||8.41||12.40||10.52||7.87||4.15|
|Mid Cap Masters Index (%)||0.38||10.05||13.78||14.06||9.01||1.38|
|Active Performance (%)||-0.19||-1.64||-1.38||-3.54||-1.14||2.77|
The S&P/ASX 200 Accumulation Index fell 0.1% last month, resulting in a solid March quarterly return of +10.3% and a financial year to date return of +13.1%. The Australian market generally outperformed global market local currency returns over the quarter with the Dow Jones down 0.3%, the S&P500 up 0.4%, the FTSE up 3.2% and the Nikkei up 10.1%. The S&P/ASX 200 has now produced positive returns in 9 of the last 12 quarters.
Commodities were broadly lower. Iron ore prices fell for the sixth consecutive quarter (-17.4%), reflecting the competitive expansion of supply out of Australia into well supplied Chinese end markets. Adequate global supply also continued to impact energy markets with both crude and thermal coal prices lower. LME base metals were weaker across the board during the quarter, resulting in a 5.6% fall for the LME Index. Gold was the relative winner within the commodities spectrum, essentially flat for the quarter (-0.1%) in US dollars.
Falls in energy prices led to the ASX Energy sector posting the weakest performance (-5.7%) for the month. Other laggards were Materials (-4.51%) and A-REITs (-2.08%). Outperforming sectors included IT (+3.24%), Healthcare (+2.12%) and Financials ex-REITs (+1.97%).
Economic indicators out of China continued to point towards a moderation in the rate of economic growth. Industrial production growth decelerated to post GFC lows of +6.8% a year on, fixed asset investment growth has slowed and household income growth has been moderating in line with nominal GDP growth. The Chinese central bank responded again in March and cut by a further 25bps.
In the US, the economic expansion continues. Jobs generated by the ongoing economic recovery pushed the February unemployment rate down to 5.5%, the lowest rate since June 2008 and down from a 2009 high of 10%. The Conference Board’s consumer confidence gauge rose in March, leaving it near January’s post GFC cycle high of 103.8. Upbeat economic data had fuelled speculation that a Fed rate hike was closer but March’s statement appeared to delay the timing of potential increases with the Fed commenting on remaining slack and room to improve in labour market conditions.
Labour market conditions in Australia continued to deteriorate throughout the quarter. The unemployment rate rose to 6.3%, from 6.1% in December and remains at levels not seen since 2002. Business confidence was also weaker and is now below the long run average and is at its lowest level since before the Federal election in 2013. To foster sustainable growth the RBA is pursuing an expansionary monetary policy stance and has stated further easing of policy may be appropriate over the period ahead.
In Mid Cap news, low funding costs ensured M&A continued to be a prominent theme over the month. TPG Telecom (TPM) announced an all cash $1.4bn bid for Iinet (IIN), subject to a scheme of arrangement. Copper and gold miner PanAust (PNA) received an unconditional takeover bid from Guangdong Rising H.K and Slater & Gordon (SGH) announced a $1.3bn proposal to acquire Quindell PLC’s Profession Services division, a UK personal injury law firm.
Other Mid Cap news included; Ardent Leisure Group (AAD) announced the retirement of CEO, Greg Shaw, to be replaced by Deborah Thomas, a Non executive Director of the AAD board since late 2013. Myer’s (MYR) CEO, Bernie Brookes, also stepped down and MYR’s CFO Mark Ashby resigned to take up a role overseas. Myer (MYR) also reported lower profit results due to weak trading conditions and gross margin pressure. Chevron announced the sale of a 50% interest in Caltex (CTX) to domestic and global investors, Downer EDI announced its Keolis Downer JV entered into an agreement to acquire Australian Transit Enterprise for $163m and Sirtex (SRX) share price fell sharply on news that the SIRFLOW study’s primary end point missed statistical significance.
Attribution Analysis for the month ended March 2015
|Top 5||Bottom 5|
|Resmed Inc||Regis Resources|
|Aristocrat Leisure||G8 Education|
|Iluka Resources||Caltex Australia|
|Primary Health Care||Whitehaven Coal|
|Challenger Financial||Transfield Services|
The Concise Mid Cap strategy was up 0.18% for the month, resulting is quarterly return of 8.41% below the benchmark return of 10.05%. Major contributors to performance for the month included Resmed (RMD), Aristocrat Leisure (ALL) and Primary Heathcare (PRY). Biggest detractors for the month included Regis Resources (RRL), G8 Education (GEM) and Caltex (CTX).
News on portfolio stocks included;
In March, TPG Telecom (TPM) announced it had agreed to acquire Iinet (IIN), subject to a scheme of arrangement. TPM also released its interim results with a beat of the markets expectations and a 5% upgrade to FY15 guidance. The performance of both the Consumer and Corporate divisions exceeded what the market was looking for with a step change in international bandwidth costs and synergies from the AAPT acquisition being realised faster than expected. Looking forward, TPM is well placed to continue achieving a superior earnings growth profile, solid free cash flow generation and attractive returns on capital deployed. The ongoing rollout of the NBN is expected to continue to drive the number of households with broadband connections higher and we believe TPM has the right strategy in place to win market share within the corporate sector. By owning its own fibre infrastructure network and having a lean cost structure, TPM can pursue customer acquisition at price points were larger competitors would have significant margin erosion if they were to compete due to their inflexibility and higher cost base. Additionally, the proposed acquisition of IIN means that TPM can apply the benefits of the vertical integration model over a much larger market share of the consumer market. This acquisition should result in extraction of significant network and operating costs and help TPG to fractionalise costs associated with migrating from the legacy copper network to the NBN fibre network.
Regis Resources (RRL) issued an operational update flagging weak production at its Garden Well and Rosemont mines in the first two months of the March quarter. Mined grade was lower than expected and weaker results were compounded by lower milled tonnes due to the commencement of a cut back. We view this latest operating update as a short term setback and believe the company’s sound balance sheet, substantial gold resource base, low position on the cost curve and proven ability to generate strong returns is being overlooked.
The unprecedented low interest rate environment globally, continues to drive equity market returns. As returns from Fixed Interest investments remain near zero and in a growing number of cases turning negative, investors demand for both growth and yield is increasingly being satisfied by equity markets. As outlined earlier the Australian equity market has delivered positive returns in 9 of the last 12 months. Despite positive overall market trends, uncertainty surrounding the US Federal Reserve’s intention and timing of raising interest rates is producing high volatility of returns across equity market segments.
The Australian market remains well supported by investors given the high income yield relative to other developed markets and an Australian dollar that has stabilised following a rapid devaluation over the last 2 years.
Domestic economic data continues to provide evidence of an economy muddling through. Little evidence of improvement or deterioration in conditions. Despite this, we consider Australian consumer facing stocks well placed to outperform market returns. The recent fall in petrol prices when coupled with an easing bias from the Reserve Bank is providing consumers with a form of wage growth that has been absent the past 3 years. This is a positive back drop for a number of consumer stocks who have significantly reduced their cost bases recently.
*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.