|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||7.01||13.37||11.26||9.28||11.30||6.41||4.66|
|Mid Cap Masters Index (%)||4.96||13.64||13.39||8.35||12.16||6.40||2.44|
|Active Performance (%)||2.05||-0.27||-2.13||0.93||-0.86||0.01||2.22|
Australia’s equity market generally outperformed global markets last month with the S&P/ASX 200 Accumulation Index recording a +3.1% total return in May. US markets underperformed with the Dow Jones Industrial Average and S&P 500 Index posting returns of +0.1% and +1.5% respectively. In Japan, the Nikkei 225 Index outperformed posting a +3.4% gain. In Australia, ex-50 Mid caps continue to outperform the broader market and large cap indices. The Concise Mid Cap strategy has generated a positive +19.7% net return in the financial year to date, ahead of the mid cap index (+18.3%) and the broader equity market (+3.09%), as measured by the S&P/ASX 200 Index. Commodity prices took a breather last month as markets gave consideration to the likelihood of longevity in the recovery in commodity demand from China’s resource intensive industries. Bulk commodities used in steel production were weaker; spot iron ore prices fell -24.0% and coking coal fell -15.3%. Base metals also traded lower with nickel (-10.5%) and copper (-6.8%) leading the LME base metals index lower (-6.9%). Oil prices posted a fourth monthly gain (+6.2%) while gold fell (-5.7%).
Economic data out of China showed growth likely moderated in commodity consuming industries. Fixed asset investment, which represents investment in the commodity consuming industries of construction, property, infrastructure and machinery, decelerated to +10.1% year-on-year (YoY) in April from +11.1% YoY in March. Industrial production slowed to +6.0% YoY from +6.8% in March. The rate of loan growth slowed as did retail sales growth. In the US, an array of data points to stronger growth in the second quarter. The manufacturing PMI remained at a level consistent with slight growth in manufacturing activity and new home sales rose to an eight year high of 619,000. Retail sales rose a very strong +1.3% during April, indicating solid rates of consumption growth in the second quarter. The unemployment rate held steady and wage growth rose to +2.5% YoY. While wage growth, for the most part, has been stuck around a 2.0% trend since 2010, in recent quarters wage growth has risen to +2.5%, a slowly improving trend. In Australia, wage growth remains very low by historical standards and fell to +2.1% YoY in March, a new cycle low. Inflation has also been quite low for some time and recent data were unexpectedly low, which resulted in the Reserve Bank reducing the cash rate by 25 basis points at the beginning of May. Against this backdrop, the Australian dollar fell four cents to AUD/USD $0.72 and 10 year Australian government bonds rallied with the yield compressing to a record low 2.3% at the end of May.
As usual May provides an opportunity for a number of mid cap company executives to provide trading updates, a number of which confessed to poorer trading conditions or weaker earnings than the market had expected. Flight Centre (FLT), Flexigroup (FXL), Sky Network Television (SKT), IOOF (IFL), SAI Global (SAI) and Cover-More (CVO) all downgraded. Earnings upgrades were harder to come by with Aristocrat Leisure (ALL), Bluescope (BSL), Southern Cross Media (SXL) and Super Retail (SUL) exceeding expectations. Other mid cap news included the ACCC released a statement of issues in relation to the proposed acquisition of Asciano (AIO) by a consortium which includes Qube (QUB). Fairfax (FXJ) and APN News and Media (APN) announced that they are in discussions to explore a merger for their respective New Zealand assets. CYBG PLC reported its interim results with lowered cost guidance resulting in stronger expectations on cost to income performance. ALS Ltd (ALQ) announced its full year result which disappointed investors and resulted in the stock falling 7% on the day.
Attribution Analysis for the month ended May 2016
|Top 5||Bottom 5|
|Aristocrat Leisure||Aveo Group|
|TPG Telecom||Star Entertainment|
|Henderson Group||Platinum Asset Management|
|Bendigo & Adelaide Bank||Graincorp|
|Treasury Wine Estates||Automotive Holdings|
The Concise Mid Cap Fund posted a +7.01% return for the month exceeding the benchmark return of +4.96%. The best performers for the month were Aristocrat Leisure, TPG Telecom, Henderson Group and Bendigo Bank. Detractors from performance included Aveo Group, The Star Group and Platinum Asset Management.
In May, Aristocrat Leisure (ALL) reported its 1H16 result with underlying Net Profit after Tax increasing 66% significantly exceeding market expectations. All areas of the ALL business outperformed reaffirming managements adopted strategy. ALL made significant gains in market share, increased average Fee per Day and delivered meaningful margin expansion. ALL has improved the quality of its earnings profile with recurring revenue now representing 50% of group revenue. We continue to hold ALL and consider recent earnings momentum will continue.
Since the start of March the investment team has travelled extensively every week in search for quality companies that are appropriately priced which has enabled us to identify both opportunities and avoid risk. When visiting companies the Fund currently holds, we focus on retesting our original investment assumptions with management and assess thoroughly the future opportunities and risks. With companies that we are assessing as potentially new investment we discuss with management the sustainability of their business and their industry position. On average we would meet with management up to six times, along with meeting with their industry competitors, before making an assessment of valuation. In light of this, we are also always assessing what the market expectations are for companies within the mid cap investment universe.
The Funds performance over the financial year to date has been driven by its core holdings of quality companies. The Fund has avoided taking excessive risk or extreme bets on investment fads or global momentum, which can come to an abrupt end with no visibility and/or predictability. The Funds core holdings are quality industrial companies that are run by capable management with sustainable business models and generate free cash flow that can be reinvested for superior returns in the future. We are of the view that mispriced opportunities are always present in all investment cycles and with thorough analysis and a strong company visitation successful investing can be down without excessive risk leading to sustainable investment returns.
*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.