|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||0.01||3.63||8.02||6.32||8.02||9.98||4.84|
|Mid Cap Masters Index (%)||(-0.22)||4.38||9.07||10.37||11.10||11.40||3.28|
|Active Performance (%)||0.23||-0.75||-1.05||-4.05||-3.08||-1.42||1.56|
In May, share markets around the world generally rose. The MSCI World Accumulation Index was up +2.12%, led by
strong regional performances out of the UK and Japan, with the FTSE and Nikkei up +4.39% and +2.36% respectively. US markets pushed higher with the S&P500 and Dow Jones Industrial Average up +1.16% and +0.33%. Laggards included the Shanghai Composite (-1.19%) and the Australian equity market (S&P/ASX 200 Accumulation Index -2.75%), which was held back by the large cap ASX50 stocks (-4.06%). Large caps have a heavy overweight to the financials sector on a relative global basis and were negatively impacted by the bank levy announced in the Federal budget. Mid Cap ex-50 stocks fared much better with the Concise Mid Cap Fund returning +0.07%, ahead of the Mid Cap Index return of -0.22%.
In commodity markets the most notable move was in bulk commodities where spot iron ore fell -17.2%, coking coal -39.4% and thermal coal retraced -7.5%. Base metals were also weaker with nickel (-7.1%), zinc (-2.5%), copper (-1.3%) and aluminium (-0.5%) all falling. Crude prices fell -1% to $48.60, whereas gold was the exception, rising +0.15%.
The US economy continues to show ideal conditions; low unemployment, increasing asset prices, low interest rates, GDP growth and low inflation. The US unemployment rate fell to a new post GFC cycle low of 4.4%, down from 4.5% in April and noteworthy that the last time the unemployment rate was lower was 2001. The current rate of unemployment is now below the Fed’s non-accelerating inflation rate of unemployment (NAIRU), which is an estimated number (4.7%) guided by the historical relationship that labour markets at this point should be tight and place upward pressure on wages and inflation. However, for now underlying inflation continues to track moderately below the Fed’s target. Against this backdrop, bond markets expect the Federal Reserve to take another step in
removing some monetary policy accommodation by increasing the overnight cash rate in mid June.
In China, export data for April remained stable in comparison to the first quarter with year to date year on year exports growing +8.1%. April growth in fixed asset investment, industrial production and retail sales all moderated from March highs. The Caixin Manufacturing PMI for May unexpectedly fell to 49.6, below the level that represent expansion in activity.
In Australia, Treasurer Scott Morrison delivered the fiscal 2018 budget with new policy measures including a levy on banks with at least $100bn of liabilities. Mid cap banks are not captured by this levy, which improves their competitive position. The budget also included a package of reforms to Australian broadcasting and content regulation which would broadly benefit traditional media companies. Domestic economic data releases revealed business conditions are generally healthy and showing a more positive trend in most states. Business confidence is at
its highest level since 2010. Consumer confidence is still tracking below the key 100 mark, indicating pessimists outnumber optimists. The RBA remains firmly on hold regarding the cash rate.
Mid Cap sector news included Fairfax Media (FXJ) announcing it has received takeover proposals from both Hellman & Friedman and a consortium which includes TPG Group and Ontario Teachers’ pension Plan Board. WorleyParsons (WOR) revealed at its investor day that it believes operational conditions are at an inflection point in the resources and energy cycle. JB Hi-Fi (JBH) and Harvey Norman (HVN) both provided positive sales updates, however share prices underperformed last month on the back of fear of the unknown created by Amazon announcing it will enter
the Australian retail market. The mid cap fund benefited from nil weight holdings in Flexigroup (FXL), Sigma Healthcare (SIG), Vocus Communications (VOC) and Automotive Holdings (AHG) which all downgraded earnings expectations.
Attribution Analysis for the month ended May 2017
|Top 5||Bottom 5|
|Aristorcrat Leisure||Super Retail Group|
|Henderson Group||Southern Cross Media|
|Boral||Bendigo & Adelaide Bank|
|Worley Parsons||Fletcher Building|
|G8 Education||Star Entertainment Group|
The Concise Mid Cap Fund returned +0.01% last month, above the benchmark return of -0.22%. Key share price movements included strong outperformance from Aristocrat Leisure (ALL), Henderson Group (HGG) and Boral (BLD). Major detractors were Super Retail Group (SUL), Bendigo and Adelaide Bank (BEN) and Southern Cross Media (SXL).
In early May, Graincorp (GNC) reported a solid set of interim 2017 financial results with higher than expected profit and operational earnings. While management is doing a good job improving the competitiveness of Australian exportable grain and a strengthening balance sheet provides options for investment, we assessed GNC’s prospects for a material uplift in group earnings to be limited at this point in the cycle and accordingly down weighted our position on the back of our valuation being reached.
Over the last 5 years, the ASX 200 has generated an annualised return of 11.9% per annum aided by the significant tailwind of cheaper capital as global central banks have undertaken concurrent quantitative easing. Over the last 12 months bond yields have started trending higher. As the tailwind of cheaper capital dissipates, valuation is now the primary focus for investors and whether a company’s valuation is reasonable in light of a weak underlying domestic
As we have written about previously, consensus earnings growth expectations for FY18 are favourable for mid cap companies against other sectors of the Australian equity market.
Mid cap companies are typically large players within their industry, are relatively less mature than larger companies, generate growing free cash flow and are well supported by strong balance sheets. In 2017, merger and acquisition activity has been a focus within mid caps as 7 companies have now received an offer. Additionally, many well capitalised mid cap companies are pursuing acquisitions to supplement organic earnings growth.
*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.