Monthly Report

Monthly Report

October 2016

October 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 (%) (-6.45) (-6.63) 5.44 10.34 6.74 7.38 4.25
Mid Cap Masters Index (%) (-4.60) (-5.28) 5.81 14.00 9.38 8.48 2.41
Active Performance (%) -1.85 -1.35 -0.37 -3.66 -2.64 -1.10 1.84

Market Performance

Australia’s equity market was a relative underperformer in October with the S&P/ASX 200 Acc. Index return (-2.15%) below that of the US S&P500 (-1.94%), MSCI World Acc. Index (-1.94%), UK FTSE 100 (+0.80%) and Japan’s Nikkei (+5.93%). A further rise in bonds yields proved a headwind for equities and domestically resulted in underperformance by a number of defensive sectors. In the US, ten year treasury yields rose 23 basis points to 1.82% whereas Australia’s ten year commonwealth bonds suffered falls on the back of an average rate rise of 43 basis points to 2.39%. The Healthcare (-8.3%), A-REIT (-7.9%) and IT (-6.5%) sectors underperformed whereas Materials (+1.3%), Financials ex-REITs (+0.7%) and Energy (-2.3%) held up the best.

The US economy expanded +2.9% in the third quarter supported by solid consumer spending and improving international trade. The backdrop for employment continues to improve with the employment cost index suggesting US wage inflation has risen to +2.3%, a moderate pickup from the circa 2% growth wage inflation has been stuck at for a long time. The US central bank stated job creation is “well above the pace that we estimate is needed to provide work for new entrants in the job market”.

Data out of China suggests the stabilisation in growth rates over the past few months continued into September. Manufacturing PMIs were relatively stable in October and indicated moderate expansion in activity. Higher commodity prices in recent months helped the Producer Price Index (PPI) to turn positive for the first time since early 2012. Third quarter GDP was stable and has been 6.7% for the past three quarters. Australia’s economic data continues to be mixed with business conditions reported to be above average levels but jobs growth slowing with a skew to part time over full time jobs. Consumer sentiment has remained relatively stable in recent months with optimists outnumbering pessimists.

During October Mid Cap news was dominated by external events, M&A and a number of trading updates. Henderson Group Plc (HGG) announced an agreement to merge with Janus Global Investors. Tabcorp Holdings (TAH) and Tatts Group (TTS) announced an agreement to pursue a merger whereby each TTS shareholder will receive 0.8 TAH shares plus $0.425 cash per TTS held. CIMIC Group (CIM) announced a cash takeover of UGL Limited (UGL) and APN News & Media (APN) announced it has entered into an agreement to acquire the remaining 50% interest it did not already own in outdoor advertising company Adshel.

A number of companies provided trading updates in October with profit warnings outnumbering earnings upgrades. Disappointments came from Bega Cheese (BGA), Estia Health (EHE), Healthscope (HSO), Sky City (SKC) and Aconex (ACX). Crown (CWN) and Star Entertainment (SGR) underperformed on news the Chinese government arrested junket operators and others involved in casino tourism. Ardent Leisure (AAD) was hit by a tragic accident at the Dreamworld theme park.

Attribution Analysis for the month ended October 2016

Top 5 Bottom 5
Challenger Healthscope
Bendigo & Adelaide Bank Ardent Leisure
Gateway Lifestyle Henderson Group
Mayne Phrma Star Entertainment
Worley Parsons APN News & Media

Fund Performance

The Concise Mid Cap Strategy returned -6.45% in October, below the index return of -4.60%. Outperformers included Challenger (CGF), Bendigo and Adelaide Bank (BEN) and Gateway Lifestyle (GTY). Detractors from performance included Healthscope (HSO), Ardent Leisure (AAD) and Henderson Group (HGG). Our condolences are extended to the family and friends of those who lost their lives in such tragic circumstances at Dreamworld on Tuesday 25 October.

Challenger (CGF) delivered a solid quarterly update with highlights including a second consecutive quarter of annuity sales in excess of one billion dollars. The expansion of CGF’s distribution channels continues to generate annuity sales growth (+46% on the previous corresponding period) with ongoing momentum to be underpinned by the announcement late in the month of two new key distribution agreements (AMP & Japan’s Mitsui Sumitomo Primary Life Insurance Company). CGF is exposed to several positive dynamics which underpin our long term investment thesis and should continue to create value by driving both increased sales and increased tenor of annuity products. The annuity book continues to be exposed to tailwinds including an ageing population, increasing life expectancy, an under allocation of private client portfolios to defensive assets and a growing awareness of longevity risk.

APN News and Media Limited (APN) undertook an equity raising during October to fund the acquisition of the remaining interest of Adshel. APN moves to full ownership of Adshel through the acquisition from a subsidiary of Clear Channel Outdoor. The acquisition provides APN greater exposure to the faster growing outdoor media segment and provides Adshel with capital certainty to pursue growth opportunities.

Outlook

Volatility in global equity markets has been heightened in recent months as investors still determining the implications of Brexit are now faced with a much closer US electoral race than originally anticipated. As we have written about previously, bond markets continue to sell off with yields at the long end of the curve rising substantially.

In Australia, the current AGM season is providing companies the opportunity to deliver trading updates for the first quarter of FY17. Similar to commentary provided during the August reporting season, conditions are mixed with several areas of the economy showing strong growth while others are in decline. The recent pull back in the Australian equity market has resulted in valuations becoming more compelling. We continue to progress several opportunities where we consider valuations to now be attractive.

*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.