|Net Performance (After Fees)||1 Month||3 Month||6 Months||1 Year||3 Years||5 Years||*Since inception (Annualised)|
|Concise Mid Cap Fund Return (%)||(-0.79)||(-0.60)||(-8.40)||2.96||8.70||2.65|
|Mid Cap Masters Index (%)||(-1.59)||(-2.40)||(-8.85)||3.71||8.13||0.04|
|Active Performance (%)||0.80||1.80||0.45||-0.75||0.57||2.61|
The S&P/ASX 200 Accumulation Index fell 3.0% in September and 6.6% over the quarter having faced several challenges including weaker commodity prices, data out of China suggesting moderating growth and volatility associated with uncertainty around the timing of the Fed’s first increase in official interest rates.
Australian equities, however, outperformed global markets over the quarter with the US S&P500 (-6.9%) and Dow Jones (-7.6%) both weaker. European markets sold off with the German DAX down -11.7%, the French CAC40 down -7.0% and the UK FTSE100 -7.0% lower. Asian markets underperformed with Japan Nikkei falling -14.1%, while China’s Shanghai composite fell -28.6% but remains up over +29% for the 12 months ended 30 September. Prices for commodities remained under pressure last month. Oil prices fell 5.6%, and the LME base metals index fell for the fifth consecutive month, led by zinc which fell -7.6%. Iron ore prices stabilised (+0.2%) however coking coal (-3.0%) and thermal coal (-7.0%) continued to experience weakness. In bond markets, US 10 year treasury benchmark yields fell from 2.22% at the end of August to 2.04% at the end of September.
The Australian dollar finished September at USD$0.70 having fallen -8.9% over the quarter against the USD and is down -19.8% in the year to 30 September. Broad based falls in commodity prices led to the ASX Energy and Materials sectors posting the weakest performance for the month, down -12.2% and -4.9% respectively. Other laggards were Health Care (-3.6%) and Financials ex-REITs (-3.3%). Outperforming sectors included Information Technology (+6.1%), Industrials (+2.1%) and A-REITs (-0.3%). The recovery in the US economy has continued with second quarter GDP reported at a +3.9% pace. Labour market conditions continued to improve resulting in the unemployment rate falling from 5.3% in June to 5.1% in August. In China, data continues to suggest sluggish underlying momentum. Industrial production data indicated stabilisation during the quarter with a rise to +6.3% year to date year-on-year after having reached a six year low of 6.2% in the June quarter. Fixed asset investment continued to moderate but nominal retail sales were up.
In Australia, the economy continues to expand at a moderate pace, underpinned by positive trends in the consumer and housing sectors which are supported by accommodative interest rates but held back by a capex downturn and weaker commodity prices. The unemployment rate continued to remain relatively stable and ticked down to 6.2% in August. Midcap M&A activity continued during September. Veda Group (VED) announced it had received a proposal from US listed Equifax Inc. to acquire VED by way of a scheme of arrangement, and Vocus Communications (VOC) and M2 Group (MTU) announced their intention to merge to create a full service vertically integrated telecommunications company. Other significant news included Myer Holdings (MYR) announced the outcomes of its strategic review which included a $221m capital raising with the proceeds to be used to reduce debt and fund the new strategy which is aimed at restoring growth by spending $600m over five years. Nufarm (NUF) announced FY15 profit of $105m, up 42% on the previous corresponding period and significant above the markets expectations. TPG Telecom (TPM) announced a $1 billion deal with Vodafone Hutchison Australia to deliver 4,000km of dark fibre to 3,000 mobile sites.
Attribution Analysis for the month ended September 2015
|Top 5||Bottom 5|
|TPG Telecom||Sims Metal Management|
|Macquarie Atlas Road||Veda Group|
|SAI Global||Bendigo & Adelaide Bank|
|Tatts Group||Vocus Communications|
The Concise Mid Cap strategy was down -0.79% for the month but well above the benchmark return of -1.59%. This resulted in a quarterly return of -0.60%, 1.80% above the benchmark return of -2.40%. Major contributors to performance for the quarter included TPG Telecom (TPM), Echo Entertainment (EGP), Challenger Ltd (CGF) and Macquarie Atlas Roads (MQA). Detractors included Whitehaven Coal (WHC), CSR Limited (CSR), Cochlear Ltd (COH) and Flexigroup (FXL). For the month the winners were TPG Telecom (TPM), Nufarm (NUF) and Macquarie Atlas (MQA). While the losers included Sims Metal Management (SGM), Whitehaven Coal (WHC) and Bendigo & Adelaide Bank (BEN).
In September, TPG Telecom (TPM) reported FY15 operating profit of $485m, ahead of the upgraded guidance and consensus forecasts. Organic EBITDA and margin performance was very strong in Corporate and we believe there is more margin upside to come with TPM seeking to sell more corporate products into buildings connected to its fibre network. In the Consumer segment, broadband net adds helped drive +18.5% EBITDA growth and plenty of upside remains with TPM expected to continue to win share driven by attractive pricing, improving service delivery and the NBN rollout driving a ‘hard churn’ event.
Late in September, Vocus (VOC) and M2 Group (MTU) announced a proposal to merge whereby MTU shareholders will receive 1.625 VOC shares for each MTU share. The merger provides the opportunity to extract $40m per annum of cost synergies, however the implementation of the merger also provides a number of strategic benefits and revenue upside opportunities which we believe are yet to be adequately recognised by investors. By combining MTU’s large customer base with VOC’s fibre assets the merged business will be able to leverage the fixed cost nature of VOC’s fibre assets. Winning additional MTU business customers in buildings already connected to VOC’s network will provide earnings accretion as each new corporate customer comes on at high margins. Additionally, in the market for consumer broadband services, the NBN rollout is expected increase household penetration of broadband services, driving mid single digit fixed broadband market subscriber growth. Each new NBN customer win under a merged group can be expected to be ‘on-netted’ at a higher margin and with a better network experience. Other revenue opportunities include increasing consumer broadband net adds by lowering churn, deploying MTU’s sales and marketing team into VOC’s corporate business and selling new high speed corporate products created by combining infrastructure unique to each business.
The performance of the Fund over the quarter has been encouraging and we believe is well positioned to continue to benefit from a switch in sentiment away from thematic investing towards fundamental stock picking. Australia’s GDP growth remains below its long term average and looks likely to remain that way in the foreseeable future. Inflation in Australia, just like other developed markets, remains low despite a lower exchange rate. This is putting added pressure on company management to seek alternative ways to drive margin expansion. Housing growth seems to be cooling after regulatory decisions to tighten investment standards by APRA were implemented countering this is that house prices remain at elevated levels. Globally, developed markets remain under pressure despite very accommodative monetary conditions.
In the US, the Federal Reserve seems stuck between a willingness to raise rates against a backdrop of an economy which is showing signs of stagnant inflation and minimal wage growth. The likely chance of a rate increase this year seems remote which should support other asset classes such as equities. China continues to struggle to ignite its economy through easing monetary policy, while other BRIC nations are seeing their economies under high levels of stress.
September saw the investment team travel extensively throughout the country meeting with management teams across the all segments of our investment universe. The recent volatility is creating attractive opportunities. We continue to focus on companies who can generate free cash flow, sustainable balance sheets and the ability to reinvest for higher rates of returns in the future. We are of the view the Australia market is appropriately priced with good medium to long term value.
*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.