September, 2023
Fund performance for the quarter ending September 2023 was +2.18% (net of fees) versus the benchmark return of -5.26%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of -1.94% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Markets continued to adjust to the emerging regime of ‘higher for longer’ following the surge in US 10-year Treasury yields. Micro-cap3 returns of -5.26% underperformed both small caps4 of -1.94% and large caps5 of -0.71%. The Fund extended its positive performance over reporting season, outperforming by +2.78% (net of fees) for the month and +7.44% (net of fees) for the quarter.
Escalating bond yields have prompted intensified scrutiny on the cost of capital for our holdings and prospective ideas to ensure that they have the right capital and funding structures to generate returns on investment that align with the demands of a higher rate environment. This ensures the Fund is well structured to weather periods of volatility relative to the risk associated in the more unprofitable and speculative components of the Emerging Companies (XEC) benchmark. While this resulted in a rampaging XEC index over the past few years, fuelled by cheap, almost freely available capital and regardless of profitability, it appears that the tide is finally going out for those companies that are unprofitable or without sustainable business models.
Rising prices across the energy complex saw strong returns from Fund holdings Karoon Energy (oil) and Boss Energy (uranium) in September. Yield sensitive technology positions were softer, notably Objective Corporation and Macquarie Technology. TPG Singapore’s spin-off, Tuas, surpassed expectations at its full-year results with a strong mobile subscriber number ahead of expectations.
This quarter, the largest positive contributors to performance were Boss Energy and Johns Lyng Group. Negative contributors included Objective Corp and Imdex.
Key Contributors
Boss Energy (BOE) rose 48.1% as a prolonged uranium bear market begins to thaw, with prices reaching over $70 per pound in September. Factors such as the sourcing of ex-Russian supply, growing global momentum in the adoption of nuclear energy and the emergence of financial speculators (such as the Sprott Physical Uranium Trust) have significantly tightened the spot market. BOE is well positioned to capitalise with its Honeymoon project anticipated to commence inaugural production this quarter.
Key Detractors
Objective Corp (OCL) fell 21.5% over the quarter. OCL provides a suite of software and workflow solutions to customers in highly regulated markets. 2023 was a transitional year as the company made a purposeful decision to end perpetual upfront licence sales and refocused product development to reduce deployment cost. The Fund has been patiently and selectively building its position as several new products are anticipated to reinvigorate revenue growth in the future from its historical and lower-growth Enterprise Content Management (ECM) roots.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2309-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfAugust, 2023
Fund performance for the month of August 2023 was +3.75% (net of fees) versus the benchmark return of -4.17%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of -1.31%, as measured by the S&P/ASX Small Ordinaries Accumulation Index.
The absence of any major macro news flow throughout the month of August allowed the market to unequivocally focus on company results. Reporting season is always a key test for the Fund holdings given Ausbil’s focus on earnings and earnings revisions. The Fund outperformed the Emerging Companies Index by 7.92% (net of fees), reflecting a consistent quality focus against the volatility of the more speculative components within the micro-cap benchmark. Performance throughout the month of August vindicates our preference for high quality, liquid and profitable business which are in upgrade cycles.
Quality growth emerged as the prevailing theme this reporting season as investors sought shelter in companies demonstrating robust structural growth characteristics in a slower growth environment. High conviction quality-growth holdings in Johns Lyng Group (+21%) and PSI Insurance (+10%) were rewarded after impressive results backed by positive outlook statements. Technology positions also continued to outperform following earnings upgrades from Life360 (+21%) and a strong result from Hansen Technologies (+6%). Selective positioning in consumer discretionary, such as Temple & Webster (+9%) added to performance.
Key Contributors
Life360 (360) extended a period of strong performance, returning 20.7% in August. The company delivered a strong 2nd quarter result, with core subscription revenue growth of +55% yoy and a full-year EBITDA guidance upgrade of +50% at the midpoint. The result reflects a maturing of 360’s strategy after successfully executing a shift to profitability through subscription price rises and cost out. Growth initiatives, such as subscription conversion through Tiles hardware bundling and a staged international rollout are set to continue the organic momentum.
Johns Lyng Group (JLG) rose 21.4% after a its full-year result (already prereleased) showed fantastic operating cash flow conversion and a robust outlook statement. While full-year guidance was broadly in line with current market expectations, the earnings mix was of higher quality as business-asusual lines continue robust growth driven by ongoing market penetration, the roll-out of strata services and the integration of recent acquisitions.
Key Detractors
Imdex (IMD) fell 17.4% after a full-year earnings result below consensus expectations. Slowing drilling data and a shift in revenue away from higher margin instrument rentals saw a material decline in 2H group operating margins. Positively, the recent acquisition of Devico performed in line with expectations for its 4-month contribution in FY23. Although timing is uncertain, an increase in sensor rentals from June, coupled with indicative signs that drilling activity and junior raising data has troughed, support a recovery.
Global Lithium (GL1) retraced 19.7% in a broadly weaker month for the lithium sector on softer Chinese EV demand and a reversal in Chinese lithium carbonate pricing.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2308-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfJuly, 2023
Fund performance for July 2023 was +0.65% (net of fees) versus the benchmark return of +3.99%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +3.54% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
After an aggressive rate hiking cycle, milder inflation prints permit central banks to fine tune monetary policy and shift into a pausing phase. Policy makers appear to have orchestrated the highly sought after ‘soft-landing’ as economic growth remains below-trend, but positive, excessive demand is tamed, and labour markets remain resilient.
Micro caps3 and small caps4 returns of 3.95% and 3.53% respectively outperformed large cap5 returns of 2.82% over the month on increased confidence in the soft-landing scenario. Peaking rates and moderating inflation should improve the earnings visibility of smaller companies and broaden returns that have been overlooked in the rally. The market has also rewarded smaller companies refocusing on operating profitability, with returns from Megaport and Siteminder (neither held) over the month as they reform to self-sustaining growers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2307-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfJune, 2023
Fund performance for the quarter ending June 2023 was -3.29% (net of fees) versus the benchmark return of -2.47%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -0.54% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Equity market returns muddled through the month of June against the backdrop of a resilient labour market and moderating inflation expectations. Technology indices led returns for the quarter, with the NASDAQ and ASX All Technology Index returning 13.1% and 9.3% respectively. The Fund’s technology positions were beneficiaries, notably Macquarie Technology, which completed a successful raising to fund the next leg of growth likely to come from AI induced data centre demand.
Turning to the financial year, the Fund returned 3.8% (net of fees). Contributors to performance came from the Fund’s core industrial positions in PSC Insurance and TUAS, in addition to technology positions in Life360 and Macquarie Technology. Poor performances (operational and share price) from resource positions in 29Metals (copper) and Panoramic Resources (nickel) detracted from returns.
While markets recorded a positive recovery since the lows last year, returns were concentrated in large caps5 , returning 15.1%, relative to small-cap4 and micro-cap3 returns of 8.5% and 7.4% respectively. The valuation disparity that has emerged between micro and large caps offers an enticing opportunity for investors. As rate hikes approach their peak, inflation moderates and earnings visibility for smaller companies improves, there is a strong case for a broadening of the equity market rally into the smaller end of the market. The wide divergence in growth expectations in FY24 and the redrawing of business plans by earlier stage companies to accelerate their path to profitability presents an opportunityrich environment for our investment approach which is focused on earnings and earnings revisions.
This quarter, the largest positive contributors to performance were TUAS and Macquarie Technology. Negative contributors included Johns Lyng Group and Imdex.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2306-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfMay, 2023
Fund performance for May 2023 was -5.04% (net of fees) versus the benchmark return of -6.32%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -3.26% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
May exhibited a significant divergence in performance within the small and micro-capuniverse. Micro-cap3 returns of -6.32% significantly underperformed both small caps4 of -3.26% and large caps5 of -2.44%. The S&P/ASX All Technology Index return of 3.97% was the standout, taking positive leads from offshore as AI enthusiasm took centre stage. Several trends stood out over the month of May, though most pointed to a softening in general activity. The rapid hiking of interest rates and ongoing cost of living pressures are finally beginning to manifest in a consumer slowdown.
The magnitude of consumer exposed downgrades, and the speed at which sentiment has turned, suggest we could be on the cusp of a significant discretionary retail slowdown, far bigger than we have seen in many years. The Fund’s position Life360 was the largest contributor, which recorded strong subscription growth and cost discipline as it reaches a potential inflection point in earnings. The Fund’s resources positions made up most of the detractors for the month, as softer base metal prices, an uncertain macroeconomic profile and several operating challenges exacerbated share price declines.
File:April, 2023
Fund performance for April 2023 was +1.09% (net of fees) versus the benchmark return of +1.52%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +2.78% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Relative to the March quarter, equity markets exhibited some level of calm in April. The banking crisis triggered by Silicon Valley Bank has remained relatively confined to other regional or under-capitalised banks rather than broader financial contagion at this stage.
The Fund return of 1.09% underperformed both the small cap3 return of 2.8% and large cap4 return of 1.7%, due to a combination of positioning and stock selection. The Fund benefited from its core industrial positions in Johns Lyng Group, which announced it was appointed by the South Australian government for disaster recovery work’s following recent flooding. Macquarie Technology Group also added to performance after the large hyperscale contract announcement by peer NextDC tightens market data centre supply. Select resource positioning detracted following softening demand and individual operational challenges, notably Syrah Resources.
Gold however was the exception, as the USD gold price tested record highs, with a strong performance from the Funds gold position in Genesis Minerals. The Fund continues to progressively deploy capital into several new and existing opportunities given the emerging valuation gap in small and micro caps relative to large caps and earnings upside in select opportunities. This month, positive contributors to performance were Johns Lyng Group and Genesis Minerals. Negative contributors included Syrah Resources and Imdex.
File:March, 2023
Fund performance for the quarter ending March 2023 was -2.10% (net of fees) versus the benchmark return of +2.38%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +1.88% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
The March quarter was marred by volatility with Silicon Valley Bank and then Credit Suisse raising concerns of turmoil in the global banking system. However, equity markets finished the quarter higher as the potential for broader systematic risk was contained, with technology-heavy indices the strongest performers following a 17.0% rise in the NASDAQ and a 11.1% rise in the S&P/ASX All Technology Index5 after a challenging 2022 calendar year -32.5% and -31.9% respectively. The S&P rebalance of the Emerging Companies Index in March resulted in significant share price appreciation of numerous companies before they exited the benchmark. Many of these companies are classified as speculative and more concept in nature according to our investment process. For example, Weebit Nano, a pre-revenue developer of new semiconductor memory technology, returned 132.6% for the quarter to index inclusion, only to then fall 34.1% after exiting the benchmark and therefore not being captured. On the positives, the Fund benefitted from strength in core positions in DGL Group, Data#3 and Johns Lyng Group, in addition to a strong earnings upgrade by TPG spin-off Tuas following its March update. Resources were broadly a detractor over the quarter. Negative contributors included 29Metals and OFX Group.
File:February, 2023
Fund performance for February 2023 was -3.73% (net of fees) versus the benchmark return of -4.22%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -3.70% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2302-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfJanuary, 2023
Fund performance for January 2023 was 3.97% (net of fees) versus the benchmark return of 7.17%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of 6.56% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Markets started the New Year with fresh optimism as global risk assets rebounded aggressively in January. Continued strength in the labour market and a series of moderating inflation prints was sufficient to drive confidence in a ‘soft landing’ scenario as central banks begin softening the path of rate hikes. The recovery in risk-assets was broad based, with micro caps2 +7.17%, large caps4 +6.26%and Australian technology5 +10.10%, all higher over the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2301-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfDecember, 2022
Fund performance for the quarter ending December 2022 was +5.01% (net of fees) versus the benchmark return of +2.57%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of +7.54% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Market hopes of a Santa rally fizzled into a Santa slide, ending a challenging year for many asset classes. The less liquid micro-cap2 segment of the market bore the brunt of the sell-off, down 22.5%, relative to large-cap4 returns of +0.6%. The micro-cap segment could have been a lot worse, as companies such as Jervois Global (JRV) fell 66.8% and Lake Resource (LKE) fell 48.4%. AVZ Minerals has been suspended since May 2022 after exiting the benchmark in March 2022 so their fall was not captured. The dominant theme over the year was inflation and the impact of higher rates on asset valuations.
The Fund responded relatively early to the impact of rising rates by reducing exposure to higher growth names, rotating into more defensive growth exposure through Data#3 and later Hansen Technologies which were both strong performers. Exposure to battery materials, in particular an early investment in Core Lithium, added to performance in addition to positions in Lovisa and PWR Holdings. This quarter, positive contributors to performance came from Lifestyle Communities and Imdex. Negative contributors included 29Metals and City Chic.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2212-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfNovember, 2022
Fund performance for the month of November 2022 was +4.50% (net of fees) versus the benchmark return of +3.33%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +4.92% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Softer than expected inflation data in the US and Australia supported the narrative that global inflation had peaked, which underpinned the market rally from early October. This was further supported by comments from the Federal Reserve Chair, Jerome Powell, which indicated that the pace of rate hikes would likely moderate soon, potentially as early as the December meeting. For the second month in a row, the micro-cap benchmark return of +3.33%2 was below the small-cap return of +4.92%3 and large-cap return of +6.68%4 . The Fund outperformed the micro-cap benchmark by 1.17% (net of fees). The Fund’s resources positions were a significant contributor to performance, following rumours and then clear evidence of a reopening in China. The Fund benefited from copper exposure, through 29Metals, and Imdex, a leading mining technology business. Returns from core holdings in Johns Lyng Group, Lifestyle Communities and PWR Holdings also added to performance, offset by a softer performance from Life360 following a capital raising. This month, contributors to performance included Imdex and Johns Lyng Group. Negative contributors included Life360 and OFX Group.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ausbil-microcap-fund-november-2022.pdfOctober, 2022
Fund performance for the month of October was +5.51% (net of fees) versus the benchmark return of +2.93%, as measured by the S&P/ ASX Emerging Companies Accumulation Index and the reference index return of +6.46% as measured by the S&P/ASX Small Ordinaries Accumulation Index. Lower-than-anticipated rate hikes by the Reserve Bank of Australia and the Central Bank of Canada tentatively indicated that central banks are beginning to moderate the speed of monetary tightening.
This somewhat reflects a deteriorating economic outlook, however central banks in Australia and abroad remain firmly focused on bringing inflation back toward a 2% target. Ongoing gyrations in economic data has resulted in heightened market volatility.
The Fund outperformed the micro-cap benchmark by +2.58% (net of fees). Performance was driven by a strong recovery in the Fund’s core holdings, including Lovisa, where we anticipate the store-rollout program is continuing to pick up pace. Technology exposure also performed strongly, Data#3 delivering a positive AGM trading update, Life360 putting through price rises and Jumbo Interactive with improving jackpots. Data#3 continues to benefit from ongoing structural trends in digital transformation with high earnings certainty rewarded by the market. Overall, the Fund continues to retain a balanced portfolio exposure into November with an elevated focus on earnings quality and balance sheet strength. This month, the largest positive contributors to performance were Syrah Resources, Life360 and Lifestyle Communities. Negative contributors included 29Metals, Mincor Resources and Panoramic Resources.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2210-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfSeptember, 2022
Fund performance for the September quarter was 4.36% (net of fees) versus the benchmark return of 4.82%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -0.47% as measured by the S&P/ASX Small Ordinaries Accumulation Index. The macro trumped the micro throughout the month of September, which accelerated the downdraft in equity markets. All eyes were on the Federal Reserve after a series of strong economic data which would likely result in an increasingly hawkish central bank.
In a twist, good news suddenly seemed bad for equity markets, all of which indicate that a Fed pivot is not yet on the immediate horizon and the prospect of an economic hard landing will not derail the Fed from reaching their price stability goals. The Fund marginally underperformed the benchmark in a volatile quarter by -0.45% (net of fees), however it convincingly outperformed the Small Ordinaries Index by 4.84% (net of fees).
The Fund benefited from strong earnings results from Lovisa, Data#3 and Tuas, and from industrial positions in PSC Insurance, Life360 and PWR Holdings. Energy and Materials also supported returns through exposure to rising energy prices and battery materials. The Fund retains its focus on high-quality companies with strong balance sheets, low gearing and recurring earnings that can see through the economic and market uncertainty, and selectively added to positions over the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2209-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfAugust, 2022
Reporting season was reliably eventful, not least of which was DGL Group which fell -36% on the last day of the month. Despite this, the Fund outperformed due to the well-rounded portfolio positioning, and on balanced, superior stock selection with contributions from Lovisa (+30%), PSC Insurance (+18%), PWR Holdings (+14%) outweighing detractors. A bounce in 29Metals (+33%) and continued strength in Core Lithium (+21%) also contributed. As a reminder, the Fund is actively managed, adopting high conviction positions with appropriate diversification. Uniti Group, Johns Lyng Group, Lovisa and Lifestyle Communities are some of holdings held over recent years that have generated significant returns for investors, however the unfortunate reality is that some companies temporarily disappoint. Importantly, adopting a well-diversified portfolio of individual holdings, backed up by a consistent and proven investment process has generated superior investment returns for investors over the medium and long term. This month, the largest positive contributors to performance were Lovisa, 29Metals and Syrah Resources. Negative contributors included DGL Group, City Chic and Aussie Broadband.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2208-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfJuly, 2022
Fund performance for the month of July was 11.23% (net of fees) versus the benchmark return of 14.31%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of 11.43% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Positive contributors from the Fund included high-conviction positions in Johns Lyng Group, which the Fund selectively added to during the May and June sell-off, and long-term holdings in Lovisa and Lifestyle Communities. The Fund also benefitted from a well-received update from value-added IT reseller Data#3, with an extended backlog of hardware products given supply shortages.
The takeover of Uniti Group was completed in July, marking the end to the Fund’s long-term and most successful investment since inception. On the detractors, the Fund’s materials exposure broadly failed to keep up with the overall strength of the market. This month, the largest positive contributors to performance were Johns Lyng Group, Lovisa and Data#3. Negative contributors included DGL Group, 29Metals and Panoramic Resources
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2207-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfJune, 2022
The downdraft in equity markets accelerated in June as central banks displayed a willingness to front-load rate hikes in order to negate inflationary pressures. The US 2/10 yield curve inverted and the market became increasingly concerned about a potential recession and subsequent earnings downgrades. A flight to safety featured throughout the broader market selloff, which was exacerbated by the Small Resources index falling over 22% in the month of June. This capped off a tough year of Australian Small and Micro Cap stocks, with both benchmarks materially underperforming the ASX100. The Fund outperformed +3.43% (net of fees) over the quarter to June, despite being down -24.43% in absolute terms. Whilst we acknowledge recent conditions have been volatile and somewhat challenging, we are encouraged about some of the opportunities the recent sell-off has presented.
The bulk of positive absolute performance came from positions which are currently under takeover, such as Uniti Group and Ardent Leisure, while the Fund’s positioning in defensive industrials, such as Propel Funeral Partners also contributed to performance. Throughout June, our company visitation program included a research trip to the USA seeing over a dozen companies, providing a timely update on the pulse of the USA economy as well as many current and prospective holdings offshore operations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2206-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfApril, 2022
Fund performance for the month of April was -0.28% (net of fees) versus the benchmark return of -4.31%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -1.50% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
The Fund delivered +4.03% outperformance (net of fees) in the month of April. This was pleasing against the backdrop of precipitous market gyrations and volatility, and as we seek to construct a portfolio that provides greater capital protection during down markets compared to the benchmark. The Fund’s macroeconomic overlay, used as a tool and guide to direct research efforts, has benefited positioning over the past 6-months as interest rate expectations have risen. Shifting economic and market conditions saw in the fund redeploying capital from high-multiple growth companies, that have borne the brunt of the sell-off, into quality defensive growth businesses with a focus on sustainable business models and high cash flow generation. Quantitative easing and the low-rate environment which has supported the many unprofitable and speculative companies now appears to be unwinding, leaving lofty COVID valuations and beneficiary earnings a distant memory
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2204-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfMarch, 2022
Fund performance for the March quarter was -5.51% (net of fees) versus the benchmark return of +0.24%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of -4.21% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Key Contributors Core Lithium (CXO) returned 133.1% over the quarter, closing at $1.375. Importantly, CXO has been a key contributor to performance after initiating a position in August 2021 following a placement at $0.31. Despite the strong run, the company remains one of the more promising emerging lithium developer in the Australian Ex-200 universe. In March, CXO signed a binding term sheet with Tesla to supply spodumene over 4-years, which importantly includes a market referenced pricing mechanism. CXO is anticipated to commence maiden production later this year with the potential for further drilling opening options to pursue Stage 2 expansions, which would double planned production, with further long-term optionality to pursue downstream conversion.
Key Detractors City Chic (CCX) fell 38.2% over the quarter after a larger than anticipated inventory build-up following a strategic decision to support strong growth given supply-chain constraints. Praemium (PPS) fell 53.1% after posting a result with significantly higher cost growth than anticipated, disappointing expectations for operating leverage in the Australian business following more consistent net inflow momentum and the sale of the loss-making international business. Pinnacle (PNI) retraced 30.9% for the quarter. PNI is susceptible to shortterm market gyrations given its market-linked exposure through its equity affiliates and higher relative multiple to peers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2203-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfFebruary, 2022
Fund performance for February was -3.22% (net of fees) versus the benchmark return of -1.87%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -0.01% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Key Contributors
Lovisa (LOV) returned +13.0% over the month after posting a strong half-year result well ahead of market expectations driven by the economic reopening in the US and Europe. Same-store sales growth of +12.1% for the first 8 weeks of the second half show continued business momentum and minimal impact from Omicron. As COVID-induced restrictions ease and supply-chain challenges stabilise, the scene is set for an accelerated global store rollout and continued momentum in same store sales growth.
Key Detractors
Praemium (PPS) fell -39.3% after posting a result with significantly higher cost growth than anticipated, disappointing expectations for operating leverage in the Australian business. This was further compounded following the removal of any M&A premium as commentary from previous suitor, Netwealth (NWL), removed the likelihood of a further bid.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2202-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfDecember, 2021
Fund performance for the December quarter was +7.66% (net of fees) versus the benchmark return of +8.26%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +2.03% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2112-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfNovember, 2021
Fund performance for the month of November was -1.50% (net of fees) versus the benchmark return of -0.41%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
Key Contributors Johns Lyng Group (JLG) rose +14.80% in November to all-time highs. Management confirmed revenue and EBITDA guidance at the AGM, with a number of smaller but notable weather events expected to provide a tailwind for CAT volumes over the year. A new broker initiation during the month also added to positive sentiment. JLG remains a core long-term position in the Fund, characterised by it being founder led, capital light and a highly cash generative business model
Key Detractors DGL Group (DGL) took a breather over the month, retracing -18.3% in November after a significant run of performance +200% to $3.00 prior to November, up from its $1.00 issue price in May. DGL has successfully executed on several accretive transactions as it builds a full-service chemicals production, storage, and environmental solutions business across the Tasman. A positive AGM update in early December highlighted the EBITDA run-rate significantly ahead of consensus expectations with the company managing supply chain constraints and acquisition integrations. DGL remains a high-conviction position in the Fund, reminding us of many long-term holdings in founder-led businesses like Johns Lyng Group, Uniti Group and City Chic.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2111-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfOctober, 2021
Fund performance for the month of October was +4.90% (net of fees) versus the benchmark return of +4.19%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
Key Contributors Core Lithium (CXO) surged +34.1% over the month. CXO is anticipated to be the next lithium producer in Australia as it progresses its fully owned Finniss Lithium Project near Darwin towards production. Fully funded and close to existing infrastructure, CXO is well-positioned to capitalise on the tight supply environment.
Imdex (IMD) returned +23.7% over the month after releasing a positive trading update at its AGM, achieving 1Q22 revenue growth +41% above pcp. The result reflects the strong industry fundamentals for mining and exploration activity as capital raisings for mining explorers over the last twelve months, a lead indicator of future spending on exploration activity, have exceeded the highs of the previous mining cycle.
Key Detractors Macquarie Telecom (MAQ) consolidated recent gains, falling -8.0% over the month. We have previously written on the expansion of MAQ’s data centre capacity through the development of IC3 Super West at Macquarie Park. On a medium-term view, MAQ remains an attractive investment as it executes on selling remaining IT load, expanding data centre capacity and maintaining a focus on business development through investments in SD-WAN and cybersecurity.
Pact Group (PGH) fell -18.6% in October after a mixed trading update. The core Packaging and Sustainability division has managed to pass on cost pressures through delayed rise and fall agreements, however the noncore Contract Manufacturing division has been more susceptible to margin erosion
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2110-Ausbil-MicroCap-Product-Report_AAP0007AU.pdfSeptember, 2021
Fund performance for the September quarter was +14.74% (net of fees) versus the benchmark return of +18.76%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
Australian indices posted broadly positive returns over the quarter, though volatility crept back into the market following a weaker September month. This wasn’t the case for the Emerging Companies Benchmark (XEC), which continued to be propelled by cheap liquidity and market speculation. Unprofitable and speculative mining and biotech companies drove a significant portion of it’s performance. The micro-cap index2 returned +18.8% over the quarter, outpacing the small-cap3 return of +3.4%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2109-Ausbil-MicroCap-Product-Report.pdfAugust, 2021
Fund performance for the month of August was +11.49% (net of fees) versus the benchmark return of +7.28%, as measured by the S&P/ASX Emerging Companies Accumulation Index
Reporting season is always a key litmus test for active fund managers, and we are pleased to report an +11.49% return (net of fees) in August, capping a strong reporting season performance for the Fund. The Fund comfortably outperformed both the benchmark return1 of +7.28% and the small-cap2 return of +4.98%.
Key Contributors DGL Group (DGL) surged +55.6% in August, ending the month at $2.35 to its IPO price of $1.00 in May. As we have written in recent reports, DGL is one of the most exciting micro caps we have recently uncovered given its organic and inorganic growth opportunities, defensive earnings, and regulatory tailwinds. Despite an impressive share price performance since listing, we continue to see significant upside to earnings on a medium-term view, reminding us of many key attributes in successful long-term investments like Uniti Group and Johns Lyng.
Key Detractors PointsBet (PBH) detracted from returns over the month after falling -5.3% from its pre-raising share price. While PBH’s management team have proven themselves highly capable of expanding in both the US and Australian markets, increasing industry competition by well capitalised players and high customer acquisition costs remain key risks
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2108-Ausbil-MicroCap-Product-Report.pdfJuly, 2021
Fund performance for the month of July was +2.31% (net of fees) versus the benchmark return of +2.76%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
Resources were the notable contributor to July performance, with smallcap resources1 up +7.39%, well-ahead of small-cap industrials2 which fell -0.93%. Battery materials, or ‘green metals’ associated with decarbonisation, significantly outperformed, as higher lithium prices reported over the quarter reflected strong demand and a tight supply environment. Merger and Acquisition activity continued to dominate headlines, most notably with former Ausbil Microcap holding, now large cap, Afterpay (APT) attracting interest from US payment’s company Square (SQ: US). Fund holding Praemium (PPS) is also expected to unlock additional value from the divestment of its international business and could garner significant M&A interest for the profitable Australian operations. Quality industrial businesses continue to attract a premium with top 5 holdings in Uniti Group (UWL), Johns Lyng (JLG) and Lifestyle Communities (LIC) all experiencing expanding earnings multiples.
As highlighted last month, DGL Group (DGL) on a medium-term view remains one of the most compelling investment opportunities we have discovered over recent years. Despite its strong rerating since $1.00 IPO in May, we still see significant upside as this founder led industrial business executes on ample organic and inorganic opportunities. The spread of the COVID-19 Delta variant, national lockdowns and a reversal of bond yields saw a brief resurgence of interest in last years ‘stay at home’ winners (which the Fund has limited exposure to) though markets, for the moment, continue to look through mandatory lockdowns towards greater normality in a post vaccine world. Cinema software company Vista Group (VGL) and retailers Lovisa (LOV) and Universal Stores (UNI) fit this category in the Fund, and we remain positively disposed to these names. This month, the largest positive contributors to performance were Orocobre, Macquarie Telecom and Johns Lyng Group. Negative contributors included Betmakers Technology, Catapult and Sezzle.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2107-Ausbil-MicroCap-Product-Report.pdfJune, 2021
Fund performance for the June quarter was +13.85% (net of fees) versus the benchmark return of +8.30%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
The June quarter concluded a remarkable financial year for Australian small and micro caps. Micro caps (S&P/ASX Emerging Companies Index) returned +59.24% for the year, outperforming both the small-caps return of +33.23% (S&P/ASX Small Ordinaries Accumulation Index), and large-caps return of +27.91% (S&P/ASX 100 Accumulation Index). A notable observation over the year was the material outperformance of unprofitable micro caps, with unproven business models over peers generating sustainable profits. This drove material outperformance in the S&P/ASX Emerging Companies Index, which consists of more early-stage and ‘concept’ style businesses. In that context, we are pleased with the Fund’s +55.83% (net of fees) performance, which significantly outperformed the Small Ordinaries Index by +24.19%, and comprises relatively more profitable and liquid small and micro-cap companies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2106-Ausbil-MicroCap-Product-Report.pdfMay, 2021
Fund performance for the month of May was -2.21% (net of fees) versus the benchmark return of +1.98%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
This month, micro caps +1.98% (S&P/ASX Emerging Companies Index) and small caps +0.27% (S&P/ASX Small Ordinaries Index) also took a backseat to the strong performance in large caps +2.60% (S&P/ASX 100 Index).
May was a particularly challenging month, as the more unprofitable and speculative end of the market started to unwind, taking the index to an intra-month low of -4.8%, only to turn significantly and drive the index higher by month end. The Fund had looked to end the month with positive absolute returns though lost ground in the last few days. The Fund’s position in the recent speciality chemicals IPO, DGL Group, and the core holding in Uniti Group contributed to performance over the month, offset by weakness across a basket of holdings after a strong month in April.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2105-Ausbil-MicroCap-Product-Report.pdfApril, 2021
Fund performance for the month of April was +11.34% (net of fees) versus the benchmark return of +7.47%, as measured by the S&P/ASX Emerging Companies Accumulation Index.
The Fund’s key positions benefitted from positive trading updates over the month, including Betmakers (BET), Universal Stores (UNI) and Sezzle (SZL), and other top-10 holdings exposed to a reopening, including City Chic (CCX), Vista Group (VGL) and Australian Finance Group (AFG). Notably, many companies that benefited from COVID lockdowns, particularly online retailers, reported updates in April that fell short of market expectations, noting higher investments into marketing and normalisation of promotional sales as consumer behaviour normalises.
The Fund has remained conscious of extrapolating COVID conditions into the future, preferring to remain positioned in opportunities linked to a further reopening, namely City Chic (CCX), Lovisa (LOV) and Universal Stores (UNI) in the retail sector.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2104-Ausbil-MicroCap-Product-Report.pdfDecember, 2020
Fund performance for the December quarter was +13.95% (net of fees) versus the benchmark return of +17.40%, as measured by the S&P/ASX Emerging Companies Accumulation Index. Markets posted another strong quarterly performance surpassing multiple key hurdles and events. Positive vaccine developments, fasttracked vaccination plans, the US Presidential Election outcome, the US$920bn additional US fiscal stimulus, and a Brexit trade agreement between the UK and the EU cleared the way for markets to move higher.
Notwithstanding that many countries continue to contend with the spread of coronavirus, including the threat of potentially more infectious strains, the recovery trade continued. The Fund returned +13.95% (net of fees) in the December quarter, in-line with the S&P/ASX Small Ordinaries Accumulation Index return of +13.85%, however trailing the S&P/ASX Emerging Companies Benchmark. Having gradually positioned for the November rotation into more cyclically sensitive recovery trades, the Fund continued with a strong December performance, as the Fund’s largest positions delivered strong returns.
Consumer Discretionary was a standout sector as we maintained conviction in select retail (City Chic) and travel (Helloworld) exposures, despite the expected speedbumps on the path to a recovery, best exemplified by recent COVID-19 outbreak events in NSW. Over the quarter, the largest positive contributors to performance were Uniti Group, City Chic and Betmakers. Negative contributors included McPherson’s, Tyro and Marley Spoon
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2012-Ausbil-MicroCap-Product-Report.pdfticker: AAP0007AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.ausbil.com.au/products/australian-equities/ausbil-microcap-fund
Reports -> Monthly Performance Report
asset_class: Domestic Equity
asset_category: Australian Mid Cap
peer_benchmark: Domestic Equity - Mid Cap Index
broad_market_index: ASX Index MidCap 50 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Ausbil MicroCap predominantly invests in a portfolio of listed small and microcap Australian equities which are primarily chosen from outside the S&P/ASX 200 Index constituents. The Fund is designed for investors who wish to benefit from the long-term capital gains available from share investments and who are comfortable with fluctuations in capital value in the short to medium term. It aims to achieve returns (before fees and taxes) in excess of the benchmark over the medium to long term. There is no guarantee that this objective will be achieved.