September, 2023
Both equity and bond markets fell over the quarter. Underpinning these declines was a move higher in the yield curve, with the US 10-year government bond yield increasing 76bps, exceeding 15 year highs. With inflation remaining stubbornly above the Feds target of 2-3%, unemployment still below 4% and the oil price on the rise again, markets are repositioning for rates to remain relatively high compared to recent history over the longer term.
The Emerging Companies Fund (Wholesale) (the ‘Fund’) returned 1.3% net of fees in the quarter ended 30 September 2023, outperforming its benchmark which fell 1.9%. The Emerging Companies Fund (Retail) grew by 1.3% net of fees in the quarter, also outperforming the benchmark. The Fund benefited from continued acquisition interest with cloud communications company Symbio receiving a nonbinding indicative bid from ASX listed telco Superloop. One of our investee companies Aussie Broadband subsequently entered the fray with a superior bid for Symbio late in September. Over the quarter two of our portfolio companies were formally acquired with Japanese beer and beverage company Kirin Holdings buying iconic Australian vitamin company Blackmores, while private equity owned WebMD settled on the acquisition of software company Limeade. Small cap and microcap companies continue to underperform larger ASX companies with rising interest rates disproportionately challenging companies is their earlier stage of commercial development. We believe once global interest rates have peaked investor interest will quickly return to smaller companies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/mgjl_en-au_pdf-3.pdfJune, 2023
The Emerging Companies Fund (Wholesale) (the ‘Fund’) returned 9.2% net of fees in the financial year ended 30 June 2023, compared to the benchmark which rose 9.5%. The Emerging Companies Fund (Retail) grew by 8.6% net of fees in the quarter, underperforming the benchmark.
The Fund’s underweight exposure to Consumer Discretionary and the Industrials sector detracted from investment performance, while being nil-weighted in the poor-performing Real Estate Investment Trust sector added to performance.
The Fund’s small and microcap holdings performed strongly in the final quarter of 2023 as investor interest returns to this part of the market. The Fund benefited from takeover interest with vitamin company Blackmores, wellbeing software company Limeade, and telematics software company Eroad, receiving bids from strategic and private equity buyers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/FY23-in-review-_-Emerging-Companies-Fund.pdfDecember, 2022
Global markets had a strong final quarter for 2022 after a volatile nine months, with the MSCI World index ex Australia rising 7.5% and the S&P ASX 300 rising 9.1%. Despite inflation remaining elevated, there were indications that prices could stabilize, as natural gas prices fell from a high of €340/MWh in August to preUkraine levels near €70 by the end of the year. The US bond yield decreased dropping from 4.23% in October to 3.88% by the end of the year. The Australian bond market was more volatile, falling from 4.2% in October to 3.29% in December before finishing the year at 4.05%.
The Emerging Shares Fund appreciated by 2.0% (Wholesale 2.1%) over the December quarter relative to its S&P/ASX Small Industrials Benchmark which appreciated 6.6% resulting in an underperformance of -4.6% (Wholesale -4.4%).
The underperformance can be primarily attributed to stock selection in Communications, Healthcare and Information Technology sectors, while a zero weighting in real-estate was a negative contributor. Companies like wealth management software company Bravura Solutions came clean on their 1st half 2023 trading in November while pathology and radiology company Healius downgraded earnings in November on higher cost structures with falling covid revenues, while cloud communications company Symbio downgraded their profitability late in December. We view these as temporary setbacks which in time can be recovered. The strongest individual stock contributor was utility and airports software billing company Gentrack which appreciated 85% over the quarter after strengthening its 2023 and 2024 revenue guidance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/mgjl_en-au_pdf-2.pdfSeptember, 2022
The S&P/ASX 300 returned 0.5% over the quarter despite ongoing uncertainty as pent-up demand, ongoing impacts from COVID-19, and the conflict in Ukraine continues to put pressure on inflation. In the US YoY CPI rose to 9.1% in August. In Australia June CPI rose to 6.1% YoY, the highest annual change in over 30 years. The global economy faces a bleak outlook, with Europe facing a looming energy crisis, many Central Banks rapidly raising rates to tackle inflation, while in China the People’s Bank of China has been loosening policy as its economy slows to its lowest rate of growth in decades, driven by an ongoing property crisis and continued lockdowns as part of its zero-COVID policy.
The Emerging Companies Fund appreciated 1.7% (1.8% Wholesale) outperforming its benchmark which fell 1% over the September Quarter. The outperformance is attributed to the Funds significant overweight allocation into the healthcare with cognition company Cogstate appreciating 42% on news its shareholder and business partner Japanese company Eisai had reported positive clinical data in a Phase 3 Alzheimer’s clinical study. We were pleased with the performance of mortgage insurer Genworth which appreciated 18% while paying a healthy dividend on reporting a strong 2022 result. Our investment in technology company Praemium appreciated 55% on news of the sale of its UK division and a solid 2022 financial result. Other good contributors included non-bank lender Pepper Money which appreciated 18% from an oversold position and PDF productivity and esignature business Nitro Software +20% on news private equity was building a position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/mgjl_en-au_pdf-1.pdfJune, 2022
The Emerging Companies Fund fell -21.5% underperforming its benchmark which fell -18.4% over the June Quarter. The underperformance is attributed to the Funds significant overweight allocation into the information technology sector, the weakest performing sector, with healthcare also a laggard. The technology sell-off has been led out of the US, with microcap and small-cap Australian companies in their earlier stage of commercial development particularly hard hit. We continue to believe superior growth attributes are the primary reason for investing into small and microcap companies, irrespective of interest rates and consequently have been adding to some of our underperforming names.
We were very pleased to receive a takeover offer for lab testing company HRL priced at a healthy 95% premium to the prevailing share price. We believe there will be additional merger and acquisition activity if share prices remain weak
December, 2020
For the quarter, the Fund pleasingly achieved an absolute return of 19.5% (19.7% Wholesale Fund) against the fund’s benchmark, the S&P/ASX Small Industrials Index, which advanced 12.2%. The Emerging Companies Fund’s 12-month performance was +35.1% (35.9% Wholesale Fund) against 5.9% for the benchmark. We were very pleased with the relative outperformance of the fund over recent periods.
Over the quarter Healthcare, Information Technology, Materials and Utilities sectoral exposures drove the outperformance. The US general election win by Joe Biden is seen as a positive for climate change while the growth of ESG funds around the world saw the market chasing many renewable and adjacent assets. The Fund’s renewable energy generators and retailers from New Zealand including Meridian Energy (+51.7%), Contact Energy (+35.6%) and Mercury Energy (+29.6%) were all among the leading contributors.
The strongest individual company contributor was mortgage insurer Genworth Mortgage Insurance Australia which appreciated 52.7%, benefiting from an improved outlook for residential property. On a similar note, Resimac – a mortgage provider which securitises its funding on global markets – appreciated 49% over the quarter.
We were also pleased with contributors from pharmacy software company Corum (+92%), assessment software company Janison Education (+45.6%), job referencing technology company CV Check (+60.8%) and metals recycler Sims Metal (+77.4%). The Fund continues to be actively managed.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/MGJL_en-au_PDF.pdfticker: AUG0027AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
Lower mid -> Factsheet -> wholesale -> (download)
https://www.australianethical.com.au/managed-funds/investment-commentary/fy23-in-review/emerging-companies-fund/
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australian Small Cap
peer_benchmark: Domestic Equity - Small Cap Index
broad_market_index: ASX Index Small Ordinaries Index
structure: Managed Fund
fund_features:
Australian Ethical Emerging Companies WS aims to provide long-term growth by investing in small capitalization companies that meet the Australian Ethical Charter. The opportunity to invest in a diversified portfolio of shares in small capitalization companies on the basis of their social, environmental and financial credentials.
- The Fund utilizes an active stock-picking management style with stocks selected for growth rather than income.
- All stocks are chosen on the basis of relative value where we deem the risks are being adequately priced.
- Manager Address : c/o Boardroom Pty Ltd GPO Box 3993 Sydney NSW 2001
- Phone : 1800 021 227
- Website : https://www.australianethical.com.au/
- Contact Email : investors@australianethical.com.au