September, 2023
The small cap market continued to exhibit choppiness like the previous quarter, staying largely range-bound albeit with a notable negative skew. A sell-off in global bond markets was partly to blame for the pressure on risk assets, with focus shifting from the level of peak rates to how long central banks will hold rates at restrictive levels, with “higher for longer” increasingly viewed as the necessary scenario to tame price pressures that remain, thus far, above central bank targets. This drove long bond yields higher, while economic data over the quarter pointed to a deterioration in the growth outlook, with services activity starting to show signs of “catching down” to manufacturing. Overall, not a great environment for equities. Domestic reporting season refocused investors on micro factors, with positioning and expectations playing a reasonable factor in stock performance. Consumer facing sectors, after a soft lead in, proved on the whole no worse than expectations and rebounded. Names that did well include GUD holdings and PWR Holdings. Technology outperformed but this was less about AI, with stocks moving around on quality of results. Life360 beat expectations while others such as Iress (not held) faltered. Commodities moved around materially, driving lots of stock specific action, though overall the sector badly underperformed the index. Energy including oil and uranium were the bright spots, reflected in stocks rallies for Karoon Energy and Paladin Energy, while large falls in Lithium prices resulted in big battery metals falls such as Allkem and Syrah. While gold prices were relatively static, investors sought protection in the event of stagflation emerging and Ramelius Resources and Genesis Minerals proved popular. Fund managers remained out of favour given weak markets, while REITS suffered on higher rates and Healthcare lacked its usual defensiveness with biotech names unwinding recent gains.
Year to date, markets have rebounded from the drawdown to June 2022, as inflation started to moderate, and the brisk pace of monetary policy normalization was buffered by consumers accumulated excess savings and their relatively good balance sheets. Moderation in bond yields from their peak in October allowed for some mean reversion (higher) in growth names, though unprofitable business models didn’t participate. A burst of enthusiasm around AI in March kept the focus on a few highly valued tech names, supporting growth valuations, even as yields started to grind higher again. With yields pushing to cycle highs in recent months, value factors have again reasserted themselves. Energy commodities have been a bright spot for the year, with oil, uranium and coal all logging double digit advances playing well to our overweight position. Materials underperformed but it was mixed under the surface, with gold doing well as the US Dollar weakened while battery metals fell precipitously as investors fretted about future oversupply. M&A interest in developer Liontown (not held) saw it remain resilient and hurt performance, however, falls in other developers that weren’t as lucky cushioned the blow. Technology rebounded well, with Life360 continuing to scale and welcoming back investor interest and NextDC signed some large hyperscaler commitments. Underweights in REITs and Agriculture were helped by prevailing conditions in each market while stock selection in Discretionary enabled us to offset our underweight as stocks there rebounded.
Turning to outlook, and there are some similarities with the previous quarter. We remain positive on small caps given the relative performance gap with large over the past 18 months. Some of the headwinds to small cap performance are beginning or have abated – inflation is moderating (albeit slowly), the US Dollar has begun depreciating, border reopening and return of immigration boosting aggregate demand.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Quarterly-Fund-Update-2309.pdfAugust, 2023
Market volatility increased In August, reflecting renewed stress in the Chinese property market, a downgrade to the US governments credit rating and higher sovereign bond yields. Given this backdrop, global stocks sold off, with better-than-expected economic data considered bad news for inflation and rates. Markets recovered off their worst levels late in the month, in line with yields easing back US 10-year bonds added 13bps to 4.11 while domestic 10-year yields ended flat. Commodity markets were mixed, as the USD rallied back from its recent sell off. Battery metals, Gold and base metals pulled back, while oil continued to gain and iron ore defied the gloomy China macro-outlook. Domestically, reporting season did little to inspire markets with largely disappointing results and cautious outlooks leading to meaningful negative earnings adjustments. The S&P/ASX 200 Accumulation index fell 70bps, with discretionary and REITs propping up the index as results were less bad than feared. Staples and utilities dragged as defensives couldn’t live up to expectations. On the smaller side, the index underperformed the broader market by 60bps, as industrials, health and financials lagged. Energy, discretionary and telcos did the heavy lifting on the positive side. The Tribeca portfolio pleasingly delivered a positive absolute return in a down month for the index, with most sectors contributing positively to alpha.
Positively contributing to performance during the month included PWR Holdings (PWH +18.1%), which rebounded after the company managed to largely deliver on lofty expectations for second half earnings growth. The first half result in February has weighed the stock down after it revealed a meaningful skew to the June half earnings. However, the company executed well to deliver on forecasts in a year of elevated cost inflation, tight labour availability and meaningful reinvestment in capability. Life360 Inc (360 +20.7%) also rallied on their result, having delivered strong growth during a seasonally quite quarter. Net customer adds were a highlight, which was taken well considering recent prices increases. Management upgraded profit guidance for CY23, and we see room for this to be exceeded should the back to school (August) period in the US deliver another quarter of strong growth. FleetPartners Group (FPR +14.4%) had no news of note during the month, however it ground higher as the company continued to execute its capital management strategy via buying back shares on-market.
The FPR valuation remains un-demanding with catalysts including continued strong novated leasing growth, new customer wins in fleet and potential participation in well-flagged M&A activity. GUD Holdings (GUD +21.77%) delivered an inline result, however better progress on de-levering the balance sheet was all investors needed to drive a re-rating in the share price. Well publicised vehicle supply issues have hindered the performance of their APG acquisition from 2021, and as this ease, the company should demonstrate the earnings power of APG and possibly drive future earnings upgrades. Chalice Mining (CHN -39.6% not held) released the scoping study for their proposed Gonneville mine in Western Australia. Several facets appeared to underwhelm the market, notably lower forecast metallurgical recoveries, higher operating and capital costs. Given the mine won’t be in production until the end of the decade, these input changes dragged down the net present value of the mine materially.
Detracting from performance was Fletcher Building (FBU -14.3%), which saw downgrades to future earnings courtesy of higher interest costs than analysts expected. An issue in their pipe division also drew a lot of focus from the market, with management unable to be definitive at this stage as to the expected impact. Unfortunately, this masked the fact that costs have been well controlled in the recent downturn and the Australian division continues to improve. The stock should be well placed to benefit from any rebound in the New Zealand housing market, if only it can minimise the continual peripheral issues that catch undue amounts of the market’s attention. Imdex (IMD -17.4%) reported softer earnings than anticipated, as the mineral exploration market remained soft through the second half of FY23, particularly in key markets Australia and Canada. Continued investment in new technologies also contributed to the earnings miss, despite revenue being stronger than expectations. Looking forward, the September quarter last year will be a challenging comparator in FY24, however it gets easier to lap softer earnings from there. We also think contributions from new technologies in latter FY24 and FY25 are not reflected in earnings and pose upside risk to expectations. Webjet (WEB -11.4%) drifted lower through the month, then sold off on AGM slides highlighting a slowing in rates of growth, albeit from high levels. While crowded positioning likely contributed to the weakness, we welcome the washout in positioning and remain very positive on future earnings growth that has the potential to positively surprise the market. Premier Investments (PMV +16.1%) announced the departure of the relatively recently appointed CEO and a strategic review aimed at maximising value of the PMV portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2308.pdfJuly, 2023
Global equity markets rallied in July, as disinflationary forces gathered pace and inflation reports from developed economies surprised to the downside. Economic data was generally better than anticipated, particularly in the US. This has left developed market central banks to ponder just how much further they need to tighten policy in this environment, but recent more dovish commentary has boosted sentiment.
The environment wasn’t conducive for bonds as yields rallied, while new flexibility in the Bank of Japan’s yield curve control policy saw more material moves in the market. Economic data out of China has generally disappointed economist and investor expectations, but Chinese officials are beginning to act on stimulus measures, however there is little detail on the size of any packages. This kept iron ore prices in check (-2.2%), however, the weaker US Dollar helped boost other commodities (Copper +5%; Nickel +7%; Brent Crude +14%; Comex Gold +4%).
Domestic equity benchmarks rebounded almost 6% from intra-month lows, the S&P/ASX 200 Accumulation gaining 2.9%. Energy and Banks headlined gains, while Health and Staples struggled to keep up. Small Caps pulled back some recent underperformance (Small Ords Accumulation +3.5%), led by the Discretionary and Staple names, along with Energy. Healthcare lagged while oddly Materials was the only sector to finish lower as some of larger lithium names delivered mixed updates. Investors more hopeful of a softlanding supported cyclicals and value exposures overgrowth. The Tribeca portfolio managed small outperformance in what was a strong absolutereturning month, with no discernible trends of note.
Stocks on the positive side of the alpha ledger included Smart Group (SIQ +14.1%), a more recently promoted overweight in the portfolio. Our expectation was that SIQ’s leverage to changes to the Fringe Benefits Tax (FBT) policy in relation to Electric Vehicles (EV) was previously under appreciated by the market. SIQ is one of the largest novated leasing businesses in Australia, and inquiries regarding EVs have increased materially across the past 6 months. We are expecting a large lift in leases written and material upgrades to market’s future earnings expectations.
Core Lithium (CXO -29.9% Not Held), delivered a poor quarterly, with lower spodumene recoveries resulting in a material miss to production expectations. Guidance fared little better, materially below expectations in FY25, with additional capex required to attempt to fill the gaps. We have long had reservations around expectations for ramp up of the Finniss mine and continue to remain on the sidelines. Genesis Minerals (GMD +12.6%) sealed their acquisition of St Barbera’s (SBM) Leonora assets in July, with June quarterly production indicating potential upside to the base case estimates laid out in the initial business case 12 months ago. With intentions of 500koz per annum of gold production, this would place GMD in the globally significant mining hub bucket.
Further, GMD looks very cheap versus peers on a number of metrics, and we anticipate a material re-rating for the stock over time. GQG Partners (GQG +17.0%) continued to deliver steady monthly inflows into its global equity funds and July was no exception. Fund performance is sound and GQG stands out as one of the few listed-equities fund managers achieving inflows. Trading at a material discount to the small cap market (-40%) and a distribution yield of ~9% we feel there is room for GQG to re-rate, particularly if markets continue to appreciate. Lastly, Karoon Energy (KAR +13.2%) delivered a sound quarterly production report, with FY24 guidance inline to slightly better than expectations. Free cash flow generation should lift materially over the coming 12 months, creating optionality for M&A and/or capital management.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2307.pdfJune, 2023
The Small Cap market rebounded at the start the final quarter of the fiscal year, after a brief liquidity crisis in US regional banks darkened the outlook for growth and resulted in drawdown in markets. Alas, the strong performance in April could not be maintained, and while inflation moderated, central banks deemed it not to be fast enough and continued to raise interest rates resulting in markets again moving to a more cautious stance. Themes evident in the March quarter continued, as growth concerns remained at the forefront of investors’ minds. As such, IT names exposed to a thematic or able to grow under their own steam did well despite the rebound higher on bond yields. NextDC’s announced a big step up in contracted utilisation, as hyperscale customers embarked on a land-grab ahead of the anticipated wave of AI-related data consumption. Life360 also outperformed expectations at their quarterly resulting in earnings expectations upgraded. Biotechnology names were also in demand again, which partly moderated our gains at the growthier end.
Select industrials Kelsian Group, Fletcher Building and Smart Group all gained on stock specific factors, while HMC Capital bucked the softer trend in REITs to outperform. Materials names dragged as China’s COVID rebound petered out, leaving investors eagerly anticipating additional stimulus measures to supplement growth. To date, additional measures have been modest. Meanwhile, Gold underperformed on a higher US Dollar and bond yields. Consumer demand saw the first signs of softening, Universal Stores, amongst others, called out a soft patch in youth apparel demand, as did OOH Media in media. Select auto names underperformed on earnings concerns, offsetting some of the benefits of our underweight in consumer retail.
After a tough FY22, investors welcomed the small cap market rebound from the market lows in FY23. Mean reversion was evident versus the previous 12 months, as growthier names re-emerged as market leaders, resuming trends witnessed over the past decade. A newfound focus on cashflow by boards and management teams has resonated with investors, particularly in tech, as did names exposed to emerging themes such as AI. Alternatively, those still burning cash or unable to show growth struggled to capture investor attention. Battery metals similarly saw a similar outcome, with investors more selective around which projects were likely to be viable and those with cashflows have proved more resilient in market selloffs. M&A interest in developer Liontown (not held) and Graphite market heartburn knocked around Syrah, which took some gloss off our sector performance. Gold drifted higher as inflation and the US Dollar peaked. Underweights across agriculture exposures positively contributed as tailwinds from recordbreaking weather conditions abated, similarly in passive REITs where anticipation of property cap rate expansion resulted in little demand for the equities. Our underweight in consumer discretionary weighed as consumer demand held up better than anticipated in the face of rising rates, while the couple of names we did hold performed poorly. Lastly, the healthcare underweights dragged given our lack of exposure to med and biotech names which did well.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Quarterly-Fund-Update-2306.pdfMay, 2023
Global equities were mixed through May, as concerns lingered around US lawmakers’ intentions on the country's debt ceiling and the potential for further rate hikes from the U.S. Federal Reserve. Developed markets saw a divergence, as the narrow rally in mega cap technology related names helped keep the S&P 500 aloft and Japan’s TOPIX surged to a 33-year high. Meanwhile, Europe underperformed given their reliance on Chinese growth (which also weighed on emerging markets returns). The Government balance sheet remains robust, delivering a small surplus in an otherwise benign May budget. The S&P/ASX 200 Accumulation lost 2.5%, underperforming global markets, with IT and Utilities the only bright spots. Discretionary lagged as evidence of consumer demand weakening finally became evident. Small Ords fared slightly worse, falling 3.3% as IT names failed to rally as much as their larger peers and also as a larger proportional exposure to consumer discretionary names.
Commodities and precious metals were soft across the board in May (apart from a bounce in lithium), with the USD (DXY +2.7%) and global bond yield (US 10-year yield +20bps) rally weighing on the space. Factor-wise, growth was favoured over value, while sales and earnings revisions performed strongly. The Tribeca portfolio pulled back some relative performance from April, helped by good performance from industrial and IT names, together with our underweight in retail which was partially offset by a downgrade in the only name we hold.
Positively contributing to the portfolio in May was Kelsian Group (KLS +11.5%), with the market finally digesting their recent US acquisition and equity raise conducted in March. The company paid $487m for an established bus transportation business operating across the southern US states, providing it with a beach head into a new market with attractive growth attributes. We heavily bid into the associated capital raise at what we believe to be very attractive terms, with KLS providing relatively defensive growth attributes at a reasonable discount to the market. NextDC (NXT +11.7%) also raised equity during the month, to fund recently announced contract awards as well as regional expansion into Malaysia and New Zealand. Bullish AI commentary also provided a tailwind to exposed names, with NXT extremely well placed to take advantage of future growth in data consumption. HMC Capital (HMC 12.2%) launched an acquisition of the Healthscope Hospital assets in late June, increasing investor confidence of attaining their $10bn FUM target earlier than expected. It has been a rough 12 months in the property space however we feel HMC is best placed to successfully navigate the challenging environment successfully. Allkem (AKE +21.2%) announced their intention to merge with peer Livent (LTHM.NYS) in an all-scrip deal creating a group with a combined value of $15.7bn.
Synergistic benefits should be considerable, with both companies operating assets in Argentina and Canada, while the combination of up and downstream assets is very complimentary. We believe the corporate activity also puts AKE in play with assets that would be coveted by a number of other large industry participants. Lastly, MAAS Group Holdings (MGH +12.9%) performed well, despite releasing no new news during the month. Negative contributors to performance included Ooh Media (OML -25.8%), who presented at the annual Macquarie Conference and provided a trading update which saw a material slowdown in revenue post their February result commentary. 1Q23 revenue was +3% vs management’s expectations of +8%, while April was -10%. The out of home industry was +11.8% in 1Q23, meaning OML ceded substantial share in the street furniture category in the period. Management also called out gross margin pressure for 2023 due to the large number of contract renewals set to take place. Despite the company not considering the update material, we found it disappointing that tailwinds in previous periods weren’t called out at the time. Subsequently, our holding is being reviewed. Universal Stores (UNI -39.8%) announced a disappointing trading update, with sales and profit below expectations.
Whilst we have been concerned about the outlook for retail stocks generally, we thought that UNI would be relatively well protected, given a younger customer base with lower exposure to mortgage stress. This proved not to be the case, with rents, university debt and inflation all converging to place pressure on the wallet of UNI customers. We view UNI as a well-run business, with a compelling offer and improving market share. However, in the short term it is hostage to the difficult retail environment.
Syrah Resources (SYR -26.0%) continued to drop after its surprisingly weak quarterly and convertible note issue in late April. SYR’s strategic position is unquestionable, being the largest natural graphite producer of scale outside China. With the battery manufacturing market ex China still nascent, SYR is seeing challenges placing product into a softer Chinese EV market during the first quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2305.pdfApril, 2023
Equities rallied over April, as the stress in the U.S. banking system steered monetary policy outlook in a slightly less hawkish direction. Outside the U.S., core rates of inflation remain stubbornly high, and the global economy remains surprising resilient to tightening credit conditions.
Australian 10-year bond yields tracked sideways as the cash rate remained unchanged, while US yields fell slightly on expectations of a pause to the Feds aggressive rate hike path. The local market outperformed the MSCI Developed Markets World, with the S&P/ASX 200 rising 1.9% over April, on the back of stronger consumer sentiment and stabilising interest rates.
Small caps outperformed, adding 2.8% in a broad-based rally, paced by health care and financials. Factor dispersion was low in April, highlighting the lack or search for leadership. Given continuing shift in macro signals, it’s expected that mixed factors signals and themes continues. The Tribeca portfolio lagged the benchmark for the month, as we saw some mean reversion in key overweight names and strong outperformance in larger index weights that we didn’t hold.
Negatively contributing during the month was Syrah Resources (SYR -37.1%), which was affected by broader negative sentiment in the EV space and a deterioration in the outlook for battery material inputs to China as a consequence of excess inventory build. SYR had been materially affected by this sudden change and took steps to mitigate this impact, such as cutting production and seeking convertible funding from a large Australian institution. With the battery market outside of China still relatively nascent, a key end market for SYR future production, we endeavour to gain a better understanding of supply/demand dynamics inside China and the near-term outlook for SYR sales. Champion Iron (CIA -9.4%) released their quarterly production update, which was largely inline with expectations, and an improvement from Q2, which was impacted by the late delivery of key equipment. A more material driver of performance was Iron Ore prices, which retreated (Iron Ore -17.3%) on continued concern around China’s economic recovery. While our base thesis regarding the stock surrounds the underappreciated increase in future demand for green steel, we see the current China recovery as broadly supportive of iron ore prices. Telix Pharmaceuticals (TLX +47.1% - Not Held), was boosted by a strong quarterly result, with sales of their PSMA imaging drug ahead of market expectations.
The stronger ILLUCCIX sales, together with an expansion in the Total Addressable Market and TLX’s second consecutive quarter of positive cash flows, drove double digit upgrades to consensus’ near term and mediumterm forecasts. Capricorn Metals (CMM -6.9%) released, during April, its favourable preliminary feasibility study for its newest project, Mt Gibson. Pleasingly, initial details were slightly ahead of market expectations. March quarter production numbers were also in-line with expectations, while gold sales beat estimates. The market sold the good news. Lastly, Imdex (IMD -7.6%) shares slipped on no news, however offshore-listed drilling names continued to report solid demand despite some softness in Australia and Canada. Junior mining capital raisings were down month on month, however with gold prices around all time highs, future activity looks well supported.
Positively contributing to performance included Genesis Minerals (GMD +22.1%), after they favourably renegotiated their deal with St Barbera (SBM). GMD conducted a capital raise to acquire the Gwalia mine from SBM as part of a strategy to consolidate the area around their GMD processing mill. Should the acquisition be approved, we believe GMD looks very cheap versus peers. NextDC (NXT +9.8%), which outperformed on the announcement of a significant new contract, was also a positive contributor. The contract, believed to be with Microsoft, is comfortably the largest ever signed in NXT’s history and will fill around 50% of the total capacity in the recently constructed S3 Data Centre. As well as providing a strong boost to earnings over the next few years, such a significant contract also helps reassure the market around the demand outlook for the rest of NXT’s available capacity and is not fully factored into the share price in our view. Perseus Mining (PRU -6.3% - not held) was affected by escalating violence and coup in Sudan, which is the location of their newest project, the Meyas Sand Gold Project. Thankfully, no staff were impacted.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2304.pdfMarch, 2023
The March quarter in small caps was highlighted by volatility, with the index trading in a 356 point or 13 per cent range. It was action packed, highlighted by a vicious mean-reversion rally in January, the usual individual stock volatility associated with reporting season in February, followed by a mini collapse on the back of US regional bank runs which culminated in US authorities stepping in to guarantee deposits and bank liquidity and the market recouping its losses in March. As a result, investors pivoted back to growth as recession concerns became more heightened and the markets earnings growth forecasts were downgraded. Growth exposures in technology such as NextDC and Technology One aided the portfolio, along with some still over-inflated names we didn’t hold. Frustratingly, this was offset by an underweight in healthcare, where biotech and MedTech names performed well. Retailers (underweight) and the consumer appeared largely immune from the recent tightening in financial conditions, with trading still reported as buoyant across most sectors ex the early cycle areas of furniture and housing. Financials (overweight) didn’t escape so easily, and were marked down heavily in the March, with several portfolio names yet to rebound. Gold benefitted from the uncertainty, with our existing and recently added names performing well, as did base metals on the lower USD. Meanwhile, M&A returned with several stocks receiving healthy bids from PE/offshore players. Unfortunately, this benefitted none of the portfolio names, and the material premium for large pre-production lithium miner Liontown proved quite costly to performance late in the quarter.
On an annual basis, the small cap market declined however our strong performance in materials headlined portfolio returns. Battery metals headlined with a relative overweight for over half the period before moving underweight as the market got a little euphoric. Base metals and ferrous both contributed healthy gains aided by excellent stock picking, as did Gold, as we closed up our underweight positioning. Financials provided opportunities for alpha despite a particularly poor performance from the sector, as overweights in insurance brokers and underweights in market linked names proved fruitful. Meanwhile, capital goods exposures countered some of the portfolio alpha in materials, with mining services names we didn’t hold rallying as second derivatives of the miners. Retailing also dragged on the portfolio in consumer discretionary, with some missteps at City Chic proving particularly costly while most other retailers rebounded strongly. This was partially offset by auto exposures where overweights performed well.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Quarterly-Fund-Update-2303.pdfFebruary, 2023
Following a positive start to CY23, the equity market retraced some of January's gains to close lower in February with company results illustrating waning earnings momentum. At the same time macro and geopolitical headwinds have not abated and central banks continue to grapple with the direction of monetary policy. Suddenly more hawkish, the RBA lifted rates 25bps, putting upward pressure on 10-year yields (+30bps to 3.86%) and further tightening conditions in an economy showing signs of deceleration.
US yields also rose considerately, up 39bps to 3.92%, in reaction to stronger than expected economic data and subsequently hawkish comments from Central Bankers. Commodity prices fell across the board, probably aligned to the US Dollar Index rebounding from 4 straight months of losses (DXY +3.0%). Brent Crude (-0.7%), Iron Ore (-2.3%), Base Metals (-9.7%) and Gold (-5.6%) all recorded declines, while the Aussie Dollar also fell back (-4.7%) after touching almost 72 US cents.
The domestic market wasn’t immune to the pressure with the broad S&P/ASX 200 Accumulation losing 2.5% while small caps performed marginally worse (-3.7%). Banks gave up last month’s big gains, and resources, energy and healthcare led declines in small caps. Info Tech, Industrials and Discretionary (mainly services) proved more resilient, however still closed lower for the month. Reporting season has all but concluded and overall saw company results meeting rather than exceeding or missing consensus expectations. The magnitude of price reactions for a miss in expectations, tended to be more extreme than historical experience, and those disappointing in outlook commentary saw added downside pressure. The Tribeca portfolio finished ahead of benchmark during the month, with a few favoured names delivering good results partially offset by the mini drawdown in Resources names we held.
Positive contributors to the portfolio included AUB Group (AUB +17.4%), which delivered their result in-line with the AGM update from November. The company pointed to a strong outlook and upgraded FY23 expected earnings, driven by benefits of continued premium rate increases, earlier synergies and strong performance from their UK acquisition, Tysers. AUB remains well placed to continue to deliver earnings growth with the recent re-rate emanating from very depressed share price levels as a result of the markets apathy towards the Tysers acquisition.
GUD Holding’s (GUD +23.3%) 1H23 result did enough to satisfy the market that the recovery of their Auto after-market business was on track and as such rebounded from price levels that imputed much lower earnings multiples than previous history. The APG division, which supplies towing and suspension parts to auto OEMs and aftermarket, saw improvement alongside the rebound in new car supply. This gave investors confidence supply chain challenges had impaired profitability since acquisition. GUD remains very cheap and we see material upside should new car supply continue to recover.
Ooh!Media (OML +10.8%) continued to see recovery in client allocation to outdoor advertising, with allocations so far in CY23 ahead of last year. Looking ahead, the industry is targeting continued share gains based upon greater transparency of performance and deeper integration with customers, which we believe can deliver growth outside of the cyclicality of advertising spend over time. Kelsian Group (KLS +12.5%) saw a strong rebound in their Marine & Tourism business, the first full unaffected period there since COVID began. The bus segments continue to see challenges around driver availability which are impacting margins, however this is being worked through and unlikely to have any lasting impact beyond this half. Meanwhile, numerous tender opportunities exist in Marine and Bus with KLS well placed to participate. The stock remains attractively priced against their forward growth profile, and in what has historically been relatively stable business sectors. Lastly, Eclipx Group (ECX 7.4%) released no news of note however pleasingly recouped some if it’s recent share price weakness.
Detractors during the month included PWR Holdings (PWH -17.8%), which failed to deliver enough for investors after a strong share price run in recent months. Of note, earnings were impacted by investment in growth, muting any benefits from top their line growth of ~15% to the bottom line. The result is a more typical skew to 2nd half earnings (i.e. larger), which unnerved investors. These skews are not unusual for PWH, with margins typically much stronger in 2H vs 1H given the Formula 1 racing schedule (a key revenue contributor to PWH). We forecast a similar outcome this year, and with several large contract opportunities on the horizon, we believe the FY23 investment and expansion in headcount and facilities to be leverageable into strong earnings growth moving forward. The rest of the main detractors for the month were Resources names, with Capricorn Metals (CMM -16.3%) and Silver Lake Resources (SLR -22.7%) part of the gold equity names that were sold off heavily on softer gold prices. We have recently added to our exposures there. Paladin Energy (PDN -18.2%) and Syrah Resources (SYR -14.3%) also sold off despite their commodities remaining relatively stable, evidence that risk off was pervasive across the sector in February.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2302-1.pdfJanuary, 2023
Global equity markets rallied strongly to start the year, as some investors saw increased potential for a soft landing in the U.S. as inflation slows but unemployment has yet to rise. The more rapid re-opening of China plus lower gas prices in Europe were also positives for global growth. This resulted in heavily macro-linked signals such as bond yields, the USD and global inflation, all peaking and falling over the month at a much faster pace than many investors would have anticipated at last year's close. The Australian 10-year yield fell by 50bps to 3.55%. US 10-year yields also moved down by 35bps to 3.53%, and the US Index (DXY) -1.3%. Locally, the S&P/ASX 200 Accumulation Index rallied 6.2%, the 8th best start to a year (using All Ordinaries data) going back to 1935 and the best start since 1986. Small caps fared slightly better (+35bps), with consumer discretionary an outlier in term of performance led by the sub-sectors of durables & apparel (+23%), household & personal products (+21%) and general retailing (+12.6%).
Materials rebounded, driven by gold prices (+6.5%), iron ore (+10%) and copper (+8%) and along with Healthcare were the only other two outperforming sectors, with seven sectors lagging. Factor wise, the January rally favoured laggards Quality and Growth, with Value less receptive, while small size outperformed large. Given the lack of breadth of the rally, and mean reversal from December where we performed well, the Tribeca portfolio struggled to keep pace with the rally and finished behind benchmark.
Underperforming during January was Eureka Group (EGH -7.4%), which remained volatile following its recent capital raise and register transition. With a major shareholder dumping the stock and a strategic subsequently emerging onto the register, we feel EGH may now be in play. The company has an attractive suite of assets with a strong thematic tailwind, something that would be attractive to property players looking for exposure. Champion Iron (CIA -2.2%) marked time after a strong performance in Q3, despite iron ore rallying another 10% in January. We banked some profit early in the month, however, we remain very supportive of this unique growth exposure in light of the future decarbonisation effort. Megaport Ltd (MP1 -8.4%) sharply underperformed the market during January after reporting a disappointing quarterly update. Whilst reported revenue and gross profit grew broadly in-line with consensus expectations, operating KPIs were well below and potentially flag a slowing growth profile ahead.
The company has seen a significant slowdown in new customer wins in each of the past 2 quarters which it attributes to a tougher macro environment and a drop in sales force efficiency. The market will remain sceptical until this trend is reversed. Capricorn Metals (CMM -1.5%) also marked time after solid outperformance into 2022 year end, with positive drilling and reserve updates alongside positive operational performance. Despite the run, we continue to like the outlook for CMM and gold sector in general. Capitol Health (CAJ -9.4%) peeled off on no new news, however, government data indicates a modest ramp up in diagnostic imaging activity post-COVID and still well below trend. This together with cost base inflation, particularly in labour, raises risk for consensus margin expectations at CAJ. Our view is significant pent-up demand remains post-COVID and structural tailwinds towards imaging have not gone away, with these social infrastructure-like businesses offering attractive future growth.
Outperformers included Paladin Energy (PDN +21.4%), as North American retail flows returned to the sector in January. However, more importantly we noted an increase in institutional interest. This was likely in response to peer producer Cameco turning up its bullish rhetoric at several North America conferences. Secondly, producer KazAtomProm (KAP) surprised the market by lowering 2023 guidance by 8% in its Q4 2022 operational update in January. This casts doubt on whether KAP will be able to expand production in 2024 as previously announced, adding to what we estimate is a meaningful primary mine supply deficit in 2023. Imdex (IMD +14.9%) announced the acquisition of Devico, a key supplier of downhole directional tools in Europe and the Americas. The combined company will target key mining customers with a suite of best-in-class downhole tools and sensors, bolstering their existing strategy of direct contracting with mining clients and software system integration. While the price paid was relatively full, we feel the combination of the two largest players in the drilling technology space will prove attractive. Nickel Industries (NIC 12.9%) performed well for two primary reasons. Firstly, improved NPI and nickel pricing and being viewed as a close proxy for the China reopening trade, which continues to benefit large base metals resource stocks. Secondly, NIC acquired additional assets from its partner Tsingchuan Holdings as they transition to nickel matte supply which can be used in EV batteries. Sandfire Resources (SFR +14.9%) continued to benefit from improving copper prices over the course of the month and a relatively neutral quarterly operating result. With OZ Minerals now likely to be taken over by BHP in the coming months, SFR remains the most compelling copper story listed on the ASX.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2301.pdfDecember, 2022
The positive market momentum from November couldn’t be maintained into December, leaving investors hoping for a Santa Claus rally disappointed. There was plenty to digest, with China re-opening faster than expected and the Bank of Japan shocking investors by relaxing its commitment to yield control. Further evidence that inflationary pressures are easing across large swaths of the developed world was not enough to elicit a pivot from any of the world’s major central banks, pressuring markets. Bond yields backed up as a result. US 10 years rose a modest 10bps however Australian 10 years added 52bps with the Aussie dollar relatively flat and the USD Index off -2.5%. The local market outperformed developed market peers, however, it still closed down -3.2%. Small caps underperformed, dropping -3.7% with the small resources materially lagging larger peers (-3.3%). However, the performance of underlying commodities was positive with investors anticipating a pickup in Chinese demand (iron ore +14%; copper +2.3%; gold +3.8%, oil unchanged). Staples and utilities proved the most defensive sectors, while factor-wise, dividend yield and value led with momentum and growth lagging. The Tribeca portfolio was down but fared better than the index, with our recent underweight in lithium helping defensiveness while key iron ore and gold overweights outperformed.
Positive contributors to December performance included Champion Iron (CIA +14.9%), which released no new news during the month. Surging iron ore prices did provide a tailwind though, with additional stimulus measures announced to support Chinese growth post-COVID reopening buoying prices. We consider higher prices an additional benefit to our investment thesis, where the central tenant is emerging green demand alongside continued production growth over time. CIA possess unique assets which we believe are yet to be fully appreciated by the market. Lithium developers Liontown Resources (LTR -31.8% - not held) and Core Lithium (CXO -24.4% - not held) had a tough month as lithium prices fell -8%, only the second down month for the commodity since May 2021. We took profit in our preferred producer names back in November, as channel checks suggested supply chain inventories were relatively full leading into the seasonally weak demand period in China. We believe a correction in lithium prices to be healthy and are monitoring for attractive re-entry points in our favoured names. Capricorn Metals (CMM +9.5%) continues to provide positive catalysts for investors, the most recent being resource delineation drilling at their proposed mine at Mt Gibson in Western Australia. Tailwinds from a resurgent gold price have also helped, with prices historically having some inverse correlation to the USD which has recently fallen. Lastly, Qualitas (QAL +13.4%) has begun to capture investors’ attention with material mandate wins in their property debt management funds. QAL remains a relatively small player within a large pool of capital, offering the potential for a continuation of their historically strong growth rates for some time to come.
Detracting from performance, Syrah Resources (SYR -20.5%) provided an update on their offtake with Tesla for supply of natural graphite during the month. The EV manufacturer remains committed to underpinning SYR’s expansion plans at mine and US refining operations. However, the company would appear to have been caught up in the softness across the lithium space. Our view is that SYR and graphite have a uniqueness similar to rare earths, where a large swathes of production and supply is controlled by China.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Quarterly-Fund-Update-2212.pdfNovember, 2022
Equities had a strong month in November, as US Federal Reserve Chair Powell's comments on potentially slowing rate hikes "as soon as December" provided relief to markets and tipped over the previously firm USD (DXY Index -5%). Fixed interest markets were buoyed given the less hawkish language, with US 10 year yields falling 51bps from intra-month highs while the RBA hike of 25bps continued the slide in local yields, which saw the 10 year drop 23bps. Inflation surprised to the downside, further cementing the November bond rally (and falling yields). Meanwhile, China announced measures designed to stabilise its ailing property market -an area that had been a large drag on GDP growth over the past 18 months. Further, a series of reports indicating a move away from COVID zero policy in China buoyed expectations for a much-improved economic environment into CY23. This put a fire underneath iron ore (+26%) prices, while copper (+9%), nickel (+22%) and gold (+7%) were also helped by the lower USD.
Domestically, equity markets performed generally in-line with global peers, and the broad S&P/ASX 200 Accumulation Index rose 6.6% with small caps slightly lagging, up 4.9%. Sectors pacing the gains included materials on stronger commodity prices, along with health and REITs. Lagging was energy, staples and communication services. Small caps couldn’t quite match the size and breath of gains of the broader index. Factor-wise, value outperformed quality with growth lagging, while price momentum underperformed. The Tribeca portfolio outperformed, with some resources sector names rebounding strongly, partially mitigated by unexpectedly poor updates from a couple of names which we were overweight.
Top contributors for the month included Champion Iron (CIA +35.9%), which continued to perform well following its strong quarter report in late October. This was undoubtedly helped by the strong rally in iron ore prices, something we hadn’t baked into our central investment case (but obviously welcomed), as did the considerable short interest that had accumulated recently. We continue to view CIA favourably on its strong fundamentals of high-grade iron ore and planned pelletisation feeding into future green steel initiatives, future production growth profile and attractive valuation. Capricorn Metals (CMM +23.9%) also released their quarterly production in late October, which highlighted excellent cost containment and strong free cash flows, particularly versus local peers. Over the past 12 months, Australia’s gold sector has been struggling with lower prices realised and higher consumables and labour costs, which have materially impacted margins. CMM has stood out with its free cash generation and earned its premium rating, in our view. Mineral Resources (MIN +19.5%) didn’t really deliver much new at its November AGM, however managed to withstand a selloff in lithium names as sentiment shifted against the sector following its strong run. MIN has a high cost producing iron division, which is very leveraged to prices while also developing its West Pilbara mining JV and associated infrastructure which will materially increase sales tonnage over the medium term. Webjet (WEB +20.8%) remains our only travel exposed name and delivered a positive surprise at its first half result, which was above market expectations. The consolidation during the pandemic in the bedbank industry has delivered the remaining players higher share and margins, especially given WEB’s consolidation and automation from their technology platforms. We think there could be continued upside should management deliver on their targets, something not yet banked by the market.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2211.pdfOctober, 2022
Equities had a strong month in October on speculation that central banks are nearing the peak of policy tightening, which lifted sentiment in share markets. Bond yields were a constructive catalyst domestically, with the Australian 10-year nominal bond yield closing 13bps lower to 3.76% and real interest rates also falling. Driving this downshift in bond yields appears to be greater optimism that a slowdown in the pace of rate hikes is nearing, with the RBA and BoC having already slowed in October and the ECB and BoE contemplating a potential slowdown. The broader local market (S&P/ASX200 Accumulation Index) rose 6%, marginally underperforming major global indices. Performance was led by Banks, REITs and Energy. Small caps did marginally better, rising 6.5%, with Health Care leading alongside REITs and Communications. Commodity prices were mixed, with oil leading the gains (Brent Oil +8%) while Iron Ore (-16%) dropped on seasonally softer demand. Gold (-1.9%) fell as the higher US Dollar and real rates continued to weigh on prices.
The Tribeca portfolio marginally underperformed October’s strong market gains, with several key tech and resources overweights performing well. However, this was neutralised by some unexpected updates from names we hold that were taken quite poorly by the market.
Underperforming positions included Eclipx Group (ECX -16.4%), which fell quite heavily given no new news was released. Used car pricing has begun moderating, which was anticipated, and will reduce the end of lease income for ECX. However, ECX’s material free cash flow generation will be applied to share buybacks, largely mitigating the EOL headwind over the next 2 years. This leaves optionality on their fastgrowing novated division, together with bolt-on and more material sector consolidation opportunities. The stock remains materially undervalued, in our view. Megaport (MP1 -21.8%) delivered their Q1 results and while the company’s growth trajectory continued, part of the narrative changed from just one month prior at the FY22 result. A pick-up in capex, after being guided down, as well as investment in headcount after recent staff cuts, confused investors who had been expecting a move into more material profitability. We’re currently reviewing our thesis. Mincor Resources (MCR -26.6%) released FY23 production and cost guidance materially below market expectations as they ramp up their flagship project at Cassini. We had been taking profits for some time in MCR and exited the remainder of our holding. Oz Minerals (OZL -6.3%) drifted lower after comments from the BHP CEO that they wouldn’t overpay for OZL given their rejected indicative offer. We anticipate BHP lifting its offer for OZL but on the chance they walk away, we have capacity to add to our holding and would view it as an excellent buying opportunity. Lastly, Eureka Group (EGH -13.8%) drifted lower, at odds with the bounce in the REIT sector, and eventually entered a trading halt for a capital raise to fund acquisitions and investments.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2210-Tribeca-Smaller-Companies-Report-1.pdfSeptember, 2022
Equities struggled in September, with the falls driven by the same factors that have impacted markets through most of 2022; rapid tightening by central banks, the market’s realisation that hikes may continue due to persistent inflation, and the increasing risk that policy tightening leads to a US recession in 2023. The US Federal Reserve continued to be hawkish, openly contemplating recessionary risk in order to bring inflation back to their 2% target. Bonds responded accordingly, driving real yields 100bps higher as markets priced in even more rate hikes, causing equities to de-rate further. The USD rallied another 3%, contributing to significantly tighter financial conditions, with second order effects being felt in foreign bond markets as financial liquidity continues to drain.
Australian equities fared slightly better versus developed market peers, though that’s not saying much with the S&P/ASX 200 Accumulation Index dropping 6.2% for the month. Emerging markets fared much worse, with the USD a wrecking ball. Similarly in small caps, the index slumped 11.2% lower. The sharp rise in real yields dragged down multiples, with discretionary, IT, health care taking the biggest hits. Materials were the standout versus the broader market, with big cap resources weathering the storm far better than smaller names, while energy proved most defensive (despite the Brent crude price falling 9%). The Tribeca portfolio outperformed in September, with the materials and IT sectors the strongest contributors, while energy tempered performance. It is arguable that much of the de-rating of equities has been done, however investors remain cognisant of forward earnings estimates that appear high in the view of the speed and magnitude of the current tightening cycle. The upcoming AGM season in Australia and Q3 earnings season in the US should shed light on how well demand is holding up
Outperforming for the portfolio in September was AVZ Minerals (AVZ -100% - not held), which was dropped from the small cap index at zero value after failing to emerging from a self-imposed trading suspension. The company is in dispute with their Chinese JV partner over its legal title to 75% interest in the Manono Project in the Democratic Republic of Congo, as well as its continued and perpetual pre-emptive rights over the balance of the project. The project comprises 2 exploration permits with high perspectivity for lithium.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Monthly-Fund-Update-2209.pdfAugust, 2022
Global equities struggled in August, as hawkish commentary from the Federal Reserve's annual Jackson Hole symposium softened investor sentiment. US yields sold off 52bps to 3.13%, driven by the Fed's fairly succinct hawkish statement which heightened expectations of Fed's rate hike severity. The US Dollar Index (DXY +2.8%), continued its ascent as investors sought safe havens given the ongoing energy crisis in Europe, where conditions are increasingly turning stagflationary. This heaped pressure on developed markets, with the US/EU/UK indices all recording falls of 2-5%. Meanwhile, emerging markets proved more resilient, with energy and materials stocks performing relatively well. This was also the case domestically, with local indices buffeted from the weakness by their relative overweights in resources. Both large and small caps finished in positive territory. Reporting season in Australia turned out not to be as dire as feared, with earnings revisions remaining largely in line with historical averages. Commodity price performance was in stark contrast to the equities, with oil, gold, base metals, iron ore all posting material declines. Soft commodities and coal were the exceptions. Factor-wise, earnings revisions and price momentum understandably did well, while quality and value lagged. The Tribeca portfolio returned to outperformance during the month, helped by some solid earnings performances from key overweights and a takeover offer for one our resource holdings.
Positions contributing to outperformance included Oz Minerals (OZL +36.6%), who received a takeover approach from BHP. We recently reinitiated a position in OZL after material price falls on production misses and falls in the copper price on global recession fears. We have a high opinion of the assets and management from our previous ownership, and we also remain positive copper from a decarbonisation view. We continue to hold our position and believe the initial bid undervalues the opportunity ahead of OZL. Mineral Resources (MIN +19.0%) performed well despite the iron ore price weakness (iron ore -15.7%), with agreement to proceed with their Onslow iron ore project and restructure of MARBL lithium JV of more interest. Onslow underpins a material increase in long term mining services revenues while the JV should make MIN one of the world’s leading lithium suppliers. MIN remains cheap in our opinion. PWR Holdings (PWH +13.6%) beat expectations with their FY22 result, with revenue and margins stronger than anticipated. The outlook outlined by management remains very positive, within aerospace and defence key growth areas. We think PWH is one of the premier growth stocks listed on the ASX. Allkem Limited (AKE +23.3%) delivered a record FY22 result, however it was just shy of analyst expectations. This was more than offset by commentary around lithium supply and expectations for continued deficits into the medium/long term. AKE provides one of the more attractive growth profiles of the listed producers. Lastly, Karoon Energy (KAR +15.1%) bounced back from recent weakness with a strong FY22 result. Recent oil well interventions at their Bauna oil field in Brazil have been successful at materially lifting production rates, with expectations of tripling production over the next 2-3 years. This should see capital management on the table for investors given the expected cashflows.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2208-Tribeca-Smaller-Companies-Report.pdfJuly, 2022
Global equities rebounded in July, driven by a positive U.S. reporting season and U.S. GDP contraction which softened investor expectations of the steepness of future rate hikes. The improvement in investor sentiment was also seen in bond markets, as the Australian 10-year yield declined by 60bps to 3.06%. U.S. yields also fell 33bps to 2.64%, as the Q2 GDP decline moderated inflationary fears. The broad Australian market largely underperformed the bounce in developed markets, however still gained a healthy 5.8%. Meanwhile, Small caps headlined the gains adding 11.4% with Consumer Staples the only sector finishing the month in negative territory, while Health, IT and Financials paced a broad list of strong advancers. Commodity prices broadly fell in July. Brent oil fell US$5 to US$110/bbl as bans on Russian shipments were delayed. Iron ore prices also dropped US$5 to US$118/Mt as Brazilian shipments hit record highs and demand remained soft. Gold saw large falls as the price fell by US$60 to US$1,753, as moderating inflation expectations improve investor risk sentiment and away from gold’s traditional ‘safe haven’ status. From a factor perspective, growth materially outperformed value which resulted in growth now outperforming on a 12-month basis. Market multiples saw a decent rerate, with 12-month forward EPS falling for the 1st time this year. The Tribeca portfolio underperformed the bounce in the market, with some of the growth areas of the market such as Healthcare rallying extremely hard while our overweights in Industrials and IT unable were unable to match. Additionally, Energy lagged the market while the Materials names we held struggled to make headway in the rebound.
Outperforming during July was Life360 (360, +58.8%), which saw a strong a bid after a tough CY22 thus far. The company has largely executed against expectations, with only sales of their Tile hardware seeing some impact as a result of chip shortages, although not overly material. The base business continues to grow revenue at ~50% p.a., with the share price fall mostly de-rating, trading between a 35-71% discount to its Nasdaq-listed peer group. Megaport (MP1, +77.8%), reported its June quarterly and surprised the market with better-thananticipated growth and quarterly cashflow. The market had lost some faith after the recent run of mixed reporting versus expectations, though they continued to show 30% top line growth which we believe can be continued for some time. PWR Holdings (PWH, +32.1%) also followed the rebound in growth names, with little to indicate business opportunities had slowed. A large Australian Army contract that was scheduled to be awarded appeared postponed, which may have been anticipated by some investors. We feel there will be other such opportunities for PWH in time and used the opportunity to add to our position. Johns Lyng Group (JLG, +31.4%), followed a similar pattern and we also added to our holding there given the outlook is arguably more robust for their insurance and catastrophe business post recent weather events on the East Coast. Lastly, Capricorn Minerals (CMM, +24.6%), produced a sound quarterly amid some concerns among analysts relating to mining costs and labour availability. This led to a welcome rebound after recent share price declines.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2207-Tribeca-Smaller-Companies-Report.pdfMay, 2022
May started out continuing the downward trend from April with global indexes initially unable to rebound. US lead-indicators such as consumer confidence continued to deteriorate along with housing, while tightening financial conditions prompted downward revisions to GDP growth forecasts. Concerns gave way to some thought that the US Fed might respond to weaker data and raise rates more slowly, paving the way for a month end rally. Domestically, lead indicators have trended in a similar fashion to offshore, however with a noticeable lag in inflation. A change of government at the Australian election was largely taken in stride by the market. Australian indices lagged global indices to some extent a victim of their own success given recent defensiveness, with the S&P/ASX Accumulation Index falling 2.6%. Small caps had a very tough month, sliding 7% with energy the only sector to finish in positive territory, as investors sought refuge in larger cap names within banks, healthcare and resources. Style wise, large beat small while value outperformance over growth continued, the market continuing to de-rate in the face of small positive earnings revisions over the month. The Tribeca portfolio underperformed the market for the month, partly reflected through a selloff in our growth names while other more expensive parts of the market proved defensive during the volatility. Additionally, several smaller, value-orientated names in the portfolio were caught up in the market volatility and, as such, failed to catch the value bid. We view this as part and parcel of monthly moves, particularly given the volatility.
Stocks driving underperformance included DGL Group (DGL -26.8%), which gave up the upgrade-driven gains from the previous month, after some distasteful comments made by the CEO were reported in the press. The comments were unacceptable, and the CEO conveyed his apologies to all concerned while the company has conducted a full review of its culture. The comments were out of line with levels of behaviour and leadership expected from our investments, and while remaining shareholders we will work hard to ensure appropriate standards are upheld. PWR Holdings (PWH -23.8%) and Johns Lyng Group (JLG -32.9%), have been two of the higher growth names in our portfolio, and while the subject of no news during the month, sold off as the market continued rotating towards value. We had taken our position sizing down during recent strong performance as valuation upside became more limited, with the de-risking by the market bringing the stocks back to very appealing levels. Whitehaven Coal (WHC +7.3%
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2205-Tribeca-Smaller-Companies-Report.pdfApril, 2022
April proved a weak month for global equities, as rising inflation fears fuelled concerns of a slowdown in economic growth. Bond markets saw material moves as inflation printed 30-year highs, resulting in Australian 10-year yields selling off 30bps to 3.12% as investors priced in aggressive rate hikes beginning at the RBA's May meeting. Financial conditions tightened at a brisk pace, with real yields turning positive, while the USD index gained 5% as investors sought some safe-haven solace in the reserve currency. The broader Australian market fared better than most, shedding 1.8% with banks proving very defensive on expectations of wider lending spreads. However, small caps materially underperformed falling 4.5%, with losses in IT, financials and industrials while energy and staples delivered some solid gains. Style-wise, value had a good month vs growth in the small cap space, while it was the other way around in large caps. Pleasingly, the Tribeca portfolio bounced, driven by some of our more value orientated names and stocks we didn’t hold that were recently added to the index from the battery metals space. This was somewhat tempered by several tech names we hold as that space remains challenging from a macro point of view.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2204-Tribeca-Smaller-Companies-Report.pdfFebruary, 2022
Despite reporting season delivering some very reasonable numbers, the performance of individual stock names was influenced by investor positioning and the outlook for earnings. A number of very credible results ended at lower share prices as overweight investors looked to bank profits, while those providing soft or uncertain outlooks saw some savage selloffs. Information Technology posed the material headwind for the portfolio during the month on a number of different fronts. A name we have spoken about regularly and a conviction overweight, Life360 Inc. (360 -36.6%), extended losses from previous months post its acquisition and capital raise for Tile in 2021. As January’s quarterly was already known and in the market’s numbers, the FY21 result held little surprise for investors. Still, management continued to reference their planned US dual listing as a reason for not providing earnings guidance which was disappointing.
This has been something we’ve been vocal in opposing and continued to make our views known. From a portfolio view, 360 has exhibited far higher volatility than anticipated ex-post, resulting in materially more overall portfolio leverage to the technology selloff than expected. This is something we identified during the month and reduced exposure; however, the damage was material. 360 remains a compelling proposition in our view, though some water under the bridge may be required given the recent damage inflicted on the share price.
Premium (PPS -39.3%), fell materially after reporting a disappointing 1H result. Whilst revenue was broadly in-line with expectations (+25% YoY), material cost increases across the business (+30% YoY) saw earnings below expectations. Reported EBITDA was +6% YoY, lagging top-line growth unexpectedly, as management highlighted the need for additional headcount. The weak month for the stock was compounded after Netwealth (NWL) distanced itself from its prior takeover approach, effectively removing any takeover premium embedded in the PPS share price. Tyro Payments (TYR -31.5%) fell sharply after reporting a disappointing first-half result. Revenue and gross profit were broadly in-line with expectations (+30% and +20% on PCP respectively) however wage inflation and increased investment saw EBITDA fall year-on-year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-ASC-Fund-Update-2202.pdfJanuary, 2022
A gnawing sense of doubt plagued markets in the first month of 2022, with most major equity indices flirting with or entering a technical ‘correction’. The threat of an overly zealous Fed, the Omicron wave and ongoing supply chain concerns raised questions about the resiliency of the global recovery. With incoming 4Q21 data suggestive of a drop in momentum as we moved into the new year, commentators were quick to draw comparisons to late 2018. We don’t see this as the case. Ahead of domestic interim reporting in February, the quarterly earnings season across major markets saw around three quarters of companies beat estimates, although the quantum was down compared to the previous quarter. Factor wise, trends in January were consistent with those of a market correction, with investors favouring defensive factors such as low volatility and beta while punishing securities with stretched or higher valuations. Turning to markets, the broader S&P/ASX 200 Accumulation Index fell 6.4%, the worst month since the outbreak of the COVID-19 pandemic. Tech, health and staples led declines. In Small caps, the damage was worse, with the index falling 9.0%. The culprits were similar though resources names fell far more than their larger peers. The Tribeca portfolio held up better than the market, with cyclicals and defensive names escaping much of the carnage. This was partially offset by IT and growth exposures which dragged on performance despite our relative value tilt as correlations in the space converged.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2201-Tribeca-Smaller-Companies-Report.pdfDecember, 2021
The December quarter was more volatile than recent quarters, something that often accompanies forecasts for liquidity withdrawal, as a number developed market Central Banks readied investors for a wind-down of QE and eventual rate rises after inflation was deemed less transitory than first anticipated. Within the market, AGM updates came not long after the recent reporting season. Against the backdrop of an already nervous market, any shortcomings from companies were harshly dealt with, particularly at the value end. Several portfolio names underperformed as a result (PGH, TYR, SIG, PDL, EML, IFL). M&A was a regular fixture throughout the quarter, and bids were received for two of our holdings. (SXY, PPS). Meanwhile, resources names remained firm at 40-year highs as an inflationary outlook saw investors gravitate to hard assets. Some of our resources value holdings rebounded (NIC, MIN, IGO) while gold names found some relief after a tough Q1 (CMM, RMS) and battery metals prices continued to firm on forecast supply/demand deficits and drove equities higher again (LYC).
Looking at the previous 12 months, performance has been quite idiosyncratic with gains across nearly all market sectors and attribution from titled towards materials and communications. Building material exposures delivered nicely however we have since taken profits and now sit underweight. We remain underweight gold as per the past 12 months, with our major exposures in battery and related metals driving alpha, partially offset by some larger index weightings which we didn’t own. Our high conviction holding in UWL and underweight in CNU delivered strong results across communications. Emerging names such as 360, DGL and HMC that we initiated positions in relatively early also contributed, while diversified financials were very weak with disappointing outcomes across cheap, market exposed names such as PDL, IFL which saw material de-ratings on some relatively small earnings adjustments.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2112-Tribeca-Smaller-Companies-Report.pdfNovember, 2021
Australian stocks outperformed, as volatility in global markets ramped up in the final days of the month after the discovery of a more transmissible COVID variant named Omicron and questions arose around existing vaccine efficacy. This added to fears of more lockdowns that had already started to re-emerge as COVID cases began to rise in the Northern Hemisphere. To top it off, on the last day of the month, Fed chair Powell signalled tapering may be accelerated as inflation is less transitory than first thought. This double whammy was a headwind for risk assets and flattened yield curves. Within the domestic market, small caps marginally outperformed the broader market, closing down -0.3% against the ASX200 Accumulation Index which fell -0.5%. Materials, tech and telcos led performance while energy, consumer discretionary and industrials all fell by over 3%. From a factor perspective, quality was the standout performer, while value lagged despite the strong contribution from resources. The Tribeca Fund underperformed for the month, with some particularly harsh reactions in our overweights after slightly softer updates, and elements of rotation away from reopening on COVID concerns. Additionally, some large index weights that we don’t hold, and are at very early stages in their development, appreciated materially.
Detractors for the month were led by Novonix Ltd (NVX +61.5% NOT HELD), an emerging battery development and material technology company. NVX is aspiring to be the one of the first scale suppliers of high-capacity, long-life, synthetic graphite anode material to battery producers. Procuring meaningful supplies of natural graphite has been challenging for the world’s battery manufacturers, particularly given forecast demand growth, while synthetic graphite is possible solution if the natural materials qualities can be replicated. NVX has attracted significant end market interest and secured investment from an energy major onto its register in a recent placement. However, it is still 2 years away from any genuine production and we think it is already imputing a large amount of success at $4.4bn market cap. Tyro Payments (TYR -28.7%), fell sharply after providing a trading update at their AGM which highlighted a deterioration in its gross profit margin compared to FY21 levels. Whilst a drop in margins was expected (given a new distribution agreement with Bendigo Bank), the extent of the change and the way in which it was communicated to the market created increased uncertainty that saw investors move to the sidelines. In our view the market reaction was overdone, a view supported by the relatively modest change to consensus earnings. We remain constructive on the name.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2111-Tribeca-Smaller-Companies-Report.pdfOctober, 2021
Global equity markets saw continued strong momentum in October led by developed markets. This was despite the headwind of inflationary concerns, prospect of rate hikes, and global supply chain disruptions. US markets paced the gains, with the S&P 500 Index climbing 7.0%, driven by a strong quarterly earnings season. Domestically, the Australian market lagged, with the broad S&P/ASX200 Accumulation Index finishing the month lower by 0.1%, as investors considered the impact of higher-than-expected inflation and tighter monetary policy. This lag was significantly reflected in the Australian 10-year bond yield which rose 59bps to 2.08%, compared to US 10-year bonds which were flat across October. Short end rates rallied further, flattening yield curves and providing a tailwind for growth over value. Meanwhile, the gold price rose $26 to $1,769/oz, and crude oil climbed $6 to $84/bbl. Iron ore dipped $3 to $108/Mt as China's industrial production growth moderated due to power shortages and production regulations while concerns remained over the fallout from Chinese property developer Evergrande on the property sector and broader Chinese economy.
Small caps outperformed the broader market, gaining 0.9%. While exposures to iron ore and banks weighed on the larger resources names healthy gains from the small cap sector heavyweights of materials, tech and consumer discretionary powered outperformance. The underperformance of energy and staples was less impactful. The Tribeca portfolio ended largely flat with the index, with some mixed stock specific outcomes and corporate activity offsetting each other at month end.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2110-Tribeca-Smaller-Companies-Report.pdfSeptember, 2021
Performance during the quarter was impacted by several factors. Firstly, the quarter began with NSW and Victoria in hard lockdown and while those companies that were beneficiaries during the 1st round of lockdowns received a boost, they didn’t to the same extent. As vaccine availability increased and vaccination rates accelerated, stocks perceived to benefit from the re-opening of the economy materially outperformed COVID beneficiaries. This was something the portfolio was positioned for across retail (CCX), tech (360, TYR) and consumers services (CTD, FLT). Secondly, the materials sector was negatively impacted as a rebound in bond yields and the USD weighed on the gold sector. While the portfolio was underweighting the sector, heavy falls for the equities including those held in the portfolio (EVN, RMS) was a drag on performance. Conversely, new energy exposed names (IGO, LYC) where the portfolio is overweight, managed to offer much of this weakness. Finally, given August was reporting season there was some positive earnings surprises in the portfolio from several names including DGL, HMC, PWH and GNC
Changes in portfolio positioning during the quarter saw some profit taken in areas where the past 12 months trading would present a challenging comparable period to cycle. This included COVID-testing exposed healthcare, fast food delivery and home appliances. Funds were redeployed into areas where we believed economic conditions would become more favourable after a long period of COVID disruption such as outdoor media, travel and hospitality. Our conviction waned in such names in several larger overweights where our thesis did not play out as expected and we reduced our positions. Meanwhile, new positions were added in the emerging commodity producers and a number of turnaround situations.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2109-Tribeca-Smaller-Companies-Report.pdfAugust, 2021
Global equity markets broadly gained during August, climbing a wall of worry as various economies experienced a delta-induced spike in virus cases, sparking concerns around the global recovery. Economic data was mixed, however largely remained at levels consistent with healthy underlying growth, apart from China. Here, expectations were that cooling measures had been effective and some level of easing would be forthcoming. Domestically, yet another results season was wracked by the uncertainty given protracted lockdowns. Much like August 2020, earnings projections for the market were pared back by -1.2% (versus the global market peer group which recorded positive EPS revisions in August. This saw the broader Australian market underperform as a result. By contrast small caps had a strong month (+5.0%) outperforming the broader market as large cap resources names succumbing to falling iron ore prices (iron ore USD/MT -20.6%). Further, a theme consistent throughout reporting season was investors rotating into re-opening trades during results as domestic vaccination rates accelerated and the political narrative shifted towards living with the virus. We think this ultimately favoured smaller, domestically focused names. The Tribeca portfolio outperformed its benchmark for the month. Reporting season dominated the narrative for the month.
Results moved back towards the average skews of beats to misses and revisions to forward EPS (outside of some outliers). Outside of physical retail names, where post 30 June updates were generally soft, outlook statements were non-committal but not overly bearish. Names that delivered positive alpha during the period included DGL Group (DGL +55.6%), a recent IPO in which we participated. Almost entirely founder-owned and based in New Zealand, DGL raised primary money only to pursue investment and M&A opportunities in the highly fragmented chemical and waste processing space. We viewed the IPO as reasonably priced for the opportunity, and subsequently the company has wasted no time in putting the money to work via recent acquisitions and capex announcements. We think the possibility of some larger deals coming to fruition are good, albeit the market is starting to partly factor this into the price. Graincorp (GNC +21.0%), unexpectedly updated the market in August, upgrading their September FY21 guidance on the back of the exceptionally large 2020/21 crop
Detractors from performance fell into two buckets. Firstly, ‘new-energy’ stocks were disproportionately represented, being Mineral Resources (MIN -12.7%), Pilbara Minerals (PLS +26.0% NOT HELD) and Lynas Rare Earths (LYC -6.3%). The underlying market for the commodities driving these names continues to be strong, with forward projections of supply and demand for rare earths and lithium very favourable with expectations for for prices to maintain their current high levels or move even higher
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2108-Tribeca-Smaller-Companies-Report.pdfJuly, 2021
Global markets were mixed result in July, as the delta strain of the Covid virus spread globally. The Australian market rallied towards month end to finish with a modest gain as market EPS upgrades continued, despite lockdowns in Sydney and Melbourne. Large caps (+1.1%) outperformed small caps (+0.7%). US markets led the way higher on the back of a very strong quarterly reporting season. Meanwhile, emerging markets fared poorly, logging large declines largely as a result of China’s regulatory crackdown across the health, fintech and education sectors, with the effects felt in Japanese and emerging Asia. It was therefore interesting that resources led local market performance, with a lower USD and strong global demand pushing commodity prices higher ex iron ore.
The energy and industrial sectors were also strong performers, while healthcare, financials and discretionary lagged. The Tribeca portfolio delivered positive alpha for the month with a spread of positive stock performance across sectors. Materials names were the most volatile and thus dominating our top/bottom contributors.
Names delivering positive alpha to the portfolio included Lynas Rare Earths (LYC +28.6%), after reporting strong fourth quarter production to round out FY21. Volumes were inline to slightly ahead of guidance, as were costs, an impressive result while operating in the midst of locked-down Malaysia. Realised prices and cash flows were also ahead of market. Meanwhile, Rare Earth pricing rebounded from a June selloff, with fundamentals continuing to look attractive and forecast supply to remain tight as EV and renewable power adoption is being mandated at an increasing rate. IGO Limited (IGO +22.0%), completed their acquisition of 49% of Tianqi Lithium announced back in December. There had been some speculation that the deal wouldn’t close, resulting in IGO underperforming peers such as Pilbara, Orocobre and Galaxy as the market waited for confirmation.
We are very supportive of the acquisition, which delivers IGO around half of an integrated tier 1 lithium asset struck at a price reflective of the poor market conditions at the time. Operationally, Q4 production and costs were sound while IGO also made a small acquisition in July next door to their existing Nova nickel mine which will further extend mine-life
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2107-Tribeca-Smaller-Companies-Report.pdfJune, 2021
Global equity markets finished the financial year posting further gains, with our domestic market among the strongest performers and capping off its best financial year since the 1980s. Equity market performance has been underpinned by ongoing fiscal stimulus and persistently accommodative monetary policy from central banks. Domestically, earnings revisions remain firmly in upgrade territory, with breadth measures running at a high rate of c.70%.
The gap to pre-COVID expectations continues to close with EPS levels now 7% below that high watermark and the return of company outlooks has seen revision strength broaden. The value rotation theme persisted through until June, whereupon markets lurched back to favour growth stocks and bonds ironically just as the US Fed tilted more hawkish in their commentary. It was evident to us that positioning had become somewhat stretched across the reflation trade, with a pause to refresh, a healthy sign in our view.
The small cap market delivered an +8.5% return for the quarter, largely in-line with the broader market (S&PASX Accumulation Index gained +8.3%). Financials paced gains, with lenders and market-linked earners relishing the current macroeconomic tailwinds while materials were also strong as commodity prices continued to surge on a mixture of supply demand concerns and a slightly weaker USD (DXY -0.9%). Consumer staples were a material laggard, with little explanation outside of strong markets stoking risk appetite. Industrials and consumer discretionary names also underperformed. The Fund outperformed to close out a strong year of alpha generation, with a broad mix of individual stock contributors tilting the outcome positively at quarter-end
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2106-Tribeca-Smaller-Companies-Report-1.pdfMay, 2021
The strong performance of Ramelius Resources (RMS +15.9%) and Northern Star Resources (NST +11.3%) during May was driven primarily by a rebound in the gold price, which had its best month (+8%) since July 2020. NST also had a couple of positive updates during May including their annual reserve and resource update for the year, which showed a material increase in both.
The company also hosted a site visit to their flagship asset in Kalgoorlie, which Tribeca attended. We remain positive on both stocks due to solid management, compelling growth and healthy margins.
The outperformance of these names was partially offset by Chalice Mining (CHN +27.3%), which we did not own. New Hope Coal (NHC +24.9%) reversed April’s negative price action as investors noticed the rally going on in thermal coal prices (Newcastle July Coal futures +24.8% in May and +43% CYTD).
Market conditions are extremely tight for NHC’s high calorific, low sulphur coal across Asian markets, despite the Chinese import ban. The lack of investment appetite in the sector has the potential to keep markets historically tighter going forward. Seven Group emerged with an effective nil-premium bid for Boral (BLD +9.8%) and Boral responded by advising shareholders to reject the bid, promising a target statement response and aggressively ramping up the scale of their on-market buyback at levels above the bid price.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2105-Tribeca-Smaller-Companies-Report.pdfApril, 2021
Equity markets continued to record strong performance in April with year-to-date returns well ahead of average. At a global level, equity market performance has been underpinned by ongoing fiscal stimulus and persistently accommodative monetary policy. On the domestic front, earnings revisions remain firmly in upgrade territory, with breadth measures running at a high rate of c.70%. The gap to pre-COVID expectations continues to close with EPS levels now 7% below that high watermark, and the return of company outlooks has seen revision strength broaden. Looking ahead, a large broker hosted conference will see 97 companies present over 3 days in early May with many expected to release trading updates, while the Federal Budget on 11 May will again influence confidence and conviction around Australia's recovery path, corporate activity and the earnings outlook.
Small caps had a strong month, with the index (S&P/ASX Small Ordinaries Accumulation Index) gaining 5.0%, while also outperforming the broader S&P/ASX 200 Accumulation Index by 1.5%. Looking at the drivers of market performance, IT and Materials had strong gains, followed by Financials. Energy and Consumer Staples lagged and were the only sectors to post declines. The Tribeca portfolio had a good month and finished ahead of the index, with positive catalysts in some reasonably overweight names driving performance
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2104-Tribeca-Smaller-Companies-Report.pdfMarch, 2021
A sudden surge in bond yields in the final week of February sent tremors through global markets. Parallels were quickly drawn with the 1994 'bond market massacre' and the 2013 'taper tantrum'. However, the broader Australian equity market still managed to post a gain of 1.5%, while small caps were largely in-line (+1.6%). In the US and EU, the Q4 earnings season approached its close, with year-on-year EPS growth turning positive after three consecutive quarters of negative growth and most companies have beaten consensus estimates. In Australia, the ratio of beats to misses and positive earnings revisions hit a record high during reporting season. We saw another sharp outperformance for of value in the Australian market, marking five consecutive months of value outperforming growth. Within small caps, financials led gains alongside telco and staples while industrials, health and discretionary lagged. The Tribeca portfolio had a strong month in terms of alpha generation, largely on the back of a strongly positive skew of winners versus losers during reporting season
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2102-Tribeca-Smaller-Companies-Report-1.pdfFebruary, 2021
A sudden surge in bond yields in the final week of February sent tremors through global markets. Parallels were quickly drawn with the 1994 'bond market massacre' and the 2013 'taper tantrum'. However, the broader Australian equity market still managed to post a gain of 1.5%, while small caps were largely in-line (+1.6%). In the US and EU, the Q4 earnings season approached its close, with year-on-year EPS growth turning positive after three consecutive quarters of negative growth and most companies have beaten consensus estimates.
In Australia, the ratio of beats to misses and positive earnings revisions hit a record high during reporting season. We saw another sharp outperformance for of value in the Australian market, marking five consecutive months of value outperforming growth. Within small caps, financials led gains alongside telco and staples while industrials, health and discretionary lagged. The Tribeca portfolio had a strong month in terms of alpha generation, largely on the back of a strongly positive skew of winners versus losers during reporting season. Contributors to outperformance included EML Payments (EML +29.6%), which saw a recovery rally after posting1H results in-line with market expectations. We anticipated the market would revisit the EML story as a vaccine recovery play, given the hit to profits the company took during COVID from lower shopping mall traffic and the loss of higher margin travel cards in Europe. EML is forecasting strong growth driven by a mix of existing customer growth, new contract wins and potential acquisitions while trading at a reasonable valuation, particularly versus its tech/payment peer group. Seven West Media (SWM +51.4%) demonstrated a strong earnings recovery and good balance sheet management despite a heavily COVID impacted September quarter. Betterthan-expected cost out drove the surprise, while commentary on 2H market visibility was very positive as companies recommence investment in marketing. Uniti Wireless (UWL +17.5%), delivered strong earnings growth ahead of expectations, the outperformance was driven by the strong integration of the OptiComm acquisition and improving housing market conditions driving demand for broadband services. We believe there to be further complementary acquisitions forthcoming which should be accretive and continue to build out UWL’s service offering.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2102-Tribeca-Smaller-Companies-Report.pdfJanuary, 2021
Nerves frayed across global markets through the latter part of January, as ructions in a handful of heavily shorted US small cap stocks stoked volatility and accentuated bubble fears. The late month weakness resulted in most developed markets giving up some solid gains, with the Australian market closing broadly flat – the broader market gaining +30bps, while small caps lost -30bps. In a global context emerging markets outperformed. Within the Australian market, and contrary to global markets, the energy and health were weakest domestically, alongside information technology. Telecommunications, discretionary and financials were among the best performing sectors. COVID continued to dominate news headlines, specifically caseload counts and emerging virus variants. However, investors focused on countries such as Israel where vaccinations were well advanced (54% of the population) and proving effective.The aforementioned short squeezes saw hedge funds reducing positioning as they sold long positions to cover shorts. Positioning had become very bullish and we view the sell-off as a pause that refreshes versus anything major.
Domestically, several companies updated the market highlighting positive trading through November and December, retailers in particular. Continued EPS upgrades are likely to be a feature of the 1H reporting season in February, in our view. Meanwhile, bond yields continued to drift higher, keeping pressure on high multiples and interest rate sensitive segments of the market. The recent cyclical rotation eased back because of the late month de-risking, though commodity prices remained well-bid led by oil (brent +8.1%).
The Tribeca portfolio eked out 50bps of outperformance driven by a broad cross-section of contributors. Positive contributors to alpha for the month included Polynovo Ltd (PNV -32.2% not held), after PNV notified the market that while H1 trading was softer than anticipated they expected a stronger half to achieve pre-existing FY21 guidance. Unfortunately, for shareholders the share price implied little for disappointing news, having rallied 76% in the December quarter. While undoubtedly PNV has a great product and is growing strongly, we felt it would be challenging to achieve its guided growth rates in FY21.
Furthermore, we view PNV’s eventual end market size and penetration as being well short of that implied by the stock’s current market value. Nickel mines (NIC +14.0%) had another good month, delivering a strong quarterly production report, paying its inaugural dividend together with tailwinds from strong commodity prices (Nickel LME +7.2%). Lynas Rare Earths (LYC +20.1%) formalised an agreement with the US Department of Defence to build a light rare earth processing facility. While this was largely expected, it reinforced the US commitment to diversify their rare earth procurement away from traditional supply sources (China) in which LYC will play a pivotal role. IDP Education (IEL +15.8%) was subject of no news of note however successful vaccination role outs buoyed expectations for a return to international student travel. Lastly, Unit Group (UWL +7.0%) delivered their final quarterly report, noting trading was ahead of expectations last updated at their purchase of Telstra’s fixed-line assets. This was particularly pleasing, highlighting strong underlying momentum in the base infrastructure business, while the pickup in housing should provide additional backlog and churn opportunities. Detracting from performance was AMA Group (AMA -19.4%), with the board announcing whistle-blower allegations in regard to the CEO, to which the CEO responded with court action. It appears indicative of deeper boardroom divisions, which is frustrating given the recovery in driving as we emerge from various stateimposed restrictions.
We will work proactively to help ensure disruptions to the business are minimised and governance standards are not compromised. Zip Co (Z1P +37.4% not held) updated the market, its fifth since mid-October, with a continuation of strong customer procurement and transaction volume particularly in their US Quadpay operations. There appears to be little barriers to entry in the BNPL space, with many players emerging and growing very quickly. Low penetration rates of retail sales in the US are a potential risk to our underweight, as well as investors’ apparent apathy as to whether actual earnings will end up supporting implied valuations. PointsBet Holdings (PBH +31.5%) is in a similar camp, with quarterly updates showing high levels of turnover and customer activity in both the US and Australia.
The driver of this in the US -legalisation of sports wagering by US States in order to generate additional tax revenues -has the potential to happen at a faster rate than expected as state governors see the success in other states. PBH has done an incredible job to position itself as a player in the US, however near term risks are high (New York state legislation) and are not skewed in the favour of PBH, in our view. Harvey Norman (HVN +13.9% not held) likely piggy-backed retailer announcements of a strong Christmas trading period while Pro Medicus (PME +25.4% not held) announced additional contracts with US hospitals for their radiology information systems (RIS) and picture archiving and communications systems (PACS).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2101-Tribeca-Smaller-Companies-Report-1.pdfDecember, 2020
December brought 2020 to a close with continued equity market gains, the path of least resistance seemingly higher for the time being. Positive news surrounding vaccine rollouts, albeit slower than originally anticipated, as well as a last-minute US stimulus package and Brexit deal was tempered by large COVID caseload increases in the Northern Hemisphere and partial lockdowns of populations. Within the market, support for the value trade continued from November with energy and materials up strongly. The Tribeca portfolio generated over 1.0% of alpha, aided by some selection of recent IPOs, strength in resource-exposed names and some other stock specific moves.
Outperforming for the portfolio in December was Nuix Limited (NLX +55.4%), an investigative analytics and intelligence solutions provider in Australia and internationally, which listed during the month and we participated. Mesoblast (MSB -45.9% NOT HELD) fell hard over the month after back-to-back negative announcements. The first announcement was a disappointing Phase 3 trial read-out for their chronic heart failure therapy, REVASCOR, which missed its primary endpoint. The second, more consequential, announcement was the early termination of the COVID-ARDS trial for their Remestemcel-L product, as the interim data indicated it too would miss its primary endpoint. Mineral Resources (MIN +15.8%) benefitted from higher iron ore prices (iron ore +21.5%) and a more favourable outlook for lithium however it was also promoted out of the Small Ordinaries Index to the ASX100 Index, which created some selling pressure through mid-December. Lastly, Imdex (IMD +26.4%) had a strong month despite no specific news of note.
Underperforming for the portfolio was Senex Energy (SXY -11.3%), which is no stranger to our monthly under/outperformer names. Over 30% of SXY’s revenue is directly linked to oil prices which had a strong month (Brent +8.5%), while regional LNG prices have been on a tear due to a strong pickup in demand from Asia. IDP Education (IEL -18.9%) was impacted by increasingly negative Sino-Australian trade rhetoric, which poses a risk to future inbound Chinese students to Australia. IGO Ltd (IGO +37.5% NOT HELD) entered the lithium supply space via the purchase of a 49% interest in Tianqi Australia, which holds a 50% share in Greenbushes lithium mine and 100% of the Kwinana hydroxide processing plant. Reece Holdings (REH +9.5% NOT HELD) was promoted into the ASX100 and 200 Indices concurrently, leading to material demand from index funds to get appropriately weighted. Lastly, Polynovo (PNV +20.9% NOT HELD) has been strong alongside strongly performing biotech names globally.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2012-Tribeca-Smaller-Companies-Report.pdfNovember, 2020
Global markets rose through November, driven by positive vaccine news and increased certainty regarding the US election result, which was closer than expected. While global economic data was somewhat mixed as several continents grabbled with second COVID waves and restrictions, domestic lead indicators such as housing prices and permits posted strong gains while sentiment and GDP were better than expected. Local markets posted their best monthly gains in 32 years (both small and large cap indices gained +10.2%), as the cyclical rotation that had been simmering for several months ‘erupted’. Financials, energy and industrials delivered outsized gains, while unsurprisingly, strong performers such as tech, consumer staples and discretionary lagged. Materials saw strong gains in the non-gold equities, as underlying commodity prices benefited from the global restocking cycle underway and a weaker USD. Gold names, however, underperformed as investors sought funding sources for the rotation.
The market rally was reasonably broad from a sector perspective, which was largely reflected in our performance for the month. Importantly, the Tribeca portfolio delivered healthy outperformance, which was particularly pleasing given the absolute return of the index. We endeavour to maintain a neutral style bias via our risk management, along with a bottom-up valuation-based approach, which we believe stood us in good stead during the rotation that we have seen.
Stocks contributing to outperformance in November included Fletcher Building (FBU +39.5%) which provided 1H21 guidance at their AGM reflecting far more resilient trading conditions than anticipated at their FY20 result. Their cost-out program was on-track, something the market had been initially sceptical of. We had more confidence in management and were also of the view their market-related guidance was unduly conservative. We have taken some profit however still see upside to the market’s mid-cycle earnings expectations and remain overweight. Uniti Wireless (UWL +31.1%), managed to complete their acquisition of Opticomm (OPC), with Aware Super bowing out. Despite being forced to pay a higher price, the strategic merit and earnings accretion remain attractive in our view. Additional bolt-on acquisitions remain available, however UWL is already the clear No. 2 behind the NBN in broadband connections with a multi-year committed pipeline to drive growth. Lynas Rare Earths (LYC +33.6%) tracked higher alongside stronger spot rare earth prices, as the US continues to push forward with developing a critical metals supply chain ex-China. LYC is the only major non-China supplier of rare earths globally, and in discussions to supply product to US Government agencies. Nickel Mines (NIC +20.7%) confirmed it would execute the purchase of 70% of Angel Nickel nearby to their operations in Indonesia’s Weda Bay. Nickel prices also had a strong month, up 7%, which provided a further tailwind to performance. Lastly, Mineral Resources (MIN +29.5%) released plans to increase iron ore production by 60mtpa making them the 4th largest producer behind Fortescue Metals.
Detractors from performance included our gold names Northern Star Resources (NST -15.1%), Saracen Minerals (SAR -16.5%) and Ramelius Resources (RMS -12.7%), which were caught up in the profit-taking across the gold sector. Gold prices fell 5.5%, marking a fourth consecutive down month. The moves were largely macro-related, with bond yields rallying resulting in less negative real yields – which had a strong recent correlation to gold prices. We moved to an underweight position on gold some months ago, while equities are looking more attractive given recent moves. Super Retail Group (SUL -11.7%) also saw profit-taking as part of the market rotation to ‘reopening’ plays, as markets started to think ahead to cycling of strong sales comps in the COVID period. Overall, we are underweight retail, with SUL one of our exposures given the expectation of a strong year-end trading period for the stock and a more favourable inventory position versus its competitors. Finally, Webjet (WEB +65.3% NOT HELD) benefited from vaccine announcements and rallied to levels above where it was trading pre-pandemic (i.e. after taking into consideration the hugely dilutive equity raising). We feel this is premature, though acknowledge WEB does have the opportunity to emerge better positioned within their industry as and when normality resumes. We have exposure though our holding in Corporate Travel (CTD).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2011-Tribeca-Smaller-Companies-Report.pdfticker: ETL0052AU
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https://www.gsfm.com.au/unlisted-funds/tribeca-australian-smaller-companies-fund/
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release_schedule: Monthly
fund_features:
The objective of the Tribeca Australian Smaller Companies Fund is to achieve positive returns in excess of the Fund’s benchmark before fees and expenses over the long term by investing in small capitalisation Australian companies which are predominantly outside the top 100 stocks as defined by market capitalization.
- The fund seeks to benefit from information arbitrage, focusing on companies that are under researched by analysts and stockbrokers, which can offer greater opportunities.
- Actively managed, long-only strategy.
- Style-neutral exposure to Australian Small Caps.
- Strong, disciplined, principled and fundamental approach.
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