September, 2023
Global equity markets were soft in the September quarter, however the S&P/ASX200 Accumulation Index (-0.77%) comfortably outperformed global benchmarks such as the MSCI World (-3.8%) and the S&P500 (-3.7%). Macro forces continue to pressure equities as the market grapples with uncertainties around the path forward for inflation as well as about whether the economy is headed for a major slow-down. There was a significant steepening of the yield curve through the quarter, as the 2-year Australian bond yield fell 13 basis points while the 10-year yield rose 46 basis points. Such a move in the yield curve, referred to as a Bull Steepener, is quite rare for late in a hiking cycle, and pushes back on the narrative of muted economic growth and taming inflation. Rising long term rates is a sign that the economy is more resilient than expected.
Reporting season was the key focus during the quarter, shifting attention off the macro questions that have driven much of the volatility this year. At a high level FY23 results were in line, with beats and misses squaring up. However, guidance was soft as cost pressures (mostly labour and interest rates) drove earnings downgrades for FY24. During the month, ASX200 EPS estimates for FY24 came down by 2.4%. On this measure (revision to next 12-month earnings estimate), it has been one of the worst reporting periods in the past 2 decades. Interestingly all the damage to forecasts was done at the cost line, with revenue expectations holding up.
The best performing sectors were Energy (+8.0%), Consumer Discretionary (+4.0%) and Financials (+1.4%). The energy sector was buoyed by a sharp move higher by Brent Crude which supported the index heavyweights Woodside and Santos, however the real strength in the sector came from the Uranium names (Paladin +51%) and Coal names (New Hope +31%). Consumer discretionary was supported by an earnings season that was “less bad” than market expectations, coupled with very light positioning by market participants. Wesfarmers was the key contributor from an index perspective while several smaller cap names that had suffered big de-ratings (like Domino’s and Premier Retail) bounced sharply upon reporting.
The worst performing sectors were Healthcare (-9.3%), Consumer staples (-7.3%) and Information Technology (-5.9%). Healthcare was dragged lower by negative trading updates from a number of index heavyweights like Resmed, Healius, Ansell, CSL and Fisher & Paykel. Whilst it is hard to generalise across the whole sector, we have seen margin pressure in these names as inflationary pressure squeezes the cost base, whilst a normalisation of trading post Covid has also played a part in some cases. Consumer staples meanwhile suffered a poor reporting season as some defensive business models reported weaker than expected earnings on cost pressure, in part due to higher interest costs. The Supermarket stocks come to mind here. Meanwhile A2 Milk and Endeavour both saw earning expectations cut on softer revenue outlooks.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Quarterly-Fund-Update-2309.pdfAugust, 2023
TThe S&P/ASX 200 Accumulation Index closed 0.7% lower in August, outperforming key offshore benchmarks such as the S&P 500 (-1.8%) and MSCI World (-2.6%). Chinese equities were particularly weak, with the MSCI China Index falling -8.5% during the month as Beijing’s efforts to tackle the economic slowdown have so far disappointed investors. Reporting season was the key focus for August domestically, shifting attention off the macro questions that have driven much of the volatility this year. At a high level FY23 results were in line, with beats and misses squaring up.
However, guidance was soft as cost pressures (mostly labour and interest rates) drove earnings downgrades for FY24. During the month, ASX200 EPS estimates for FY24 came down by 2.4%. On this measure (revision to next 12-month earnings estimate), it has been one of the worst reporting periods in the past two decades. Interestingly all the damage to forecasts was done at the cost line, with revenue expectations holding up.
For the second month in a row, sector performance highlights an appetite for early cycle cyclicals at the expense of defensives. Consumer Discretionary (+4.6%) was the stand-out performer, supported by better-than-expected earnings. Wesfarmers (+10.6%) was the key driver of the index gain, but there were multiple other discretionary retail stocks that posted double-digit returns for the month on earnings and outlooks that were “less-bad” than the market was expecting. Property (+1.7%) was the only other sector with a positive return for the month, driven by Goodman’s (+16.2%) push into data centre development and a strong performance from the residential developers Stockland and Mirvac.
The worst performing sectors were Utilities (-4.3%) and Consumer Staples (-4.1%), where several sector heavy weights had doubledigit drops on weaker earnings and no doubt an element of heavy positioning. August was a tough month for defensives, which in several cases were not true to label, posting negative EPS surprises, in part due to higher interest costs. Notable names here included Resmed (-23%), Ramsay (-13%), A2 Milk (-11%) and Coles (-11%). Interestingly, Coles called out the negative impact of theft on its earnings, which has been a problem in the US for some time, but until now was not as prominent in Australia.
The Fund returned +1.65% in August, outperforming the benchmark by 2.38%. Positive attribution was skewed slightly to the short side of the portfolio, however the long positioning also contributed meaningfully. Overweight positions that contributed positively included: Johns Lyng Group (JLG), which bounced sharply after delivering a slight beat for FY23 which saw consensus upgrades across the forecast period; Goodman Group (GMG), where investor attention was focused on a rapidly building development pipeline in the Data Centre space; and Pro Medicus (PME) which rallied after delivering a clean 5% beat to consensus expectations for FY23.
Underweight stocks that contributed positively included: Alumina (AWC), which fell sharply after reporting widening losses and negative cashflow which focused attention on a levered balance sheet; and Iress (IRE) which collapsed on a downgraded outlook for CY23 and balance sheet pressure which saw the dividend scrapped.
Key detractors included overweight positions in: Resmed (RMD), which has re-rated materially on concerns around the application of GLP-1 drugs (eg. Ozempic) to treat Sleep Apnea related to obesity ; and a2 Milk (A2M) which delivered a weak FY24 outlook based on weak industry sales (low Chinese birth rate) and flat margins. The key underweight position which negatively impacted performance was Wesfarmers (WES), which delivered unexpectedly strong sales growth across its retail portfolio in FY23 and a positive trading update for the first seven weeks of FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Monthly-Fund-Update-2308-1.pdfJuly, 2023
The S&P/ASX 200 Accumulation Index delivered a 2.9% gain in July, understating a +5.8% bounce off intra-month lows. Key offshore benchmarks posted similar gains for the month, including the S&P 500 (+3.1%) and MSCI World (+3.3%). Bond yields were relatively subdued, consolidating the sharp move higher over the past 2 months.
Sector performance highlights a pro-cyclical tilt to markets during the month as cyclicals generally outperformed defensives. Energy (+8.8%) and Financials (+ 4.9%) were the best performing sectors, while Healthcare
(-1.5%) and Consumer Staples (-1.1%) lagged. The rally in Energy stocks was driven by higher oil prices, with WTI crude up nearly 16%. Thermal coal (+7%) also had a strong month. Financials were driven higher by the banks, as benign inflation data lead to reduced rate hike expectations and hence lowered the risk of policy being overtightened.
Healthcare was the worst performing sector for a second consecutive month and is now the worst performing sector over 12 months. This weakness has been driven by materially negative earnings revisions from the likes of CSL, Healius and Ramsay, however, we see selective opportunities arising in the space.
All attention is now focussed on the upcoming FY23 reporting season. Bottom-up consensus expectations are for a 1% contraction in EPS for the financial year. Forecasts have EPS making a low in the current half, with a 5% contraction for the 12-months to December 2023. These bottom-up projections point to a modest downturn in corporate profits to be followed by a moderate recovery in 2024. Our expectations for earnings season is that we should see an easing of supply chain concerns relative to the past few years, which should allow for a release of working capital thus improving balance sheet strength. On the flip side, wage inflation looks like it will increasingly be a headwind for corporate profits in FY24 outlook statements.
The Fund returned +1.75% in July, underperforming the benchmark by 1.13%. Overweight positions that contributed positively included: Woodside (WDS), on the back of rising oil prices; Kogan (KGN), which reported 4Q23 earnings that surprised to the upside thanks to a material improvement in gross margins despite softer sales numbers; and, Smartgroup (SIQ) which rallied after a trading update from Fleet Partners (FPR) highlighted very strong growth in demand for novated leases on Electric Vehicles thanks to a regulatory change in late 2022.
Underweight stocks that contributed positively included: Ansell (ANN), which fell sharply after providing maiden guidance for FY24, which included a stagnant top-line and increased costs and thus was well below market consensus; and Woolworths (WOW) which drifted lower during the month as investors shunned expensive defensive stocks in favour of more cyclical exposure.
Key detractors included overweight positions in: Northern Star (NST), which provided disappointing production guidance for FY24 due to planned mill-shutdowns in the September quarter; and Star Entertainment Group (SGR) which sold off on limited news as investors continue to focus on regulatory pressure and ultimately balance sheet strength. The key underweight position which negatively impacted performance was Megaport (MP1), which provided a quarterly report highlighting cost-out that has improved profitability and materially reduced balance sheet concerns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Australian_Equities_Monthly_Commentary-1.pdfJune, 2023
The S&P/ASX200 Accumulation Index gained 1.01% in the June quarter, lagging global benchmarks such as the MSCI World (+6.3%) and the S&P500 (+8.3%). Globally, growth and tech were particularly strong for a second consecutive quarter, with the Nasdaq 100 posting a 15.2% return for the quarter.
Yield curves continue to move around significantly as investors scour economic data and central bank communications for clues as to where cash rates will peak in this cycle. During the June quarter, the Australian 2 Year Bond yield added 126 basis points to close at 4.21%, the highest print since mid-2011. Meanwhile the 10-Year added 73 basis points to 4.02%, a 10 year high. Economic data continues to be more resilient than consensus expectations, particularly in respect to employment data, whilst inflation has moderated (particularly in the US) which has provided support to the soft-landing narrative. Towards the end of the quarter a slew of downgrades in the consumer space provides some evidence that the consumer is starting to feel the impact of higher cash rates.
The best performing sector by far was Information technology (+21.1%) following strong offshore leads. Xero (+33.0%) rallied sharply as the new CEO delivered a strong FY23 result which pointed to a more balanced approach in the trade-off between top-line growth and profitability.
Other strong performers in the sector during the quarter were Megaport (+75%) and Life360 (+54%) which are also accelerating their own paths to profitability with cost out programs following several years of significant headcount expansion. Utilities (+5.5%) was the secondbest performing sector after AGL (+34%) surged on the back of a profit upgrade driven by rising wholesale power prices. Other sectors to see reasonable outperformance were Industrials (+3.8%) and Energy (+3.8%).
The worst performing sectors were Healthcare (-3.2%) and Materials (-2.5%). Healthcare was dragged lower by negative trading updates from sector heavy weights: Ramsay Healthcare (-15.4%); Fisher & Paykel (-9.3%); and CSL (-3.8%). All 3 stocks saw earnings estimates revised lower as margins were squeezed by inflationary pressure in the cost base. Materials were softer on the back of broad-based commodity price weakness. Iron Ore (-10.6%), Copper (-7.5%) and Coking Coal (-38%) all registered material declines despite a relatively flat USD for the quarter.
Against this backdrop, the Fund posted a return of %0.10 for the quarter, underperforming its benchmark by -0.91 %.
At the stock level, notable contributors included overweight positions in:
-Xero (XRO) which reported better than expected FY23 earnings on the back of strong cost discipline from the new CEO. -NextDC (NXT) which rallied on the announcement of a major new longterm contract in its recently constructed S3 Data Centre; and -Pilbara Minerals (PLS), which benefitted from a rebound in Lithium Carbonate prices coupled with a strong growth in production volumes.
Underweights which helped performance included:
-South32 (S32) which issued a weak production update early in the quarter, leading to lower volume guidance across a number of operations; and -Seek Ltd (SEK) which is under pressure due to very soft trends in the Job Ad index.
Detracting from performance were overweight positions in:
-a2 Milk Company (A2M) which provided a subdued update for sales of its infant formula in the Daigou channel early in the quarter and did not recover despite receiving a key Chinese regulatory approval for its Chinese-label infant milk formula late in the quarter; and -Treasury Wine (TWE) which issued a trading update which pointed to a challenged outlook for lower-value commercial wines.
Whilst on the underweight side, negative attribution came from:
-Megaport (MP1) which rallied sharply as management implemented a cost-out program to accelerate its path to cashflow breakeven, plus. -Downer EDI (DOW) which reported multiple material contract wins late in the quarter.
May, 2023
Australian equities fell in May with a -2.53% drop in the S&P/ASX 200 Accumulation Index. Macro influences remained elevated with a surprise 25bps rate hike from the RBA early in the month, followed by a higherthan-expected inflation print dragging the market lower. Offshore leads were mixed with the S&P 500 (+0.25%) closing marginally positive, while the MSCI World fell -1.25%. Meanwhile the growth and tech heavy Nasdaq lead the way with a +7.61% rise.
Sector dispersion was significant across the month with 4 sectors posting gains and 7 posting negative returns. Technology (+11.6%) significantly outperformed on the back of strong results from Xero (XRO +17.8%) and Technology One (TNE +8.5%), along with Life360 (360 +34.1%) at the smaller end. Offshore leads, from the US in particular, were also very constructive for tech as investors weighed some positive developments in the AI space. Other sectors to post positive returns were Utilities (+1.1%), Energy (+0.2%) and Healthcare (+0.1%).
Discretionary retail (-6.2%) was the laggard on signs of a weaker consumer. Sector heavyweight Wesfarmers (WES -8.3%) called out consumer pressure at their investor day, while there were multiple profit downgrades from small-cap retailers. The recent announcement from the Fair Work Commission of a ~6% pay increase to minimum wage and the award wage floor is also bearish for earnings in the retail sector. Index heavyweight sectors Financials (-4.8%) and Materials (-4.5%) also dragged the index lower. Banks fell on the back of soft updates from Commonwealth Bank and Westpac Bank, while Resource names struggled in the face of waning economic momentum from China.
Consensus earnings expectations for the S&P/ASX200 Accumulation Index were revised down by a further -1.3% during the month, taking 3-month revisions to -3.6%. Modest downgrades were seen amongst the banks and the retail sector. At month end the S&P/ASX200 Accumulation Index was trading at 14.6x forward earnings compared to the long-term average of 14.7x.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Monthly-Fund-Update-2305.pdfApril, 2023
Australian equities moved gently higher in April with the ASX 200 gaining +1.85%. Sentiment improved as the RBA paused its rate hiking cycle and benign economic data continued to provide support to a soft-landing narrative, largely due to the lack of any real negative surprises. Similarly, the absence of any new major developments in the US banking crisis helped improve sentiment, although it should be noted US regional bank share prices noticeably under-performed larger banks with the ongoing deposit and liquidity drain weighing. Major offshore indices were broadly consistent, with the S&P 500 (+1.5%) and the MSCI World (+1.6%) marginally underperforming the local bourse. All sectors bar Materials (-2.6%) posted positive returns for the month. Interest rate sensitive sectors lead the way, with Real Estate (+5.1%) edging out Information Technology (+4.8%) for the best return. Banks contributed to market momentum as investors gained confidence around a potential bottoming for residential property prices. A rise in Sydney house prices and improved auction clearance rates helped presage a turn in confidence. Note, both Real Estate and Banks continue to lag on a rolling 3-month basis.
M&A remains a focus, as announced deals with any Australian involvement are off to the strongest start to a year since 2007. According to data from Refinitiv (through to April 14), there has been US$46.1bn of Australian M&A announced year-to-date, up from US$43.2bn this time last year. A bid for Blackmores from Kirin at the end of the month added to this total. Meanwhile, earnings revisions for the ASX200 continue to be negative. During April, 12- month forward estimates were revised lower by - 1.5%, with Energy (-10.6%) downgraded the most. 3-month revisions are now -3.1% at the index level and remain negative across most sectors. Energy has seen the largest revisions (-21.3%) with Utilities (-5.5%) and Technology (-5.4%) being the other main culprits.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Monthly-Fund-Update-2304-1.pdfFebruary, 2023
February saw a partial reversal of January’s very strong returns with the ASX200 falling 2.4%. There were a lot of factors impacting the market at both a macroeconomic and stock specific level as reporting season played out. Early in the month, the RBA raised policy rates for the 9th consecutive time by 25bps to bring the cash rate to 3.35% and this was followed immediately followed up by a repricing of the implied terminal rate to above 4%. The US market also saw a hawkish shift, where expectations for the Fed Funds Rate were pushed to nearly 6%, driving a sell-off in the bond market and pushing yields back towards their late 2022 highs.
A reversal in soft landing fears saw a sizable rally in the US$ which then put pressure on commodity prices and our own mining and gold stocks which both led the market lower with falls of 7.5% and 9.1% respectively. Complicating the rates backdrop was a very volatile reporting season which for the most part was better than expected, but only because expectations had collapsed due to fears that the economic slowdown was well underway and concerns that profit margins were also being squeezed by rising costs. As it turned out, sales lines were broadly better than expected as demand remain solid and inflation boosted nominal prices, but margins squeeze was clearly evident due to numerous headwinds including rising raw materials, higher utility costs and rising labour costs. It is always hard to generalise the reporting season, but defensive stocks (staples, insurance) were the most consistent achievers followed by domestic cyclicals simply due to beaten up expectations. Growth stocks and Resources were both relatively disappointing and there was a clear reversal trend in COVID winners such as Energy and Consumer Services.
Over the month there was a long list of stocks that were sold off heavily following disappointing results and/or announcements (DMP, DOW, SGR, JBH, HVN, AMP, QAN) with a large collection of both large and small cap resource stocks also in the firing line (NST, PLS, MIN, BHP, RIO, SLR, LKE). The bank sector fell 5.1% with CBA (-6.4%) and WBC (-5.9%) leading the declines as it became clear that rising competition was threatening margins across the sector. On the positive side, Insurance rose 6.5% driving by a 15% rise in MPL post a strong result guidance with IAG also rising 7.3%, QBE up 8.8% and SDF rising 9.5%. Other standouts included ORG, ORA, WTC ALD and ORI. While price performance was slightly better than expected across the reporting season, earnings revisions were down across the board with negative revisions at their worst level since the GFC (excluding the pandemic period).
From a sector perspective, Utilities (+2.3%) lead the way, driven by the revised bid for Origin Energy. Information Technology (+2.2%) was also strong on the back of solid updates from Link Group and Computershare which both have exposure to rising interest rates.
Other sectors which outperformed included Industrials (+1.4%) and Consumer Staples (+0.9%). As detailed above, the weakest sector was Materials (-6.9%) as underlying commodity prices fell in response to a US dollar rally (DXY +2.8%). Brent Oil fell by US$2 to US$82.45/bbl, Iron Ore prices fell US$3 to US$126/Mt while the broad-based London Metals Index fell 7.5%. Financials (-3.8%) also dragged the index lower after Commonwealth Bank warned that the bank sector had seen peak Net Interest Margins (NIMs) back in October.
The Fund returned -2.52% in February. Overweight positions that contributed positively included: Medibank Private (MPL), which posted a solid beat to 1H earnings expectations on the back of improved PHI margins and Underweight stocks that contributed positively included: Harvey Norman (HVN), which reported a soft start to sales in the new calendar year with its 1H result; and, Commonwealth Bank of Australia (CBA) which said NIMs peaked in October and foresees a tougher environment competitively for the banking sector this year.
Key detractors included overweight positions in: Dominos Pizza (DMP) which missed 1H earnings expectations and issued a soft sales update for the star of 2H, and Northern Star (NST) which fell along with its gold sector peers in reaction to a softer underlying gold price. The key underweight position which negatively impacted performance was QBE Insurance Group (QBE) which rallied on a solid beat to CY22 earnings on the back of strong growth in GWP which drove operating leverage from the expense base.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Monthly-Fund-Update-2302.pdfJanuary, 2023
Global equity markets rallied sharply in January, reversing December’s softness. The S&P/ASX 200 Accumulation Index rallied 6.2%, which was inline with the move seen in the S&P 500 (+6.2%) and slightly behind the 7.0% return from the MSCI World Index. Index moves were largely macro driven as some investors saw an increased potential for a soft landing in the US as inflation slows but employment data remains decisively strong.
Successive lower inflation prints have seen the FOMC slow the tempo of rate hikes, with a 25-basis point increase in January, after 50 basis points in December and 4 consecutive 75 basis point hikes prior to that. Powell also indicated that they see only “a couple more hikes” looking forward which saw yield curves drop in both the US and Australia.
All sectors posted positive returns in January, except for Utilities (-3.0%), which lagged on concerns about government intervention and falling power prices. Consumer discretionary (+10.1%) was the best performer as positive pre-announcements from cyclical retailers like JB Hi-Fi (+15%) and Super Retail (+18%) suggests that headwinds from RBA rate hikes and falling home prices are yet to flow through. Materials (+8.9%) outperformed on China re-opening and falling USD, despite a more mixed performance from underlying commodity prices during the month. The Real Estate sector (+8.1%) also bounced strongly on a more dovish rate outlook following significant underperformance in CY22.
In February, all eyes will be on Consensus earnings revisions (12-month forward) for the ASX200 were marginally positive (+0.5%) over the month. This was driven entirely by materials (+3.6%) with all other sectors neutral or negative. At the end of the month the ASX200 was trading at 13.9x forward earnings, below the longer-term average of 14.6x.
The Fund returned 4.85% in January, underperforming its benchmark by 1.38%. Performance attribution was relatively evenly balanced between the long and short sides of the book. Overweight positions that contributed positively included: Goodman Group (GMG), which outperformed a strong REIT sector bounce as investors priced a slightly more dovish rate environment; IDP Education (IEL), which has seen an improving outlook for student placements and benefited from the accelerated Chinese re-opening; and, Pro Medicus (PME) which hit an all-time closing high after announcing a new contract win on the last day of the month.
Underweight stocks that contributed positively included: Amcor (AMC), which has seen downward revisions to EPS estimates on concerns around currency headwinds and cost growth; and, New Hope Corporation (NHC) which saw profit taking due to a 32% drop in the thermal coal price during the month.
Key detractors included overweight positions in: Tabcorp (TAH) which gave up recent out-performance on concerns around the level of promotional activity being undertaken by competitors in the gaming segment, and a2 Milk (A2M) which traded sideways following a strong run-up in its share price in recent months. The key underweight position which negatively impacted performance was Breville Group (BRG) which is a quality discretionary retail name that benefited from the perception of an economic soft landing.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Monthly-Fund-Update-2301.pdfDecember, 2022
Equity markets were softer in December partially giving up the gains of the prior month and dashing hopes of a Santa Claus rally. The S&P/ASX 200 Accumulation Index fell 3.2% during the month, outperforming major global peers, while the MSCI World Index and the S&P 500 Index fell 4.4% and 5.9% respectively. Investor focus remained squarely on inflation pressures and the global monetary policy response. Higherthan-expected US non-farm payroll data and hawkish commentary from Fed officials suggested further delays to a potential Fed pivot and this saw bond yields move higher during the month. Cash rates also moved higher in most jurisdictions with the RBA hiking 25bps and the Fed hiking 50bps. For the most part, consumer and job market data remains robust, and investors will be keenly focussed on any signs of softness during the upcoming February reporting season.
Commodity markets were strong in December. Iron ore prices gained 15% and the broader LME Metals Index rallied 1.5% on news of government support for the China property market and the rapid acceleration of Chinese reopening. Commodity markets were also buoyed by a decline in the USD which appears to have peaked following a sharp 18-month rally.
All sectors posted negative returns in December with Materials (-0.9%) and Staples (-1.9%) the biggest outperformers. The worst performance came from Consumer Discretionary (-7.0%), Property (-5.6%) and Information Technology (-5.5%). As it happens these three sectors were the laggards to the index throughout calendar year 2022, posting the biggest annual declines (IT -34%, Property -24% and Consumer Discretionary -23%). This annual sector performance is not surprising given the significant tightening of monetary conditions through the year leading to much higher discount rates and concern around the consumer outlook.
Consensus earnings revisions (12-month forward) for the ASX200 were marginally positive (+0.5%) over the month. This was driven entirely by materials (+3.6%) with all other sectors neutral or negative. At the end of the month the ASX200 was trading at 13.9x forward earnings, below the longer-term average of 14.6x.
The Fund returned -2.92% in December, outperforming its benchmark by 0.28%. Performance attribution was positive for both the long and short sides of the book, whilst being skewed primarily to the long side.
Overweight positions that contributed positively included: a2 Milk Company (A2M), which continued to rally on Chinese re-opening sentiment and FDA approval to sell baby formula in the US; Sandfire Resources (SFR), which benefited from robust copper price action and readthrough from the BHP bid for Oz Minerals; and, Challenger (CGF) which saw improved demand for annuity products given the step up in the rising yield curve.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Quarterly-Fund-Update-2212.pdfNovember, 2022
Equities had another strong month in November with the S&P/ASX 200 Accumulation Index gaining 6.6% during the month and moving back into positive territory calendar year-to-date for the first time since June. Market strength was replicated globally with the MSCI World Index up 6.8% and the S&P 500 Index up 5.6%. Investors sentiment was buoyed by some dovish signals from central bankers, including Federal Reserve Chair Powell’s comment on potentially slowing rate hikes “as soon as December” and a more dovish-than-expected 25bps hike from the RBA to 2.85%. This was reflected in bond markets with the Australian 2-year yield retracing 12bps to 3.11% while the 10-year yield fell 23bps to 3.53%. Meanwhile, commodity markets exhibited mixed trends. Brent oil fell US$9 to US$85/bbl on concerns about demand destruction, while iron ore prices gained US$21 to US$102/Mt on news of government support for the China property market and reopening expectations.
From a sector perspective we observed a performance reversal relative to the prior month. Materials (+14.9%) contributed over half of the total market return in November after lagging the market materially in October. BHP, Rio and Fortescue all posted returns in excess of 20% for November (having all posted negative returns in the prior month). Other strongly performing sectors were utilities (+21.8%) which was boosted by a nonbinding bid for Origin Energy and Healthcare (+6.3%) which was another sector which lagged materially in October. On the flipside Energy (+0.9%) and Financials (+2.7%) lagged after leading the market in October. Technology (+1.8%) also lagged the market during November, despite the tailwind of falling bond yields. The sector was dragged lower by Xero (-9.5%) which reported an underwhelming result as international growth missed expectations despite continued investment.
November saw modest aggregate forward earnings revisions at the index level. Consensus was revised down by 1.8% for FY23 with Energy, Healthcare and Materials the key drivers of downgrades. This move brings total consensus earnings revisions to -5.2% since estimates for the year ahead peaked in September.
The Fund returned 7.70% in November, outperforming its benchmark by 1.12%. Performance attribution was relatively equally weighted between the long and short side of the portfolio. Overweight positions that contributed positively included: Sandfire Resources (SFR), which undertook a $200m entitlement offer during the month to ease balance sheet uncertainty and benefitted from the read through from BHP’s revised bid for Oz Minerals;a2 Milk (A2M) which saw a sharp improvement in sentiment following FDA approval early in the month to sell baby formula in the US market; and, NextDC (NXT) which rallied on the back of upbeat AGM commentary around the current tender pipeline for new contracts.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Monthly-Fund-Update-2211.pdfOctober, 2022
October was an exceptionally strong month for risk assets with US equities taking the lead and in turn dragging most other developed markets higher as oversold conditions and more favourable valuations drove a broad-based rebound across both value and growth equity styles. The S&P/ASX200 Accumulation Index rose 6.0%, underperforming US equities which posted one of their strongest ever October monthly gains of +8.0% but substantially outperforming within Asia Pacific region as the fallout from China’s 20th Party Congress meeting dragged down its equity market as well as emerging markets. Surprisingly, the rebound in equity markets came despite no meaningful decline in bond yields, a further widening in credit spreads and ongoing concerns around slowing economic growth, particularly as expectations for a post-Party Congress economic recovery in China was put on hold due to its ongoing zeroCOVID commentary and no immediate support for the flagging property sector.
Within the Australian market, Banks rose 14.5% with WBC, BOQ, BEN and CBA all posting returns in excess of 15%, levels not normally associated with the low beta status of the banking sector. Alongside a more favourable risk-on backdrop, banks are benefiting from strong net interest margin gains due to solid deposit pricing, even though mortgage volumes are slowing. Energy was the second-best performer for the month rising 9.5% but largely mirroring the rise in crude which was also up close to 10%. Real Estate which has come under significant pressure from rising bond yields and negative sentiment across both retail and residential, also rose strongly (+9.3%) led by double digit gains from SCG +14.2% and GPT +12.5%. This move was surprising given bond yields were largely flat and at the end of October are up 70bps over the past 3 months and 170bps over the past year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2210-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfSeptember, 2022
The roller coaster ride for financial markets continued through September with global markets falling sharply off the back of the same collection of fears that have driven risk assets lower and bond yields higher since the end of 1Q22. Another reversal in expectations of an early end to rate hikes by the Federal Reserve saw bond yields spike to new highs for the year and in turn push global equity markets substantially lower. Global recession fears are now beating strongly as is the fear that a multi-decade bull market for the USD is raising contagion concerns throughout many emerging economies.
The S&P/ASX200 Accumulative Index was able to outperform global equity market peers but still suffered a sizeable loss of 6.2% to put it back within 1% of its year-to-date low - putting to rest any hopes that the market was on the cusp of a sustainable rebound. Declines were led by interest rate sensitive sectors including Utilities (-13.8%), Real Estate (-13.6%) and high multiple growth sectors like Technology (-10.6%) off the back of a ~30 basis point rise in Australia’s long bond yield.
Value stocks were not left unscathed as rising risks to economic growth due to policy tightening also saw broad-based weakness in Consumer Discretionary (-9.1%) and Telecoms (-6.1%).
Despite further declines across the commodity sector, including crude oil which fell -11%), both Energy and Materials were solid outperformers with Lithium producers (PLS, MIN and IGO) all posting positive returns. Some rotation towards defensive sectors was seen during the month with Healthcare and Staples also outperforming as investors looked for relative earnings certainty, although both sectors still suffered losses of -4.4% and -5.4% respectively.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Tribeca-A-Class-A-Monthly-Fund-Update-2209.pdfAugust, 2022
August was a topsy turvy month which started with equity markets continuing the rally that began in mid-June off the back of expectations that the Fed was close to a policy pivot. Unfortunately things took a turn for the worse around mid-August as the Fed (and other key central banks including the ECB) delivered a sharp rebuke for anyone expecting a quick reversal in rate hikes. At the Jackson Hole central bank symposium, Fed chairman Powell reaffirmed his “unconditional” commitment to tackling high inflation and stressed that controlling inflation will probably have economic costs, including a “sustained period of below-trend growth”. This was followed by comments by ECB officials who also warned of the “sacrifice” needed to tame surging inflation across the Eurozone. This removed any hope of an imminent policy pivot and saw global rate expectations shift meaningfully higher.
The result saw a sell-off in global equity markets and a rapid reset higher in long bond yields, including Australia. The tech-heavy Nasdaq slumped over 10% from its high although the Australian market fared much better, falling only 2% from its mid-month peak, to post a gain of 1.2% in August. At a sector level, resources reversed previous months trends to close higher in August, with Energy (+7.4%) leading the way along with Materials (+3.9%). This was despite another strong month for the USD which appreciated 2% against the AUD and 2.8% against the broader DXY Index. USD strength pressured commodity prices during the month with the LME Metals index down 2.9% for the month and Iron Ore down 16%. The weakest sector for the month was Real Estate (-3.9%) as reporting season highlighted the impact of increased funding costs on earnings for the sector. Against this backdrop, the Tribeca Alpha Plus Fund returned 3.28%, outperforming the S&P/ASX 200 Accumulation Index which gained 1.18%.
At a portfolio level, performance during the month was driven almost entirely by stock selection, with sector allocation having a negligible impact on returns. Pleasingly the portfolio generated alpha from both the long and short sides of the book in equal measure. Overweight positions that contributed positively included: A2 Milk which delivered a beat to consensus for FY22 results on the back of strong Chinese Label Infant Formula; Lovisa Holdings, which also delivered a beat to FY22 expectations and outlined strong store roll-out plans into FY23; and Qantas continued to benefit from a surge in demand for travel and showed significant balance sheet repair in 2H22.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2208-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfJuly, 2022
The S&P/ASX200 Accumulation Index rose by 5.75% in July, snapping a 3-month losing streak for the local market. Global equities also rebounded strongly, with the S&P500 Index leading the way, surging +9.2% driven by a positive U.S. reporting season. The Tribeca Alpha Plus Fund returned 4.42% during the month, underperforming its benchmark by 1.33%
Macro events continued to dominate news flow in July as central banks persisted with rate hikes (RBA +50bps and Fed +75bps). However, several softer consumer data prints, and a second consecutive quarterly decline in U.S. Real GDP softened investor expectations of the steepness of future rate hikes. This slight dovish pivot by the market provided relief to stocks and sectors that have been most heavily impacted by rising discount rates this year, creating some spectacular reversals amongst the most beaten down names. A prime example was Zip Co which was up +158% in July but remains down -83% on a rolling 12-month basis. Other notable examples include: Megaport (+78% in July, -42% rolling LTM), Kogan (+66% in July, -56% rolling LTM) and Xero (+21% in July, -34% LTM).
From a sector perspective July was almost a mirror image of the June sell-off, with the best returning sectors being IT (+15.2%) and Real Estate (+11.9%), both sectors that have underperformed notably calendar year-to-date. Financials (+9.3%) also contributed materially to the positive move in the index as investors weigh a trade-off between improving NIMs and worsening volume growth on a deteriorating housing outlook. The net result has seen consensus EPS upgrades across the sector in the front year, with a much more mixed outlook for outer years. The only sector to post a negative return during July was Materials (-0.7%), where continued USD strength created a headwind for underlying commodity prices.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2207-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfMay, 2022
May saw equity markets retreat globally as investors continued to deal with the fall-out from an inflation shock and higher interest rates. The S&P/ASX200 Accumulation Index fell by -2.6% in May, giving up some of its YTD outperformance against global peers, with the S&P 500 Index essentially flat during the month, while the Nasdaq (-1.7%) and MSCI World index (-0.2%) recorded modest losses. Monthly returns didn’t tell the full picture with the S&P 500 Index posting a 10% intra-month drop to briefly enter bear market territory (defined as a 20% drop from the high) before staging a late-month rebound. The Tribeca Alpha Plus Fund returned –3.10% during the month, representing an underperformance of 0.50% relative to its benchmark. Looking deeper at local market performance, small caps materially underperformed large caps, with the Small Ordinaries Index recording a -7.0% drawdown. Within the ASX200, all segments posted negative returns with the exception of materials (+0.1%). Real Estate (-8.9%), Technology (-8.7%) and Consumer Staples (-6.7%) were the hardest hit sectors.
May saw a pause in some of the inflationary market leads of the recent months. Commodity prices were generally softer during the month, with the LME Metals index down 6.1% and gold down 3.1%. The clear exception was the energy complex where there were strong gains in thermal coal (+31%) and Brent crude (+12%). 10 year break even inflation rates in the US retraced from 2.94% to 2.65% as investors began to weigh the possibility that the sharp tightening of monetary policy from the Fed and other major global central banks may be enough to generate the economic slow down required to tame inflation. On the stock front, the portfolio’s short book again provided positive attribution overall, however it was not enough to offset the negative attribution from the long book. Overweight positions that contributed positively included: Treasury Wine Estates which announced that it will begin manufacturing and selling Penfolds in China as a means of skirting the significant tariffs on Australian wine exports to China; Amcor Pls which provides investors defensive exposure and has done a good job managing supply constraints; and a2 Milk which benefited from reports of severe shortages of infant formula in the US which may help boost the company’s sales in that market.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2205-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfApril, 2022
April was a tough month for equity markets globally, however the Australian market stood-out for its resilience amid the sell-off. The S&P/ASX200 Accumulation Index fell by -0.85% in April which compared favourably to the S&P 500 Index which collapsed by -8.8%, while the Nasdaq -13.3% and MSCI World index -8.4% also sold off heavily. April marked the second straight month of material outperformance for the ASX placing our local bourse at the top of the global leader board for year-to-date returns. The soft start to the year for equities globally is driven by a confluence of factors, most notably higher inflation and interest rates which are creating margin pressure, coupled with lower liquidity that is driving multiple compression. The Tribeca Alpha Plus Fund returned -2.32% during the month, representing an underperformance of 1.47% relative to its benchmark. Beneath the surface of the relatively benign index move, sector dispersion pointed to a general de-risking of portfolios. The market was led by the utilities sector (+9.3%), consumer staples (+3.3%) and healthcare (+2.4%). While at the other end of the spectrum we saw softness in IT (-10.4%), materials (-4.3%) and consumer discretionary (-3.2%).
From a macro perspective the market continued to deliver outsized moves in many other asset classes, most of which could broadly be defined as reflationary or part of a flight to safety. On the reflationary front we saw the interest rate market continue to price in further tightening, for example the Australian 2-year government bond yield rose from 1.81% to 2.45% during the month, while the US equivalent rallied from 2.33% to 2.71%. Meanwhile the US dollar saw broad-based strength during the month, particularly against the AUD which fell 5.6% to $0.706.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2204-Tribeca-Alpha-Plus-Report-Class-A-Units-FINAL-1.pdfFebruary, 2022
February was another challenging month for equities. The market was not positioned for Russia’s invasion of Ukraine, resulting in a broad flight to quality as risk-off sentiment prevailed. The VIX increased to its highest level in 12 months while the US dollar index surged to levels last seen in May 2020. The conflict is likely to see inflation persist at a higher level than previously expected while there are clear downside risks to growth, particularly in Europe. Given this backdrop it was unsurprising to see European equities heavily sold-off, as it had also been a consensus long for its cyclicality, while Australian equities benefited from their significant weighting to resources. Central banks have already reacted to the more volatile backdrop with the US Fed ruling out a 50bp initial rate hike and the ECB unlikely to tighten policy anytime soon. Markets started to show some willingness to bid up equities through early March, but intra-day rallies remain fragile with escalating sanctions on Russia dampening risk-appetite. Australian equities rose +2.1%, proving resilient as global volatility ratcheted up. The ASX strongly outperformed global equities (-2.8%) and the S&P 500 (-3.1%) with the local bourse re-establishing its low beta credentials after January’s sharp decline.
The positive performance was led by Energy (+8.6%), Consumer Staples (+5.6%) and Materials (+5.2%) which combined account for 35% of the index. Technology stocks (-6.6%) had another weak month, but with an ASX 200 weight of only 3.3% the sector didn’t materially impair the index return. Financials (+3.0%) also performed well contributing to the ongoing outperformance of Value (+4.3%) overgrowth (+0.9%) stocks. Large caps (+2.8%) were a significant outperformer relative to mid-caps (-0.3%), small-caps (0.0%) and microcaps (-1.9%).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2202-Tribeca-Alpha-Plus-Report-Class-A-Units-1-1.pdfFebruary, 2022
The February reporting season was mixed with modestly positive surprises and upgrades for larger companies but where price action was often being swamped by macro events rather than stock specific outcomes. Key themes from reporting season included rising inflationary pressures, the outperformance of larger companies and those exposed to reopening activity and shifting demand/consumption patterns. Small caps were more likely to miss expectations and have their FY22 EPS downgraded, likely due to less pricing power and the withdrawal of stimulus measures. At the sector level Financials provided the most positive EPS surprises (net beats +15%) while Resources had the most negative surprised (net misses -18%) as costs and operational disruptions impacted results.
Most companies appear to be handling inflation pressures well, but companies experiencing an unwind of growth levels seen during the pandemic (alongside inflation pressures) saw margin compression. Of the stocks broadly covered by the market and which reported half-year results, approximately 2/3rds issued some form of guidance, a relatively high level given the multiple sources of uncertainty. This suggests company guidance has arguably been set conservatively, providing potential upside into 2H22 results. ASX 100 companies rated Outperform that guided to 2022 growth >5% and raised guidance in February were Charter Hall (CHC), Seek (SEK), James Hardie (JHX), Steadfast (SDF), NextDC (NXT) and Computershare (CPU). It is difficult to assess the downside growth risks of a deeper and more prolonged conflict in Ukraine. The main transmission mechanism to the global economy is via higher commodity prices and weaker consumer confidence, but the US and Australian economies are otherwise well insulated. We expect global growth to moderate in 2022, albeit to remain above average, with 1H22 at a faster pace than 2H22. However, as the most recent COVID wave begins to peak, we expect the reopening and services consumption recovery to continue. In turn, this should see supply issues moderate – all of which in turn should support a post-Omicron growth rebound.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2202-Tribeca-Alpha-Plus-Report-Class-A-Units-1.pdfJanuary, 2022
January saw a brutal start to the year for global equity markets. A rapid reset of US interest rate expectations based on worse- than-expected inflation readings drove a wave of selling that started in the high-multiple technology sector, but then quickly spread into the broader equity complex. The sell-off had a domino effect on any stocks which had been beneficiaries of strong retail and/or speculative inflows throughout 2021 as frightened investors rushed for the exits due to fears that the US Federal Reserve would bring a premature end to both the economic cycle and the equity bull market. By the end of the month, markets had recovered a few percent, but the damage had already been done. The Australian equity market fell -6.6% to post its fourth worst start to the year since 1960. Surprisingly, it underperformed world equities (-4.2%) and the S&P500 (-5.2%) and in turn failed to live up to its low beta (defensive) moniker in the first real post pandemic test. This was led by a massive 18.4% decline in the technology sector, which incidentally also underperformed the tech heavy NASDAQ, where the global sell-off originated. Several Australian tech stocks fell more than 20% over the month (WTC, ALU, XRO) but there were few names that were lucky enough to escape the carnage given the lofty valuations at which the sector trades.
Against this backdrop, the Tribeca Alpha Plus Fund fell by 5.96% outperforming its benchmark, the ASX 200 Accumulation Index by 0.39%. The nature of the correction also saw other high-multiple and rate sensitive sectors also come under significant selling pressures with Healthcare declining -12.1%, Consumer Staples falling -9.6% and Real Estate -9.5%. On the other hand, there was a clear tilt towards cyclical and value sectors with Energy bucking the trend, rising 7.9% (courtesy of strong gains by WPL +14.3% and STO +13.2%). Utilities gained +2.4% due to a 15.6% rise in AGL and Materials finished with a slight gain thanks to BHP +11.7% and RIO +11.4%. Despite a significant steepening in the yield curve, which is traditionally a very positive sign for the banks due to expanding margins, Banks were not major outperformers. Over the month, the Australian Growth Stock Index fell 10% versus the Value Stock Index which was down only 1.5% due to its overweight exposure to Energy, Materials and Financials.
On the stock front, positive attribution for the month mainly came from the short book and in particular high PE technology names that we are short or underweight.
Overweight positions that contributed positively included: Santos Limited which completed the acquisition of Oil Search at the close of 2021 and has benefited recently from rising oil and gas prices; BHP Group which is benefiting from a strong commodity price environment, and; Crown Resorts which continued to recover from both Covid lockdowns and a significant regulatory overhang.
Underweight positions that contributed positively to performance included: Altium, Wisetech and Technology One which were all caught up in a de-rate of high PE “expensive” growth stocks in the face of rising interest rates. On the flipside key detractors to performance for the month were overweight positions in Pro Medicus, Pinnacle and Megaport which were also caught up in the sell-off of high PE stocks. Underweight positions in Woodside and AGL Energy both detracted from performance in the face of rising energy prices.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2201-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfDecember, 2021
As we move into 2022, we remain positive on the outlook for Australia and the equity market. The Australian economy is well positioned to play economic catch-up as it emerges from recent COVID outbreaks, supported by ultra-low policy rates and still expansionary fiscal policy. In addition, the labour market is recovering strongly, and rampant house price gains are fuelling consumer confidence which is also supported by large pools of excess savings. Together with an improving global economy, we expect a rapid year of economic recovery despite the lingering impact of COVID. At an investment level, rising interest rates are likely to bring a greater degree of uncertainty and volatility to the equity market, but a solid earnings outlook, together with reasonable valuations and an attractive dividend yield should see the market easily post double digit gains. Concerns that global policy tightening will bring an end to the bull market are premature in our view. The start of a rate hike cycle tends to bring a period of indigestion for markets but provided the economic cycle remains intact, periods of weakness should be shallow and short.
Weakness in high multiple growth stocks and sectors reflects valuation concerns off the back of rising interest rates. At this stage, interest rate risk has not morphed into economic and/or earnings risks and as a result, the market should remain well supported by upside in cyclicals - both domestic and international – with a more modest contribution of the quality end of the growth complex.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2112-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfNovember, 2021
The result saw the Australian equity market down in the region of 3% from its intra month high with value stocks suffering the brunt of this sell-down as a result of substantial declines in Energy stocks as well as Financials (banks in particular). Over the month, the ASX200 Index fell 0.5% which, although negative, was actually a strong performance against both developed (-1.6%) and emerging markets (-3.2%). Market internals were largely as expected with defensive / growth stocks substantially outperforming more cyclical areas which are most exposed to any new Covid lock down restrictions. Telecom (6.2%), Staples Retail (+5.7%), Real Estate (+4.3%) and Utilities (+3.9%) were amongst the best performers which reflected a strong defensive earnings tilt as well as leverage into lower bond yields. This was supported by the Materials (+6.3%) sector which saw gains across key stocks as the narrative around the China growth outlook began to improve. Surprisingly, the technology sector was weak despite its strong structural growth appeal. However, this was largely the result of weakness in US tech and in particular a double-digit decline in Afterpay (-12%) as it fell in tandem with an 18% decline in Square.
Against this backdrop, the Tribeca Alpha Plus fund delivered an almost flat performance of -0.26% for the month, outperforming its benchmark, the ASX 200 Accumulation Index by 0.28%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2111-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfOctober, 2021
The Australian equity market meaningfully underperformed global peers, particularly the US market, where the S&P500 enjoyed a rally of 6.9% for the month on the back of a better-than-expected September quarter reporting period. Our market was impacted by domestically focused political events (such as the surprise resignation of the NSW Premier) and changes in RBA policy.
Sector returns were mixed with IT stocks leading the way for a +2.1% return on the month followed by the healthcare sector with a 1.0% return. Industrial stocks fared the worst with a 3.3% drop. Surprisingly the energy sector was also weak, with a - 2.7% return, despite an 11% surge in the WTI oil price, back to levels not seen since 2014.
At a macro level the biggest development by far was the move in the domestic rates curve. The 3-year government bond yield rallied an eye-watering 91 basis points through the month, from 31 basis points to 122 basis points. This move was triggered by the RBA stepping away from Yield Curve Control which had been one of the unorthodox monetary policy tools the RBA introduced in response to the Covid crisis. Such a sharp move at the front end of the yield curve naturally unsettled investors and caused debate around whether these rates will eventually drive mortgage rates higher and sink house prices, potentially exposing highly indebted households. Elsewhere along the curve, moves were slightly more subdued (although still significant) with the 10-year yield up 60 basis points and the 1 year up 37 basis points
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2110-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfSeptember, 2021
The Fund enjoyed a relatively strong quarter, returning 3.9% and outperforming its benchmark by 2.2%. Pleasingly, positive attribution came from both the long and short books, albeit outperformance was heavily skewed to the long side this quarter. Ata sector level positive attribution was achieved in 10 of the 12 GIC sectors which, we believe, is indicative of alpha generation through broad-based stock selection.
Notable contributors came from overweight positions in: Pinnacle Investment Management (PNI) which delivered a strong set of results in August and continues to see strong inflows across its affiliate funds; Sydney Airport (SYD) after it received multiple indicative bids and; Dominos Pizza (DMP) which continued to be a beneficiary of Covid lockdowns. Underweight positions which helped performance included: Magellan Financial (MFG) which continues to de-rate as flows have switched negative and AGL Energy (AGL) who delivered a soft result in August.
Negative attribution came from an overweight position in Crown Resorts (CWN) which suffered a material fall as the market digested the fall-out from the Victorian Royal Commissions as well as the impact of renewed lockdowns in Melbourne. Whilst on the underweight side, negative attribution came from: Alumina Ltd (AWC) which rallied sharply into quarter end as a proxy for strong aluminium prices, which in turn benefited from China idling some refining capacity as a result power outages, Flight Centre (FLT) which rallied on improved timelines around the resumption of international travel; and Technology One (TNE) which has enjoyed a re-rating ahead of its earnings release in November following a period of relative underperformance compared to large cap tech peers.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2109-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfAugust, 2021
August was another exceptionally strong month for global equities including the Australian market which rose by 2.5% and in the process set multiple all-time new highs. This came against a backdrop of rolling lockdowns (predominantly in NSW and VIC) impacting approximately 45% of the Australian population through July and August and what was a solid, but less spectacular, reporting season versus February.
The market took a strong lead from U.S. equities which were driven higher off the back of a much better-than-expected 2Q earnings season as well as positive comments from Fed Chairman Powell who pushed against rising inflation fears and the potential for earlier-than-expected rate hikes. The Australian equity market has now risen 28% over the past 12 months and is 4% above its pre-pandemic high. However, this pales in comparison to the U.S. market which has set 50 all time highs just this year and is 34% above its pre-pandemic level
Over the month, the Australian market was surprisingly robust, absorbing rising economic concerns from further extensions to delta-driven state lock-downs, a collapse in iron ore prices (-25%) and increasingly negative sentiment towards the end of the month as talk of another economic recession began to emerge. In addition, the August reporting season was extremely ‘hit and miss’, with some outstanding results accompanied by some extreme disappointments. Overall, EPS beats slightly outnumbered misses but this was largely the result of a more positive season for small cap stocks. Higher-than-expected dividend payouts (~$40bn) and share buybacks (~$16bn) were a highlight while ongoing skill shortages (due to border closures) and rising input and transport costs were a universal low-light.
Technology was the standout sector, rising 17% following a 57% gain by WiseTech Global which posted a strong earnings beat and a 39% rise in Afterpay, driven by Square’s takeover offer. While the result season was disappointing for both Consumer Staples and Healthcare, they also lead market gains, rising 6.9% and 6.8% respectively
As we look ahead, the market appears concerned over economic concerns due to the delta variant, lock downs and political wrangling over border openings which is likely to slow the recovery path versus when the economy emerged from prior lock down periods. However, additional fiscal support is being offered and economic uncertainty is likely to keep financial conditions ultra-easy well into 2023
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2108-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfJuly, 2021
Over the month, the market was surprisingly stable, absorbing rising economics concerns from state lock-downs as a result of the delta variant outbreak as well as the message being sent by the dramatic decline in bond yields due to weakening growth expectations. The oscillation between value and growth stocks continued with performance rotating back towards growth stocks and away from financials and other value stocks as falling bond yields drove a flattening of the yield curve. At this stage, rolling statewide lock downs have dented confidence but failed to extinguish the recovery trade which has also been supported by recent RBA commentary. The Materials (+8.1%) sector was the stand-out performer throughout July, led by gains in base metals prices as well as betterthan-expected dividends from the diversified miners and FMG. BHP (+10%) led index gains, but lithium stocks (IGO +22%, MIN +17%) and LYC (+28%) had stronger percentage gains. FMG (+6.7%) and RIO (+5.4%) lagged the sector but outperformed the market. M&A activity was also a strong feature, continuing the trend that has been in place for most of the year – with offers for SYD (+35%) and SKI (+23%) driving large price gains.
Laggards included Technology (-6.9%), with APT falling 18% and Energy which was down 2.5% off a flat oil price and rising concern around decarbonization and related ESG risks which it has not been able to shake off. Banks and Diversified Financials also struggled as lock down fears and a flatter yield curve drove profit taking after a strong run, particularly the banks
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2107-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfJune, 2021
The June quarter saw continued strength in global and local equity markets with the ASX200 Accumulation Index rising +8.3% for the quarter. June marked the 9th consecutive positive monthly performance for the Australian equities index, which has now only had 1 down month since the March 2020 Covid induced lows. Investors continued to be comforted by a raft of good news including earnings upgrades, buoyant economic growth and very supportive monetary and fiscal policy.
At the sector level, performance was broad-based with decent positive returns for all sectors excluding utilities which continues to be plagued by underperformance to the benefit of the Fund which has had long running shorts in the space. Commodity prices were generally strong across quarter, lead by iron ore (+30%) and oil (+18%). This ensured decent returns for the major mining companies. The Aussie dollar softened against most key trading pairs.
Whilst the trend for markets remained firmly higher, the nuance around the market narrative has been changing. The so-called “reflation trade” benefiting industrials and value names lost some momentum over the past three months as market participants debated the long-term inflation outlook. Bond yields reversed and moved lower during the quarter with the Australian10 year yield falling from 1.78% to 1.53%.
The key issue is whether or not the high inflation readings present today are indeed transitory as most central bankers would have us believe. If this proves to be the case, then interest rate hikes will be pushed out further which supports valuations for interest sensitive sectors such as growth stocks and certain yield driven names
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2106-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfMay, 2021
May was another strong month for the Australian equity market with the ASX200 rising 2.3%, its 8th consecutive monthly gain. During the month, the market finally surpassed its pre-COVID high set back in February 2020 and has now risen 61% from its pandemic induced low.
While the market remains extremely volatile and continues to oscillate between value and growth on a daily basis, the underlying trend remains biased towards cyclical beneficiaries and away from COVID winners and high multiple growth stocks that have come under pressure from rising bond yields. Financials (+5.3%) were the best performing sector over the month with gains led by Banks (+7.3%), in particular Commonwealth Bank (+12.0%) and Westpac (+5.8%). The sector was a large beneficiary from better-thanexpected results with upgrades coming from a much faster-than-expected recovery in the broader economy, strong housing price growth and lower-than-expected impairment charges. The prospect of a recovery in dividends and/or buybacks also saw buying interest in the sector.
The Technology (-9.9%) sector was a major casualty of both stock specific and broader de-rating pressures with substantial declines seen from EML (-41.9%), Afterpay (-21.1%) and Appen (-14.4%). Other rate-sensitive sectors such as Utilities also came under pressure from fears that rising inflation will bring an earlier-than-expected increase in interest rates both from the RBA and the US Federal Reserve. Recent momentum exhibited by Telecoms, Healthcare and Industrials slowed in May. For the most part, price performance continues to favour value / cyclical-over-growth / structural stocks and both commentary by corporates as well as earnings revision trends (May was the 9th month of positive revisions) suggest that this bias is likely to remain a feature of equity market performance going forward
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2105-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfApril, 2021
April marked the 7th consecutive positive monthly return for the Australian equity market with the ASX200 Index gaining 3.5%. The index has now risen 55% from it’s March 2020 lows and is now less than 2% away from its pre COVID high. April saw broad-based performance across the market with solid gains seen across both value (+3.3%) and growth (+3.7%) as well as large (+3.2%) and small caps (5.0%). The Tribeca Alpha Plus fund delivered a 4.3% total return relative to the ASX200 Accumulation Index of 3.5%, an outperformance of 0.8%.
A more equitable rally was the result of a decline in bond yields which allowed high valuation areas of the market to recover from recent selling pressure while continued gains in activity indicators also supported cyclicals, financials and other COVID laggards. In addition, continued strength across the industrial commodity complex (copper in particular) as well as lithium and coal provided further support for the resources sector which rose 6.8%. In contrast, a large 6% reversal in the price of crude oil sunk the Energy sector which was the worst performing ASX sector falling 4.9% for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2104-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfMarch, 2021
What a difference a year makes. 1Q20 saw global equity markets suffer one of their steepest and fastest declines in history (-24%). A year later, and the majority of markets – including Australia – have not only recovered these losses but continue to perform strongly off the back of an improving economic picture and declining concerns around COVID-19. Australian equities posted a total return of 4.5% over 1Q21 – a solid return despite periods of very elevated volatility which saw the market frequently oscillate between growth and value stocks as conviction in the cyclical upswing ebbed and flowed. The good news was that Australian equities posted positive returns across all 3 months of 1Q (January +0.3%, February 1.0%, March +1.8%), and while performance might appear modest (and the overall trend for the market can be described as a “sideways consolidation”), this did come on top of a stunningly strong 4Q20 where the market rose 14%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2103-QTR-Tribeca-Alpha-Plus-Report-1.pdfFebruary, 2021
February was a volatile month for the Australian equity market with an exceptionally strong reporting season somewhat overshadowed by global macroeconomic events. After recovering from a shaky end to January, the market was hit by substantial profit taking in high valuation sectors as bond yields spiked sharply off the back of growing conviction in an economic recovery and a normalization of inflation expectations. While higher bond yields are simply reflecting the transition of the economy from recovery to expansion, the speed of the latest move spooked equity investors and pulled forward expectations of central bank policy tightening.
The ASX 200 underperformed global equities despite exceptionally strong performances by market heavy weights - financials and miners. For the most part, the results from resources stocks were well above expectations, supported by rising commodity prices, large dividend increases and the prospect of further earnings upgrades as the commodity cycle grows stronger. Similarly, banks posted much betterthan-expected results with a strong shift in sentiment driven by rising house prices and a steepening yield curve supporting price performance. It was unfortunate that profit taking due to rising bond yields in sectors such as gold, technology and utilities as well as some large corrections in stocks which disappointed over the reporting season -APX (-25.3%), ORI (- 17.7%), A2M (-16.0%), AGL (-14.7%) and COL (-14.0%) - took the gloss off what was considered one of the better reporting seasons for more than a decade. The Tribeca Alpha Plus fund delivered another strong month with a 2.09% return compared with 1.45% for the S&P/ASX200 Accumulation Index, an outperformance of 0.64%
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2102-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfJanuary, 2021
January saw a turbulent start to the year with the market posting a small gain of 0.3% but still managing to outperform US equities which fell - 1.1%. Global macro developments proved to be important drivers of price performance within the equity market through the month as investors await reporting season in Australia.
Key macro developments included: the Democrats emerging with a “blue sweep” in the US following the Georgia senate run-off elections; increased concerns around new strains of COVID and doubts around vaccination progress; and a late month selloff driven by a fear that rising losses by short sellers would undermine the broader equity market rally. As a result, volatility spiked sharply as the equity market oscillated between bouts of risk-on (favouring value stocks) and risk-off (favouring growth stocks). When the dust settled, the broad market trends that had begun to develop in 4Q20 were still largely intact – economic recovery, rising bond yields and a steeper yield curve.
The Australia Value Index outperformed Growth by 2.5% which was the fourth consecutive month of outperformance, although the majority of gains were seen at the start of the month when optimism around the US spending boost was at its highest. It was a good month for large caps (ASX20 +1.6%) which showed their relative resilience verses small caps (Small Ords -0.3%). Consumer discretionary was the strongest performing sector through January with broad gains seen in the retailers (BRG, HVN, SUL) being somewhat offset by further weakness in several travel and tourism stocks (FLT, WEB, CTD, SGR). Banks were a standout, rising 4% as a steepening yield curve (boosting net interest margins) combined with a strong housing market and reduced fears of delinquencies saw strong buying across the board. Expectations for a faster-than-expected increase in dividends also provided some downside support. Technology and Materials, two of the strongest performing sectors over the past 12 months were both weaker in January as turmoil in the US market drove profit taking in some of the strongest performing names. In addition, some weakness in the iron ore prices saw those most leveraged to the commodity take a breather. Real estate was the biggest casualty over the month as it succumbed to a rise in bond yields although there remained some hope that removal of social restrictions will begin to underpin the sector on a more consistent basis going forward.
At a stock-specific level, attribution came from ongoing strength in certain high-conviction holdings, as well as the reversion of some names which had rallied in prior periods. For example, underweight positions in Nanosonics (NAN) and Adelaide Brighton (ABC) contributed positively, as these stocks retraced prior gains which were not predicated on any fundamental information, but rather on a kind of ‘irrational exuberance’. Several overweight positions which materially contributed to outperformance include: Nuix (NXL) – which continued its strong run since IPO; Afterpay (APT) – leveraged to economic recovery and with a broader global penetration story that showed no signs of slowing; Domain (DHG) – as the outlook for housing turnover grew increasingly positive, noting Domain had lagged Classifieds peers; Incitec Pivot (IPL) – as global soft commodity and fertiliser prices surged.
We note that our top performers were not limited to a particular thematic or sector, but rather attribution was broad-based across sectors and factors. Our biggest detractor this month was an underweight position in Bingo Industries (BIN), which received an unsolicited bid from a private equity consortium. Tail-risk events like this are an inevitable feature of investing and highlight the important of risk management and diversification across a portfolio. The fact that we still materially outperformed this month is a testament to our risk management framework.
Other detractors included Tyro (TYR) – which was sold off after the company announced an operational issue with some of their terminals, a risk that we thoroughly evaluated, and became comfortable with; Bluescope Steel (BSL) – which sold off sharply after recent strong share price momentum, although partly recovering with a strong update at the end of the month; and overweight positions in travel names such as Qantas (QAN) and Sydney Airport (SYD) as the prospect of open international travel was further deferred, despite impressive progress with vaccinations globally.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2101-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfDecember, 2020
December saw a continuation of the vaccine-inspired equity market rally from November, albeit at a slower pace. The ASX200 Index posted a total return of 1.2% in December compared to 10.2% in November while global equities posted 4% and 12% in December and November respectively. The ASX200 Resources Index (+8.4%) outpaced Industrials (-0.2%), boosted by a massive 25% increase in the iron ore price during the month as problems in big producer Brazil curtailed supply while China’s robust economic recovery kept demand strong. Against this backdrop, the Tribeca Alpha Plus Fund delivered a gain of 2.92% compared to the ASX 200 Index of 1.21%, an outperformance of 1.71%.
Performance through December provided further confirmation of the growing confidence in Australia’s economic recovery supported by the November announcements of multiple COVID-19 vaccines and further gains in activity as the effects of social restrictions gradually reverse. The standout performances came from Materials (+8.8%) as well as a rebound in the Technology sector (+8.6%) which had significantly lagged the more beaten down value sectors in November rally while the worst performing sectors were the defensive Utilities (-5.4%) and Health Care (-4.7%) sectors. Financials (in particular, banks) took a breather after a staggering 17% rally in November with the sector declining 0.5% in December. This was primarily driven by a 5.1% decline in Insurance following QBE’s FY20 update which was well below market expectations and resulted in a 13% decline.
Many of the travel and tourism stocks (WEB, FLT, CTD) also consolidated through December after outsized gains in November. The best performing large-cap stocks during the month were iron-ore miner Fortescue Metals Group (+28.5%) and technology company Afterpay Limited (+24.2%) while the worst performing large-cap stocks were technology company Appen Limited (-21.7%) (which issued an earnings downgrade) and education provider IDP Education Limited (-18.9%) (as hopes faded of a quick return of international students). A2M was also an early month casualty of an earnings downgrade. For the Alpha Plus Fund, there were a few positions that contributed to outperformance, which are worth highlighting. Overweight positions included: (NXL) – the exciting cybersecurity technology provider that listed in December; Fortescue Metals Group (FMG) – as the iron ore price rallied strongly on supply curtailment in Brazil and growing demand from China; Afterpay (APT) – which achieved the milestone of being included as one of the 20 largest stocks on the ASX by market cap in the month; and Treasury Wine Estates (TWE) – which recovered after being heavily sold off on news of Chinese tariffs.
Underweight positions in AGL Energy (AGL), Cochlear (COH) and IDP Education (IEL) also generated positive attribution. As always, there were notable detractors from performance in December. We always review underperforming positions and stresstest our theses, balancing high conviction with flexibility and openmindedness. Underweight positions in Nanosonics (NAN) – which rallied along with the Biotechnology sector globally, Sims (SGM) – benefitting from rotation into cyclical value names, and Domino’s Pizza (DMP) – which reversed heavy losses since the announcement of successful vaccine clinical data. Overweight positions in Qantas (QAN), Fisher & Paykel Healthcare (FPH) and Netwealth (NWL) also detracted from performance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2012-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfNovember, 2020
November was an extraordinary month for both Australian and global equity markets as they were fuelled by optimism around an earlier-than-expected COVID-19 vaccine together with a reduction in political uncertainty as it became clear that Joe Biden would take the White House but that the Senate and House would remain split. The Australian market rose 10.0% to post its best monthly return in 27 years, although this was not nearly as impressive as the 12.2% rise in the MSCI All Country World Index, posting its best monthly return on record. Equally as noteworthy, global equity funds posted their largest 3-week inflows in history through November while short positioning in US equities reached a near 20 year low – further confirmation of how quickly optimism has returned. Against this backdrop, the Tribeca Alpha Plus Fund delivered a gain of 8.18% compared to the ASX 200 Index at 10.21%, an underperformance of 2.03%.
A rotation towards COVID-19 losers (value / cyclical stocks) and away from COVID-19 winners (growth / defensive stocks) was the primary driver at a broad index level as confidence in an economic recovery gained speed and the yield curve steepened as long dated bond yields edged higher. Energy (+28%), Financials, led by Banks (+16%), Communication Services (+14%) and Real Estate (+13%) were the major winners while Consumer Staples (-0.7%), Utilities (1.5%) and Healthcare (2.9%) were the laggards.
Many high multiple growth stocks were used as a funding sources for the rotation into cheaper cyclical stocks (ALU -5%, APX -2%, APT -2%), which pushed the performance differential between “Value” and “Growth” out to 4% for the month. However, given the breadth of the November rally (now dubbed the “Everything Rally”) and the scale of outperformance by growth stocks in months prior, this was consistent with the shift in economic and market expectations.
Travel and Tourism stocks were amongst the strongest performers for the month led by Webjet (WEB) +65%, Flight Centre (FLT) +52%, Corporate Travel Management (CTD) +37% and Qantas (QAN) +28% followed by a broad risk-on rally across financial services with Bendigo Bank (BEN) +33%, National Australia Bank (NAB) 25%, NIB Holdings (NIB) 24% and Bank of Queensland (BOQ) 23%. The oil price rose 27% in November as vaccine hopes drove expectations of a more normalised demand environment starting to unfold. This drove a meaningful increase in oil and oil related stocks with Beach Energy (BPT) +49%, Oil Search (OSH) +42% and Worley (WOR) +37%. Finally, the potential for a faster-than-expected return to the office and shopping malls and a much-improved residential outlook saw Real Estate stocks also post some of the strongest returns with Vicinity Centres (VCX) +36%, Scentre Group (SCG) +33% and within small caps Unib-Rodam (URW) rose an impressive 73%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/2011-Tribeca-Alpha-Plus-Report-Class-A-Units.pdfticker: ETL0069AU
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https://www.gsfm.com.au/unlisted-funds/tribeca-alpha-plus-fund/
Quick Links
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fund_features:
The Tribeca Alpha Plus Fund is a long/short equity strategy that enables investors to benefit from rising and falling markets by taking long or short positions to profit from positive or negative share price movements. Tribeca can take advantage of negative views of stocks and sectors, as well as weaker fundamentals – short selling a range of stocks with weak investment characteristics and reinvesting the proceeds in long positions in preferred stocks.
- The investment approach blends fundamental and quantitative strategies that aim to identify investment opportunities.
- Benefits of the approach are the significant amounts of company detail that can be unearthed and used to generate insights into its future prospects and likely investment returns.
- The Fund has an alpha target of 5-6%, a common target for concentrated funds.
- The Fund has a diversified portfolio and holds, on average 60-70 long positions and 30-40 short positions.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australian Long Short
peer_benchmark: Domestic Equity - Long Short Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund