September, 2023
Global markets were weak in September with a sharp rise in long-term bond yields weighing on investor sentiment.
Central banks maintained their hawkish tone of higher interest rates being required for longer to combat inflation. This contributed to a 49bps increase in the U.S. 10-year bond yield over the month to 4.57%, a 16-year high. The Australian 10-year bond yield mirrored the move offshore, with a 46bps increase in September to 4.49%, the highest level since October 2011.
Oil was one of the few areas of the market that performed positively, with WTI up 8.6% to ~US$91/bbl. Oil prices were supported by an extension of supply cuts by OPEC+ for the remainder of the calendar year as well as an expectation of more resilient global demand.
The S&P/ASX 200 Accumulation Index returned -2.8%. Energy (+1.6%), Financials (-1.6%) and Consumer Staples (-1.8%) were the strongest sectors, while Property (-8.6%), Information Technology (-7.9%) and Health Care (-6.2%), lagged.
The portfolio performed positively over the month, with stockspecific gains and tailwinds from our exposure to energy more than offsetting the weaker general market backdrop.
Key contributors to portfolio performance in September were:
Seven Group Holdings (Long +11%) shares continued to rise after reporting strong FY23 results in August and providing a positive outlook for the FY24 period with high-single-digit EBIT growth expected. WesTrac and Coates performed strongly, with earnings well positioned to grow over the medium term as investment in mining, construction and infrastructure continues to increase. Seven also holds a 71.6% shareholding in Boral, one of the largest building and construction materials companies in Australia. Boral’s earnings have been impacted by surging input costs and significant wet weather. Under new leadership, and in a normalised trading environment, we believe Boral has the potential to double earnings over the medium term from FY23 levels.
Cenovus (Long +5%) shares rallied as WTI oil prices rose to ~US$91/bbl over the month, the highest level since November 2022. The company also had tailwinds from higher refinery margins, particularly in North America which remains their key exposure.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-9-LSF-Monthly-Report-Monthly-NTA-1.pdfAugust, 2023
Global markets were weak in August, with a mixed corporate reporting period, bond market volatility and concerns over Chinese economic growth weighing on investor sentiment.
The U.S. Government’s credit rating was downgraded one notch from AAA to AA+ by Fitch based on ‘fiscal deterioration’ and rising debt levels. The downgrade, together with a high level of Treasury issuance, led to a 37bps increase in U.S. 10- year bond yields to a 16-year high of 4.35%, before stabilising to end the month at 4.11%.
Chinese economic data across credit growth, retail sales, industrial output and investment was all weaker than expected, prompting a cut to key policy rates to shore up activity. This led to a decline in copper (-4.5%) and nickel (-9%) prices over the month. Oil prices initially declined but recovered towards the end of the month on concerns that Hurricane Idalia may disrupt production in the Gulf of Mexico.
After a strong July, the portfolio gave back most of those gains in August. The portfolio was impacted by the general market downturn as well as the decline in commodity prices on softening China sentiment. Reporting season-specific updates had a roughly neutral impact overall, with some positive and some negative stock updates.
A key contributor to portfolio performance in August was:
Seven Group Holdings (Long +7%) shares gained after reporting strong FY23 results and providing a positive outlook for the FY24 period with high-single-digit EBIT growth expected. WesTrac and Coates continue to perform strongly, with earnings well positioned to grow over the medium term as investment in mining, construction and infrastructure continues to increase. Seven also holds a 71.6% shareholding in Boral, one of the largest building and construction materials companies in Australia. Boral earnings have been impacted by surging input costs and significant wet weather delays. Under new leadership, and in a normalised trading environment, we believe Boral has the potential to double earnings over the medium term from current levels.
Key detractors from portfolio performance in August included:
Imdex (Long -17%) shares fell as the company delivered a full year 2023 result modestly below consensus expectations and guided that it expects conditions to remain subdued in the near term. We believe Imdex will continue to outperform the broader exploration drilling industry because of its strong execution and its roll-out of market-leading new products.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-8-LSF-Monthly-Report-Monthly-Class.pdfJuly, 2023
Global markets extended their gains in July, with constructive economic data reinforcing investor expectations for a potential soft-landing in the U.S.
Incremental U.S. economic data was reassuring, with U.S. GDP coming in at 2.4% (versus consensus expectations of 2.0%).
Inflation continued to moderate with the PCE price index slowing further to 3.0% YoY in June from 3.8% in May.
Resources started the month negatively on weaker Chinese economic data (Q2 GDP of 6.3% versus expectations of 7.3%), however, recovered strongly in the back half on Chinese Politburo stimulus talks (brent crude +14%, nickel +9%, copper +6%).
Bond yields in Australia remained relatively flat after the RBA paused in both the July and August monetary policy meetings. The Fed lifted rates by 25bps in line with market expectations and maintained their ‘hawkish’ tone, leading to a 10bps increase in U.S. 10-year bond yields.
The S&P/ASX 200 Accumulation Index returned 2.9%. Energy (+8.8%), Financials (+4.9%) and Information Technology (+4.5%) were the strongest sectors, while Health Care (-1.5%), Consumer Staples (-1.0%) and Materials (+1.4%) lagged.
Portfolio performance was strong over the month, driven by several supportive stock-specific updates along with tailwinds from a recovery in commodity prices.
Key contributors to portfolio performance in July included:
Downer (Long +7%) shares strengthened over the month as the company continues to progress its transition towards a higherquality urban services portfolio. With a renewed leadership team at both the Board and senior management level, Downer continues to pursue additional self-help measures and simplification initiatives within the core business. These include a cost reduction target of $100m p.a. by FY25 and further asset sales. We anticipate these changes will help transform Downer into a more resilient, less capital-intensive and lower risk services business exposed to growing, annuity-style contracts.
Alibaba (Long +23%) shares performed strongly on betterthan-expected pro-market policy guidance from the Chinese leadership. We believe that Alibaba remains a high-quality business with leading positions in both eCommerce and Public Cloud, and management is taking proactive steps to unlock shareholder value. It has announced plans to split into six major business groups – Cloud Intelligence, Taobao Tmall, Local Services, Global Digital, Cainiao Smart Logistics and Digital Media, and Entertainment Group. We believe this restructure will be a strong positive catalyst to unlock the sum-of-the-parts valuation upside in the company.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-07-LSF-Monthly-Report-Monthly-Class-2.pdfJune, 2023
Global equity markets rose in June on increased optimism for a possible soft-landing in the U.S. Economic data surprised positively, with first quarter U.S. GDP growth revised upwards from 1.3% to 2.0% as consumer spending remained more resilient than expected. Inflation also showed further signs of moderation, with the Fed’s preferred measure, the Core PCE Price Index, slowing to 3.8% in May, the lowest level in two years.
Mega-cap technology stocks continued their strong performance, maintaining the extremely narrow level of market leadership we have seen over the year to date.
Bond yields rose in Australia and the U.S. (Australian 10-year yield +42bps and U.S. 10-year yield +18bps). The RBA lifted interest rates by 25bps during the month, in a surprise move relative to consensus expectations. The Fed paused, however, signalling that a further 0.5% increase in U.S. interest rates is likely by the end of 2023.
The S&P/ASX 200 Accumulation Index returned 1.8%. Materials (+4.8%), Information Technology (+3.5%) and Financials (+3.1%) were the strongest sectors, while Health Care (-6.6%), Communications Services (-1.0%) and Property (0.0%) lagged.
Portfolio performance was positive over the month, driven by several supportive stock-specific updates.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-6-LSF-Monthly-Report-Monthly-NTA.pdfMay, 2023
The ASX200 and MSCI World fell in May as investors remained concerned with rising interest rates and a softening demand environment, along with elevated risks of a potential U.S. debt default, with debt levels approaching the US$31.4 trillion debt ceiling.
Mega-cap technology stocks performed strongly as artificial intelligence and ChatGPT dominated headlines across the market. This perpetuated the extremely narrow level of market leadership we have seen over the year to date, with the seven best performing stocks in the S&P500 responsible for 100% of the total index return in 2023 (i.e. the aggregate return of the remaining 493 stocks has been zero). ‘Value’ equities underperformed ‘Growth’ equities in May by the most of any month in over 20 years. The last time this level of divergence in performance occurred was near the peak of the dot-com boom.
Bond yields rose in Australia and the U.S. (Australian 10-year yield +27bps and U.S. 10-year yield +22bps) as both the RBA and the Fed lifted interest rates by 25bps over the month with inflation continuing to remain sticky.
Commodity markets were weak (iron ore -3%, coking coal -3%, copper -6%, brent crude -9%, nickel -16%) primarily driven by concerns over weakening U.S. demand and a sluggish Chinese economy, as well as a stronger U.S. dollar.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/5-2023-LSF-Monthly-Report-Monthly-Class.pdfApril, 2023
Global equity markets rose modestly in April as interest rate hike expectations moderated after significant volatility in March from the onset of the U.S. banking crisis. A slowdown in the flight of deposits from U.S. regional banks further supported markets, providing investors with greater confidence that an extensive banking crisis may be avoided.
Bond yields were generally flat over the month in both Australia and the U.S. (U.S. 10-year yield -5bps and Australian 10-year yield +4bps). Commodity markets were generally weaker with copper, iron ore and oil prices falling, while gold remained at record highs close to US$2,000/oz.
The S&P/ASX 200 Accumulation Index returned 1.8% in April. Property (+5.3%), Information Technology (+4.8%) and Industrials (+4.4%) were the strongest sectors, while Materials (-2.6%) and Utilities (+1.4%) lagged.
Portfolio performance was positive over the month, driven by some supportive stock-specific updates, along with tailwinds from M&A activity in some of our key positions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-4-LSF-Monthly-Report-Monthly-Class-4.pdfMarch, 2023
Global markets were volatile in March, with a sharp fall in the middle of the month driven by fears of a banking crisis as two regional U.S. Banks, Silicon Valley Bank and Signature Bank, collapsed on liquidity concerns. This led to further contagion in Europe, with Credit Suisse subject to a hasty takeover by UBS. As Credit Suisse is one of 30 banks considered to be of systemic importance to the global economy, the Swiss Government and regulator facilitated the takeover to quickly stem further banking turmoil.
Markets recovered in the back half of the month as the flight of deposits from U.S. regional banks slowed, the Credit Suisse takeover terms were finalised and inflation showed further signs of moderation.
Bond yields collapsed in both Australia and the U.S. during the month (U.S. 10-year yield -42bps and Australian 10-year yield -56bps) with stress in the banking system leading the market to price in three rate cuts in the U.S. in the back half of the year. The S&P/ASX 200 Accumulation Index returned -0.2% in March with mixed performance across sectors. Materials (+5.9%), Communication Services (+3.4%) and Consumer Discretionary (+1.7%) were the strongest sectors, while Property (-6.8%), Financials (-4.9%) and Energy (-1.5%) lagged.
Portfolio performance was marginally positive over the month, driven by strong performance of a number of key portfolio positions along with tailwinds from our exposure to the gold sector. This was partially offset by the movement in bond yields which supported the outperformance of high-multiple growth stocks where we have some short positions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-03-LSF-Monthly-Report-Monthly-Class-1.pdfFebruary, 2023
After rallying in January on easing Fed interest rate expectations, global equity markets retraced in February as inflation continued to remain sticky, the job market remained tight (January U.S. Nonfarm Payrolls rose 517k, well above forecasts of 187k) and reporting season highlighted areas of weakness in corporate earnings, coupled with uncertainty over the near-term operating outlook. This led to a pivot in market forecasts, from a potential for interest rate cuts in the second half of 2023, to an expectation that the Fed would likely maintain higher interest rates for longer in order to fight inflation.
Bond yields rose in both Australia and the U.S. over the month (U.S. 10-year yield +39bps and Australian 10-year yield +30bps). Commodity prices were generally weaker on the back of a stronger U.S. dollar, rising interest rates and softening investor sentiment (Gold -5.3%, Copper -3.0% and Oil -2.3%).
The S&P/ASX 200 Accumulation Index returned -2.4% in February with mixed performance across sectors. Utilities (+3.4%), Information Technology (+2.7%) and Industrials (+1.5%) were the strongest sectors, while Materials (-6.6%), Financials (-3.1%) and Energy (-0.8%) lagged. Portfolio performance was relatively in line with the market, with several positive stock-specific updates being more than offset by general weakness across the market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-02-LSF-Monthly-Report-Monthly-NTA.pdfJanuary, 2023
Global equity markets rallied in January as inflation showed signs of moderation, with the Fed’s preferred measure of inflation, the Core PCE Price Index, slowing to under 5% in November and December. This resulted in a decrease in bond yields in both the U.S. and Australia (U.S. 10-year yield -35bps and Australian 10-year yield -50bps) as market expectations of further interest rate hikes decreased.
Investor sentiment improved in response to the inflation data as well as better-than-expected U.S. economic data. Market volatility fell, with the VIX (the market’s ‘fear gauge’) closing below 20 for the first time since December 2021. The price of gold rose 5.7% to US$1,924 per ounce, marking the third straight month of increases, driven by a weaker U.S. dollar, lower expected U.S. interest rates and strong demand from central banks.
Portfolio performance was positive in January, driven by several supportive stock-specific updates along with tailwinds from the broader recovery in global markets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2023-1-LSF-Monthly-Report-Offshore-Feeder-FINAL.pdfDecember, 2022
Global equity markets fell sharply in December (MSCI World -4.3%, S&P 500 -5.8%, NASDAQ -8.7%) as the Fed maintained its hawkish tone at the December FOMC meeting and affirmed its resolve to bring down inflation through sustained higher interest rates. The Fed’s most recent interest rate projections show no interest rate cuts in 2023, which stands in contrast to market expectations of a pivot in the second half of the year.
The fall in markets over the month capped the worst year of performance for major U.S. stock indices since 2008, with the NASDAQ falling 33% and the S&P 500 falling 18%.
The S&P/ASX 200 Accumulation Index returned -3.2% in December with all sectors declining. Materials (-0.9%), Utilities (-1.2%) and Consumer Staples (-1.8%) were the strongest sectors on a relative basis, while Consumer Discretionary (-7.0%), Information Technology (-5.4%) and Industrials (-4.9%) were the weakest sectors.
Portfolio performance was strong in December, driven by several positive stock-specific updates along with tailwinds from the strong performance of our short book.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-12-LSF-Monthly-Report-Monthly-NTA.pdfNovember, 2022
Global equity markets rallied in November on the back of falling bond yields and hopes that inflation pressures may have peaked. Early signs of China moving away from its strict ‘zero COVID’ policy saw strong gains in Chinese and Hong Kong listed stocks and those companies most exposed to a potential China re-opening. As outlined in our November Webinar, we are optimistic about the prospect of a China re-opening in 2023 and the portfolio is well positioned to benefit from any progress on this front
Markets were further supported by Fed Chair Jerome Powell’s comments at the end of the month that the pace of interest rate increases could moderate as early as the Fed’s next meeting in December.
The gold price rose strongly by US$114 per oz to US$1,754 per oz and the Australian Dollar gained 6% against the US Dollar, supported by declining bond yields and speculation the Fed is closer to the end of the hiking cycle.
Portfolio performance was strong in November, driven by several positive stock-specific updates along with tailwinds from positive China re-opening sentiment.
Key contributors to portfolio performance in November included:
Origin Energy (Long +41%) shares rallied after receiving a takeover offer at $9.00 per share from a consortium led by Brookfield Asset Management and MidOcean Energy. The offer represents a 55% premium to Origin’s share price prior to the announcement of the proposal and follows two prior rejected proposals at $7.95 per share on 8 August 2022 and $8.70-$8.90 per share on 18 September 2022. The takeover offer recognises the upside potential we saw in the company. We decided to exit the position during the month given some risks to completion remain, including, due diligence and regulatory approvals.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-11-LSF-Monthly-Report-Monthly-NTA.pdfOctober, 2022
Global equity markets rallied in October with investors expecting the Fed to begin to scale back the pace of its tightening program in the months ahead. We found this move to be surprising for two reasons. Firstly, the Fed has been very clear that it is not close to enacting a policy pivot with inflation still tracking at over 8%. On November 2, Powell stated:
"It is very premature, in my view, to think about or be talking about pausing our rate hikes. We have a ways to go.”
Secondly, numerous high quality ‘bellwether’ companies in the U.S. downgraded their earnings guidance significantly, suggesting the deteriorating macro was beginning to bite. We used the rally to further reduce our market exposure.
The S&P/ASX 200 Accumulation Index returned 6.0% in October. The strongest sectors were Financials (+12.2%), Property (+9.9%) and Energy (+9.5%), while Consumer Staples (-0.2%), Materials (-0.1%) and Healthcare (+0.6%) were the weakest sectors.
Portfolio performance was driven by several positive stockspecific updates along with the broader recovery in global markets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-10-LSF-Monthly-Report-Monthly-NTA.pdfSeptember, 2022
Global equity markets fell sharply in September (MSCI World -9.3%, S&P500 -9.2%, Nasdaq -10.4%) as the Fed maintained an aggressive stance on tackling high inflation through continued policy tightening, despite rising recession fears. U.S. markets sold off significantly over the month, with the Nasdaq and S&P500 falling below their June 2022 lows. The Fed has now increased interest rates by ~300bps since March 2022, the fastest rise since the early 1980s, with consensus expectations for a further 125bps increase by year-end. At the start of this year, U.S. markets were pricing in only 75bps of rate increases for the entire calendar year.
The S&P/ASX 200 Accumulation Index returned -6.2% in September with all sectors coming under pressure. Despite being negative, the strongest sectors were Materials (-2.3%), Energy (-3.8%) and Healthcare (-4.4%) while Utilities (-13.8%), Property (-13.6%) and Information Technology (-10.6%) were the weakest sectors.
Portfolio performance was impacted by the broad-based market sell-off over the month with limited stock-specific news flow driving share price performance. We believe the recent sell-off is presenting some exceptional opportunities, with our median portfolio long position now trading on only 9.7x FY23 P/E.
While these periods of heightened market volatility can be unnerving, we continue to believe that taking a 2 year view and focusing on enduring investment fundamentals (cashflows, industry structure, management, operating trends and balance sheet) will deliver strong absolute and relative returns to our investors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-09-LSF-Monthly-Report-Monthly-NTA.pdfAugust, 2022
The L1 Capital Long Short Fund returned 5.9%1 in August.
Global equity markets declined in August (MSCI World -4.2%, S&P500 -4.1%, NASDAQ -4.5%), with sentiment turning negative following comments from Fed Chair Jerome Powell at the Jackson Hole symposium. Powell emphasised that the Fed would continue its tightening policy until it is confident inflation is moving closer to its 2% long-range target.
Market expectations leading into the symposium were for the Fed to have to ‘pivot’ quickly to interest rate cuts due to rising recession fears. However, following the Fed Chair’s speech, bond yields spiked in both the U.S. and Australia as consensus expectations of sustained interest rate hikes increased. The S&P/ASX 200 Accumulation Index returned 1.2% in August. The strongest sectors were Energy (+7.8%), Materials (+4.4%) and Communication Services (+2.5%) while Property (-3.5%), Consumer Staples (-1.8%) and Utilities (-1.6%) lagged.
The portfolio performed strongly in August with a number of our holdings delivering better results and outlooks than consensus expectations over the reporting season.
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The L1 Capital Long Short Fund returned -4.7%3 in July (ASX200AI 5.7%).
The Fund has returned 19.5%3 p.a. over the past 3 years (ASX200AI 4.3% p.a.).
Global markets rallied in July primarily due to a surge in ‘expensive defensives’ and speculative technology stocks. We continue to believe these parts of the market are overvalued and risky and remain comfortable not holding these stocks.
Equities rallied in July, largely due to a fall in global bond yields. Rising recession concerns led to a reduction in medium-term interest rate expectations, with the market anticipating that the Fed would have to pivot earlier than previously expected.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-07-LSF-Monthly-Report-Daily-Class-.pdfJune, 2022
The long-life, low-cost Ashburton iron ore project is expected to soon receive formal sanction with production due in late CY23/early CY24. We believe the market has not yet priced in either the step-change it will deliver for the mining services business or the inherent optionality from a new, major iron ore region.
We also expect Mineral Resources to realise its massive lithium growth pipeline (full downstream integration for >100kt of lithium hydroxide production) over the next four years, funded by a recent, successful US$1.25b bond issue and more subdued, but still ‘stronger for longer’, lithium prices. Our positive outlook for Mineral Resources was reinforced by our recent visit to their impressive, new, company-owned Perth headquarters which reflect management’s vision to provide an industry-leading experience for both head office and mine-based staff.
Bluescope Steel (Long -13%) shares weakened over the month, along with most offshore steel-making companies as U.S. and Asian steel spreads declined. We took the opportunity to top up our position. While the sharp rise in bond yields quickly dampened sentiment to housing, steel demand in the U.S. and Australia remains robust. U.S. steel spreads have declined from record levels but remain healthy and are likely to stay around current levels near-term as the arbitrage on importing steel has now largely been eroded. Bluescope recently completed the acquisition of MetalX, a scrap business, and Coil Coatings, the U.S.’s second largest metal coating and painting company, as well as an 850kt expansion of the North Star plant in Ohio, which will benefit earnings as it ramps up over 18 months. Given its strong net cash balance sheet, we expect Bluescope to continue its $985m on-market share buyback program, along with a further low-cost expansion of up to 1.4mt of steel at North Star in the coming years. The company has also committed to a $1b Port Kembla blast furnace reline and upgrade over the next four years, a solid step towards Bluescope’s ESG and carbon abatement targets. The company currently trades on just 4x consensus FY23 EV/EBIT and 5.6x consensus FY23 PE, which we believe significantly undervalues Bluescope’s unique and strategic asset base.
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The L1 Capital Long Short Fund returned 0.1%3 in May (ASX200AI -2.6%). The Fund has returned 26.5%3 over the last 12 months (ASX200AI 4.8%) and 29.6% p.a. over the past 3 years (ASX200AI 7.8% p.a.). Portfolio performance in May was pleasing, considering the fall in the Australian market. The portfolio benefitted from long exposure to energy, along with shorts in some ‘COVID winners’ that fell sharply.
Global markets were volatile in May with investors increasingly concerned that rising inflation and the U.S. Federal Reserve’s plan to address this by sharply hiking interest rates could trigger a recession. Technology stocks continued to be the hardest hit with the Nasdaq falling a further 1.9% over the month (after a 13.2% fall in April), extending its worst ever start to a calendar year (-22.5% CYTD).
The S&P ASX 200 Accumulation Index fell 2.6% over the month, with almost all sectors declining. The RBA announced its first interest rate increase since November 2010, which weighed on investor sentiment. The strongest sectors were Materials (+0.1%), Utilities (-0.2%) and Industrials (-0.5%), while Property (-8.7%), Information Technology (-8.7%) and Consumer Staples (-6.6%) lagged.
Portfolio performance was pleasing over the month considering the weak market backdrop, with stock specific catalysts, long exposure to energy and short positions in COVID ‘winners’ and profitless technology stocks offsetting broader market weakness.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-05-LSF-Monthly-Report-Daily-Class.pdfApril, 2022
Global markets fell sharply in April as rising inflation fears and a more hawkish U.S. Federal Reserve escalated concerns of a slowdown in economic growth. U.S. stocks have experienced their worst ever start to a calendar year with the Nasdaq falling 13.2% in April, its biggest monthly drop since 2008, and the S&P 500 fell 8.7%, its biggest monthly drop since March 2020. Technology stocks and COVID ‘winners’ were the hardest hit during the month with the U.S.
bond markets pricing in over 200bps of interest rate rises over the next 12 months. The S&P ASX 200 Accumulation Index fell 0.9% in April outperforming most major developed markets, primarily due to its greater exposure to Resources and lower exposure to Technology stocks. The strongest sectors were Utilities (+9.3%), Industrials (+3.5%) and Consumer Staples (+3.3%), while Information Technology (-10.4%), Materials (-4.3%) and Consumer Discretionary (-3.1%) lagged.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-04-LSF-Monthly-Report-Daily-Class.pdfMarch, 2022
After a sharp sell-off in the first two months of 2022, global markets recovered some of the losses in March, however, still ended the quarter with the worst quarterly drop in two years.
Pleasingly, the portfolio returned 11.3% over the quarter, compared to 2.2% for the ASX200 Accumulation Index and sharply negative returns for U.S. and global markets (NASDAQ -9.0%, MSCI World -5.2%, S&P500 -4.6%). The U.S. Federal Reserve implemented a 25bps rate rise during the month, with an increasingly hawkish tilt leading to a surge in both U.S. 10-year yields (up 49bps to 2.32%) and Australian 10-year yields (up 69bps to 2.83%).
Commodity prices continued to rise due to the Russia/Ukraine conflict and the potential disruption of key commodity exports. The S&P/ASX 200 Accumulation Index recovered in March. The strongest sectors were Information Technology (+13.2%), Energy (+9.8%) and Materials (+8.9%), while Property (+1.2%), Healthcare (+2.5%) and Consumer Discretionary (+4.2%) lagged.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-03-LSF-Monthly-Report-Daily-Class-1.pdfFebruary, 2022
Global equity markets had another difficult month with sharp falls driven by the rapid escalation of geopolitical tensions culminating in Russia’s attack on Ukraine as well as ongoing concerns over tighter monetary policy from central banks (NASDAQ -3.4%, S&P500 -3.1%, MSCI World -2.8%). Commodity prices saw strong upward moves as markets reacted to the potential disruption of key Russian exports.
The S&P/ASX 200 Accumulation Index rose 2.1% in February, outperforming most major developed markets, largely due to a greater weighting to energy and commodities. The strongest sectors were Energy (+8.6%), Consumer Staples (+5.6%) and Materials (+5.2%), while Information Technology (-6.6%), Consumer Discretionary (-5.0%) and Communications Services (-2.2%) were particularly hard hit. The portfolio performed well over the month through broadbased stock gains with 14 individual stock positions contributing 0.4% or more to returns. The portfolio benefited from a strong reporting season, long exposure to commodities and several short positions in ultra-high P/E companies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-02-LSF-Monthly-Report-Daily-Class.pdfJanuary, 2022
Global equity markets fell sharply in January as investors braced themselves for tighter monetary policy from central banks. Bond yields in both the U.S. and Australia spiked (U.S. ten-year yield +27bps and the Australian 10-year yield +22bps) as market expectations of interest rate hikes increased. This led to a more pronounced sell-off in high multiple, unprofitable stocks that are more sensitive to higher bond yields.
The S&P/ASX 200 Accumulation Index fell 6.4% in January. The strongest sectors were Energy (+7.9%), Utilities (+2.6%) and Materials (+0.8%), while Information Technology (-18.4%), Healthcare (-12.1%) and Consumer Staples (-9.6%) were particularly hard hit. The portfolio performed well over the month through broad based stock gains with 16 individual stock positions contributing 0.3% or more to returns.
The portfolio also had tailwinds from strong commodity prices, including a continued rally in oil prices, as well as several short positions in ultra-high P/E companies. These stocks continue to look expensive, despite the large share price falls. The market movements in January continue to support our preference for short duration (Value/Cyclical) versus long duration (Growth/Defensive) stocks as we enter a central bank tightening cycle.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2022-01-LSF-Monthly-Report-Monthly-Class.pdfDecember, 2021
Global equity markets recovered in December as concerns regarding the impact of the Omicron variant moderated and investors adjusted to the more hawkish pivot from the U.S. Federal Reserve (“Fed”). Jerome Powell, the Fed Chair, announced a further acceleration in the tapering of its bond-buying program in mid-December in order to manage higher inflation risks. This signals the potential for earlier and multiple interest rate increases in 2022 and supports our preference for short duration (value/cyclical) versus long duration (growth/defensive) stocks as we enter a central bank tightening cycle.
The S&P/ASX 200 Accumulation Index returned +2.7% in December. The strongest sectors were Utilities (+7.9%), Materials (+6.5%) and Property (+4.9%), while Information Technology (-5.3%), Healthcare (-2.4%) and Consumer Staples (-2.3%) lagged
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-12-LSF-Monthly-Report-Daily-Class-1.pdfOctober, 2021
Global equity markets rebounded strongly in October following a strong start to the U.S. corporate earnings season and reduced risk that Evergrande’s potential default would result in wider contagion across the Chinese property sector. The S&P/ASX 200 Accumulation Index returned -0.1% in October, underperforming most global markets, largely due to higher-than-expected inflation data and sharply higher Australian bond yields. The Australian 10-year bond rate rose by 59bps to 2.08%, the highest level since March 2019. The strongest sectors were Information Technology (+2.1%), Health Care (+1.0%) and Financials (+0.8%), while Industrials (-3.2%), Energy (-2.7%) and Consumer Staples (-2.3%) lagged. The portfolio performed well over the month due to broadbased stock gains (16 individual stock positions contributed 0.2% or more to returns
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-10-LSF-Monthly-Report-Monthly-Class.pdfSeptember, 2021
Global equity markets fell in September (NASDAQ -5.7%, S&P500 -4.7%, MSCI World -4.2%), with investor sentiment impacted by ongoing fears around high inflation, the potential default of Evergrande (one of China’s largest property developers) and more hawkish commentary from the U.S. Federal Reserve. These factors contributed to a sharp rise in bond yields with the US 10-year rising 24bps to 1.52% and the Australian 10-year rising 33bps to 1.49%. The S&P/ASX 200 Accumulation Index returned -1.9% in September. The strongest sectors were Energy (+16.7%), Utilities (+2.5%), Financials (+1.6%), while Materials (-9.3%), Health Care (-4.9%) and Information Technology (-3.9%) lagged.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-09-LSF-Monthly-Report-Monthly-NTA.pdfAugust, 2021
Global equity markets rallied in August with investors reassured after U.S. Federal Reserve Chair Jerome Powell’s dovish Jackson Hole address where he emphasised that the Federal Reserve would remain cautious in raising interest rates as it tries to ensure the economy reaches full employment.
The S&P/ASX 200 Accumulation Index returned 2.5% in August. The strongest sectors were Information Technology (+17.0%), Consumer Staples (+6.9%) and Healthcare (+6.8%), while Materials (-7.3%), Energy (-3.9%) and Utilities (+1.0%) lagged.
The portfolio performed strongly in August with a number of our holdings delivering better results and outlooks than consensus expectations over reporting season. Performance was broad based, with 13 individual stock positions contributing 0.4% or more to returns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-08-LSF-Monthly-Report-Monthly-NTA.pdfJuly, 2021
Global equity markets were mixed in July with concerns over the aggressive spread of the COVID-19 Delta variant leading to a downward revision of global growth estimates due to increased restrictions in many countries (including Australia) and delayed re-opening timelines. Despite inflation running higher than market expectations, continued dovish Central Bank commentary and ‘risk-off’ market sentiment contributed to yields on 10-year treasuries in both the U.S. and Australia falling to their lowest levels in more than five months. The S&P/ASX 200 Accumulation Index returned 1.1% in July. The strongest sectors in Australia were Materials (+7.1%), Industrials (+4.3%) and Utilities (+1.6%), while Information Technology (-6.9%), Energy (-2.5%) and Financials (-1.4%) lagged.
Portfolio performance in July was pleasing with stock picking gains more than offsetting the impact from a broader rotation towards growth/defensive stocks and away from value/cyclical stocks. While the Delta variant has led to a substantial increase in COVID-19 cases, vaccines continue to offer high levels of protection from hospitalisation or death which we believe is key to enabling further economic re-opening.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-07-LSF-Monthly-Report-Monthly-NTA.pdfJune, 2021
Global equity markets rose modestly in June led by the continued improvement in economic data and a strong recovery in growth names. The US Federal Reserve turned more hawkish in June, accelerating the pace of expected policy tightening amid optimism about the rate of the economic recovery. This led to a flattening of the yield curve causing growth and defensive stocks to strongly outperform value and cyclical stocks.
The S&P/ASX 200 Accumulation Index returned 2.3% in June. The strongest sectors in Australia were Information Technology (+13.4%), Communication Services (+5.5%) and Property (+5.5%) while Financials (-0.2%), Materials (+0.3%) and Healthcare (+2.2%) lagged.
Following strong performance in both April and May, the portfolio was marginally negative this month, with stock picking gains offset by the underperformance of value/cyclical stocks. We believe this factor rotation is temporary, anticipating that continued upgrades to corporate earnings, further economic re-opening and positive vaccine progress should lead to a positive tailwind for cyclical stocks over the remainder of the year
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-06-LSF-Monthly-Report-Daily-Class.pdfApril, 2021
Global equity markets continued their strong start to the year supported by strong economic data, further corporate earnings upgrades, positive vaccine progress and a stabilisation in long-term government bond rates following dovish commentary from global central banks. The U.S. Federal Reserve reaffirmed its intent to keep rates near zero to support the economic recovery post COVID-19 even if inflation temporarily exceeds its 2% target.
The S&P/ASX 200 Accumulation Index returned 3.5% in April. The strongest sectors in Australia were Information Technology (+9.7%), Materials (+6.8%) and Industrials (+4.3%) while the worst performers were Energy (-4.9%), Consumer Staples (-2.5%) and Utilities (-1.2%).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2021-04-LSF-Monthly-Report-Daily-Class.pdfDecember, 2020
Global markets continued to trend higher in December driven by vaccine approvals in the U.K. and U.S., as well as the finalisation of the long-sought U.S. fiscal stimulus package to provide ~US$900b in aid. These positive developments were tempered by continued increases in COVID-19 cases, further global lockdowns and concerns about more infectious “mutant” strains of COVID-19. The ASX200AI returned 1.2% in December. The strongest sectors were Information Technology (+9.5%), Materials (+8.8%) and Consumer Staples (+2.3%) while Utilities (-5.4%), Healthcare (-4.9%) and Industrials (-2.7%) lagged.
The portfolio performed positively in December, continuing its strong outperformance over the last 9 months, with our aggressive and decisive buying of oversold stocks in March, as well as our intensive vaccine research, being the key reasons underpinning this result. 2020 represents the second consecutive calendar year where the portfolio has delivered net returns above 25%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/2020-12-LSF-Monthly-Report-Daily-Class.pdfticker: ETL0490AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.l1.com.au/our-funds/#
L1 Capital Long Short =>
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
manager_contact_details: Array
fund_features:
Capital Long Short seeks to achieve strong, positive, risk-adjusted returns over the long term (in AUD terms). The return objective is 10% return net of fees and expenses p.a. over the long term. To conduct bottom up company research to identify mispriced securities, the fund may hold long or short stock positions (or derivatives) to profit from this mispricing. Securities will be listed (or expected to list) on a global stock exchange.