September, 2023
Equity markets sold-off in September as a response to a large sell-off in bonds on the realisation that rates will be higher for longer. The S&P/ASX Small Ordinaries fell 3.9% for the month against the Fund (-1.0%).
Performance was led by prospective South Australian uranium miner Boss Energy (+39.7%). Recent strong performance reflects the rapidly improving sentiment towards nuclear energy. Seven Group Holdings (+12.7%) is leveraged to demand for domestic resources and the infrastructure capex cycle, which we suspect will be a multi-year journey. Beach Energy (+7.3%) is exposed to global oil markets, along with the Australian and NZ domestic gas market.
Detractors included Waypoint REIT (-8.4%) on higher rates and Neuren Pharmaceuticals (-12.1%) on a potential competing drug for Rett syndrome being developed by Anavex Life Sciences. We continue to hold a core position in the company as the risk/reward is still attractive.
In our view, the long lag effects of monetary policy mean that economic and behavioural impacts are still ahead of us and hard to quantify. We enter the back end of the year with a diversified portfolio, given the wide array of outcomes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Milford_Dynamic_Fund_Sep23.pdfAugust, 2023
The Fund returned -0.5% for the month, ahead of the S&P/ASX Small Ordinaries which finished down 1.2%. The benchmark delivered twice as many downgrades than upgrades, which proved tricky to navigate.
Performance was led by leading automotive marketplace Carsales (15.6%), which rallied on confidence in its international growth prospects. Boss Energy (+19.2%) rallied on the favourable supply and demand dynamic appearing in the uranium market. Monadelphous (+7.7%) continued its strong recent performance. Detractors included Iress (-38.3%) and ResMed (-24.0%). Underlying costs at Iress are rising faster than expected which means the net cost-out benefit we had hoped for is evaporating.
There was a broad degree of caution in company outlook statements and, somewhat unsurprisingly, a lack of future earnings guidance. In our view, the long lag effects of monetary policy mean that economic and behavioural impacts are still ahead of us and hard to quantify. We enter the back end of the year with a diversified portfolio given the wide array of outcomes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Milford_Dynamic_Fund_Aug23.pdfJuly, 2023
The Fund returned 3.3% for the month, shy of the S&P/ASX Small Ordinaries which achieved a return of 3.6%. Overall, we were pleased that our stock picking kept us within reach, despite a far less risky portfolio.
Performance was led by Beach Energy (+19.6%) – a recent addition to the Fund. Beach is exposed to global oil markets, along with the Australian and NZ domestic gas market. Project award momentum in Monadelphous Group (+16.2%) continued in July. We’re anticipating further construction contracts in lithium and rare earths to be announced by year end. Australian Ethical Investment (+23.2%) continued its stellar run.
Detractors included our preferred lithium miner IGO (-9.2%) following an operational result, and Kelsian (-4.5%) on no major news.
Equity markets celebrated weaker inflation numbers in July. Current data coupled with robust growth is a goldilocks scenario for equity markets. We remain more circumspect, aware that equity markets tend to extrapolate the present. We continue to believe the path to a soft landing in Australia is narrow. We have long been of the view that as the economy weakens, we will rotate back into quality growth companies at attractive valuations. We have selectively started this process given our elevated cash position, however only in moderate size to date.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Milford_Dynamic_Fund_Jul23-1.pdfJune, 2023
The Fund returned 1.7%, ahead of the S&P/ASX Small Ordinaries which made a return of 0.1% this month.
Performance was led by KFC restaurant owner Collins Foods (+17.0%) which delivered a better-than-expected earnings result. Europe operations surprised to the upside, while Australian margins appear to have bottomed. Australasian terminal provider Smartpay (+10.0%) continued its recent momentum. Diversified data centre company Macquarie Telecom (+14.8%) rallied following a trading update and equity raise.
Detractors included fuel retailer Viva Energy (-5.0%) which suffered a minor setback at its Geelong Refinery during a maintenance turnaround, and Neuren Pharmaceuticals (-11.5%) on no news.
It is becoming clear that Australia is in a two-speed economy. On one hand, the older asset-rich generation is booming from high interest rates underpinning increased spend on categories like travel and restaurants. The younger demographic, in contrast, is suffering a cost-of-living squeeze. High household debt and leverage to variable interest rates creates more risk around their consumer balance sheets. We have long been of the view that as the economy weakens, we will rotate back into quality growth companies at attractive valuations. We have selectively started this process given our elevated cash position, however only in moderate size to date.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-06-1.pdfApril, 2023
The Fund returned 3.6% in April, ahead of the S&P/ASX Small Ordinaries which rallied 2.9%. Performance was led by Australia/New Zealand terminal provider Smartpay which rallied 25.0% following a quarterly and strategic update. Smartpay continues to gain market share and rapidly grow annuity revenues. Global patent attorney IPH rallied 9.7% following the conclusion of a cyber incident announced in March. The incident was handled well by management, with marginal delayed revenue and a minor one-off expense. Leading automotive marketplace Carsales continues to perform well (+7.4%) reflecting confidence in its international growth prospects. Detractors included youth apparel retailer Universal Store (-7.7%). We’re entering a critical phase in the Australian economy where the lagged impact from 10x consecutive rate rises will begin to drag on consumer balance sheets. While we remain defensively positioned, we have long been of the view that as the economy slows, we will rotate back into quality growth companies at attractive valuations. We have selectively started this process given our elevated cash position, however only in moderate size to date.
File:February, 2023
The Fund returned -0.9% for the month, ahead of the S&P/ASX Small Ordinaries which declined 3.7%. The resource sector lagged, giving up much of China’s reopening enthusiasm which was seen in January. Reporting season was the focus over the month, with nearly all portfolio companies announcing financial results. While the market delivered twice as many downgrades as upgrades, we fortunately navigated the month well and managed to largely evade the typical reporting season bombs.
Performance was led by ‘out of home’ advertising (e.g. billboards) company oOh!Media (+10.8%). oOh!Media has continued its recovery from depressed Covid levels and industry data suggests the outdoor category is tracking ahead of pre-Covid levels reflecting peoples' improved mobility. While out of home advertising is not immune to a cyclical downturn, it should be more resilient. Integrated energy company Origin Energy (+10.4%) rallied following a revised takeover bid of $8.90 (down from $9) from the bidding consortium. While it is a small price cut to previous expectations, it was a positive step towards consummating the deal.
The stock is currently trading at a 10%discount to this price which we feel will narrow as regulatory uncertainties moderate. Seven Group (+8.0%) – the owner of multiple businesses including the Caterpillar dealership Westrac in Western Australia and New South Wales, Australia’s largest equipment hire business Coates Hire, Boral, and a stake in Beach Energy –delivered a strong earnings result.
The diversified conglomerate provides leverage to demand for domestic resources and the infrastructure capex cycle which we suspect will be a multi-year journey. Mining service provider Monadelphous (-13.7%) lagged following a delay in capex spend into FY24, while gold miner Silver Lake (-22.7%) disappointed after a weaker than expected half.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Milford_Dynamic_Fund_Feb23.pdfDecember, 2022
While 2022 was a weak year for Australian small cap equities, markets have generally held up well in the second half of the year. The Dynamic Small Companies Fund returned -2.6% for the month, ahead of the S&P/ASX Small Ordinaries which fell 3.7%.
We were pleased to pass our three-year performance anniversary for the Fund, having delivered a 24.5% cumulative return since inception in October 2019 against the benchmark return of 5.0%. The underlying Dynamic strategy, since inception more than nine years ago, has returned 10.7% p.a. against the benchmark return of 5.6% p.a. Gold was one of the few sectors which collectively made a positive contribution for the month. Evolution Mining (+10.8%), and Northern Star (+2.9%) were two portfolio companies that performed well reflecting heightened uncertainty from macro-economic and geopolitical pressures. While our gold exposure has been a source of frustration over 2022, we remain constructive in the near term as safe-haven demand builds.
Pharmaceutical distributor EBOS Group (+8.1%) continued its strong form . It has rallied over 20% for the quarter following its annual investor day and inclusion in the MSCI Mid Cap index which has driven technical buying. While we continue to like its strong position in the Australian pharmaceutical distribution industry, we have taken profits over the past few months. Smartpay’s (+7.5%) momentum continued following the release of its first half results last month which showed very strong revenue and earnings growth. Smartpay is a small terminal operator growing rapidly in a large addressable market. Laggards included independent investment platform Netwealth (-12.0%) and sleep apnoea global leader ResMed (-7.4%). We consider both high quality companies trading at reasonable valuations and able to grow earnings through the economic cycle. We remain conservatively positioned from a Fund perspective as we enter the new year. We believe the economy will likely slow at an increasing rate over 2023.
While the property market has responded quickly to the RBA’s monetary tightening, the impact on the broader economy will take longer. As this equity weakness continues, we will look to establish longer term buy and hold opportunities in quality businesses at attractive valuations. We have selectively started this process given our elevated cash position, however only in moderate size.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/195834007.pdfNovember, 2022
Global equity markets were buoyant in November, as risk sentiment improved on the back of softer inflation leading to the assumption of lower central bank interest rates. The Dynamic Small Companies Fund returned 3.2% for the month, behind the S&P/ASX Small Ordinaries which rallied 4.9%. The index was led by Small Resources which rocketed on prospects of China reopening. Performance was led by Origin Energy (+41.1%) following the bid from Brookfield Asset Management. The indicative proposal was attractive and represented a 55% premium to the last trading share price.
The stock is currently trading at a discount to this price, but we feel this should narrow in time as regulatory uncertainties moderate. SmartPay (+25.9%) was a notable performer following the release of its first half results which showed very strong revenue and earnings growth. SmartPay is a small terminal operator growing rapidly in a large addressable market. With competitor Tyro under takeover, we feel any market movements will create a significant opportunity for share gains from more nimble operators like SmartPay. Carsales (+12.4%) provided a positive trading update indicating it had already achieved the cost synergies from its recent acquisition, and that dealer acquisition was continuing.
Performance by the recently acquired Trader Interactive business was encouraging, with further revenue opportunities planned in 2023. We view Carsales as a relative defensive technology position. While many other technology companies have been beneficiaries of the Covid environment, it’s more nuanced for Carsales and the Covid hangover will be much more minimal.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/193744651.pdfOctober, 2022
Global equity markets bounced in October on the prospect that peak inflation and a weaker US reporting season will encourage a Federal Reserve pivot. The Dynamic Small Companies Fund returned 5.5% for the month, behind the S&P/ASX Small Ordinaries which rallied 6.5%. Overall, we were pleased that our stock picking kept us within reach, despite a far less risky portfolio. Performance was led by service station and convenience retailer Waypoint REIT (WPR) which rallied 15.2%. WPR has been one of our preferred defensive exposures with an under-geared balance sheet, asset divestment programme underway and active buyback. The 6% dividend yield is still attractive in this environment, albeit less so post the recent rally.
Fuel retailer Viva Energy Group’s (+8.4%) quarterly results indicated volumes remain robust in line with the domestic reopening. Global refining margins are also improving, reflecting the recovery in global fuel demand allowing better profits in its Geelong refinery after several tough years. Viva has something that no other refiner has globally, a pseudo-floor in refining margins provided by a contract with the Australian government. Energy security is so critical that the government legislated in 2021 to ensure the country doesn’t become 100 percent dependent on imported fuel. This has improved the future quality and resiliency of earnings which is underappreciated by the market. Investment platform HUB24 (+21.5%) reported excellent quarterly results with strong flows despite the market volatility. Sustained inflows strengthen our view that HUB is a structural winner, as financial advisers migrate away from the major banks, favouring smaller, more nimbler advice firms which use HUB. HUB is also a beneficiary of higher cash rates, providing some offset to potentially slower flows from a volatile environment. Detractors included gold miner Silver Lake Resources (-5.9%) and Macquarie Telecom (-3.9%), which struggled to keep up with buoyant markets. Our decision over the past two months to selectively establish longer-term buy and hold opportunities at attractive prices has worked well. This process has only just begun and is heavily predicated on valuation. Our broader view is unchanged, we believe economic and behavioural impacts of rate rises will start to emerge over the coming quarters, particularly as the negative wealth effect from falling house prices starts to pinch. We enter the back-end of the year with a diversified portfolio given the wide array of potential outcomes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/192499848.pdfSeptember, 2022
Equity markets sold-off in September as a response to stubborn inflation data which resulted in a large sell-off in bonds. The S&P/ASX Small Ordinaries Index fell 11.2% for the month against the Dynamic Small Companies Fund’s fall of 7.2%. Our cautious positioning and elevated cash position provided some resistance to the sell-off, with the downside capture of 59%. We were pleased to officially lock in threeyear inception performance of 5.7% p.a. against the benchmark loss of -0.8% p.a.
The month also marks the nine-year inception performance of the same strategy which has returned 10.4% p.a. against the benchmark return of 4.9% p.a. The Fund strategy has captured over 100% of the market-upside and ~60% of the market-downside since inception. Performance was led by Neuren Pharmaceuticals, which rallied 13.3% on index inclusion and news they have been granted Priority Review by the FDA. Its drug Trofinetide treats Rett Syndrome – a rare neurological disease predominantly affecting females. We believe the probability of a successful approval is high and are excited at commercialisation prospects.
Additional early-stage drugs in the portfolio treating markets far larger than Rett Syndrome provide further valuation optionality. Sleep Apnea global leader ResMed provides a defensive exposure for the portfolio (+5.3%) and continues to benefit from product recalls from competitors. Philips recalled a sleep product over health risks early in the month creating an immediate opportunity for ResMed. We think the delivery of resilient earnings at the upcoming result could be a near term catalyst. Our industry channel checks suggest that there has been a boom in ResMed volumes being supplied to their distributors, on the back of the recall.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/191324416.pdfAugust, 2022
The Dynamic Small Companies Fund returned 1.4% for the month, outperforming the S&P/ASX Small Ordinaries benchmark by 0.8%. Reporting season was the focus over the month, with nearly all portfolio companies presenting financial results. Overall, we were pleased with our stock picking in what was a mixed season for small caps with 1 in 5 companies having FY23 EPS cuts of >10%. Performance was led by global patent attorney IPH which rallied (+11.7%) following the acquisition of leading Canadian firm Smart & Biggar.
The acquisition not only establishes a new growth corridor for future consolidation, but the added scale opens the door for some attractive ancillary opportunities. IPH is a key defensive position in the Fund, with earnings also leveraged to a declining AUD. Diversified miner IGO rallied (+21.7%) following one of the better quarterlies of reporting season. IGO continue to manage inflation and Covid pressures better than most in WA. The take up of electric vehicles is the key demand driver and there is growing evidence that this is once again accelerating in China and Europe. IGO remains one of our preferred mining exposures. Fuel retailer Viva Energy Group’s (+12.0%) financial results indicated total volumes had rebounded nicely in line with the domestic reopening.
Global refining margins are also improving, reflecting the recovery in global fuel demand allowing better profits in their Geelong refinery after several tough years. The new Government support measures should ensure the refinery can avoid a lot of negative earnings in the future and we believe refining margins will remain structurally higher through the cycle given limited global refining capacity. Detractors included Collins Foods (-5.1%) which drifted on no obvious news and Evolution Mining (-7.8%) also declined on soft gold prices and inflation pressures.
There was a broad degree of caution in company outlook statements, and somewhat unsurprisingly, a lack of future earnings guidance. In our view, economic and behavioural impacts of rate rises will start to emerge over the coming quarters, particularly as the negative wealth effect from falling house prices starts to pinch. We enter the back end of the year with a diversified portfolio given the wide array of outcomes. As we await more comfort on the economic outlook, we continue to build out a long shopping list of growth businesses to add to the portfolio once they reach more compelling valuations in the coming months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190740408.pdfJuly, 2022
Global equity markets bounced in July on the prospect of peak inflation, peak rates and a benign US reporting season. The Dynamic Small Companies Fund returned 8.4% for the month, behind the S&P/ASX Small Ordinaries which rallied 11.4%. While our cautious positioning provided a degree of cash performance drag, we were very pleased to largely keep up with the index with a far less risky portfolio.
Performance was led by Neuren Pharmaceuticals, which rallied 48.4% following the submission of Phase III trial results to the FDA. The FDA now have 60 days to accept the filing before triggering a milestone payment. Its drug Trofinetide treats Rett Syndrome – a rare neurological disease predominantly affecting females. We believe the probability of a successful approval is high and are excited at commercialisation prospects. Additional earlystage drugs in the portfolio treating markets far larger than Rett Syndrome provide further valuation optionality. Investment platform HUB24 was a large contributor for the month (+20.2%). Sustained inflows strengthen our view that HUB are a structural winner as financial advisors migrate away from the major banks, favouring smaller more nimbler advice firms which use HUB. HUB is also a beneficiary of higher cash rates, providing some offset to potentially slower flows from a volatile environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189959988.pdfJune, 2022
June was another challenging month for equity markets, with the prospect of slower global growth against rising interest rates and tighter financial conditions. The S&P/ASX Small Ordinaries fell 13.1% for the month compared to the Dynamic Small Companies Fund which fell 9.0%. Our cautious positioning and elevated cash position provided some resistance to the sell-off, with the downside capture of 67%, better than our 8-year strategy downside capture of ~80% (vs upside of 117%). Performance was led by KFC restaurant owner Collins Foods (+7.5%) which rallied following the release of its FY22 earnings. Australian restaurants were resilient with very strong same store comparable sales for the prior period. Trends like increased dinner spend is encouraging which we think suggests a weaker consumer trading down. We believe the price point of $25 to feed a family of four is an attractive alternative. Collins has an excellent balance sheet and trades on an undemanding valuation multiple.
Intellectual Property (IP) services firm IPH (+3.3%) performed resiliently over the month. IPH is the leading IP services firm in the APAC region. Having led the consolidation of the Australian and New Zealand market, it has the potential to expand globally into new markets. Its growth profile is supported by excellent cash flow and a strong balance sheet. IPH is a key defensive position in the Fund, with earnings also leveraged to a declining Australian Dollar
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188810561.pdfMay, 2022
May was a challenging month for equity markets, with the prospect of slower global growth against a backdrop of rising interest rates and tighter financial conditions. While we weren’t immune from the volatility, our cautious positioning and elevated cash position provided some resistance to the sell-off. The Dynamic Small Companies Fund returned -5.3% in May, outperforming the S&P/ASX Small Ordinaries Index which fell -7.0%.
Performance was led by global fund manager GQG (+17.1%) which rallied on continued outperformance against global benchmarks. We like founder led businesses, and GQG is expertly led by founding Portfolio Manager Rajiv Jain. He has significant skin in the game and much like our approach to investing, is an all-weather manager who should outperform through the cycle.
Intellectual Property (IP) services firm IPH (+3.9%) performed resiliently over the month. IPH is the leading IP services firm in the APAC region. Having led the consolidation of the ANZ market, it has the potential to expand globally into new markets. Its growth profile is supported by excellent cash flow and a strong balance sheet. IPH is a key defensive position in the Fund, with earnings also leveraged to a declining Australian Dollar.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187929096.pdfApril, 2022
The Dynamic Fund fell 2.9% in April, underperforming the S&P Small Ordinaries benchmark which fell 1.5%. Overall, our defensive positioning helped offset some stock specific news amongst our ‘reopening beneficiary’ companies which dragged on performance. During the month supermarkets performed well, led by independent supermarket and hardware retailer Metcash (+5.5%). Coles (+4.4%) posted a solid 3rd quarter with top-line growth supported by food inflation. Importantly for Metcash, the commentary suggested neighbourhood centres performed stronger than shopping mall/CBD located stores. Also, Easter trading was robust particularly in ‘resort stores’ where Metcash’s IGA stores generally over index.
Fuel retailer Viva Energy Group (+19.6%) provided an operational update which indicated total volumes had rebounded nicely in line with the domestic reopening. Global refining margins are also improving reflecting the recovery in global fuel demand allowing better profits in their Geelong refinery after several tough years. The new Government support measures should ensure the refinery can avoid a lot of negative earnings in the future.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187139429.pdfMarch, 2022
The Dynamic Fund returned 2.1% in March, below the S&P/ASX Small Ordinaries benchmark which rallied 5.3%. Base metals and energy were the best performing sectors, reflecting sharp commodity price moves driven by global geopolitical tensions.
Performance was led by independent supermarket and hardware retailer Metcash (+10.2%). Metcash is the largest position in the Fund and we like it for 2 key reasons. Firstly, we believe equity markets have underestimated the hardware segment growth potential which now contribute ~40% of group earnings after a period of acquisition. Secondly, industry meetings suggest that food inflation has only just begun to emerge and will be an ongoing theme this year. Given Metcash is a lower margin wholesaler, they should be a major beneficiary from this dynamic.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/186017228.pdfDecember, 2021
2021 was a strong year for the Dynamic Fund having delivered a 22.2% return against the Small Ordinaries benchmark return of 16.9%. The Fund rallied by 1.34% in December broadly in line with the benchmark. We were pleased to pass our two-year performance anniversary having delivered a 46.8% Fund return since inception in October 2019. Over the last eight years since inception, the Fund Strategy has returned 14.3% p.a. against the benchmark return of 9.0% p.a.
Performance was led by Neuren Pharmaceuticals, which rallied 74% following exceptional phase 3 trial results for its drug Trofinetide which treats Rett Syndrome – a rare disease. Neuren will be seeking US regulatory approval in late 2022/early 2023 with very exciting commercialisation prospects once this is achieved. Furthermore, they have an exciting early-stage drug in development, (NNZ-2591), that if successful, could treat markets far larger then Rett Syndrome
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/182480149.pdfNovember, 2021
The Dynamic Fund returned 0.2% in November, ahead of the S&P/ASX Small Ordinaries benchmark which ended down 0.3%. We were pleased with the result given the volatile end to the month.
Performance was led by EML Payments (+22.0%) which rallied following a more optimistic update from the Irish regulator. The update essentially removed the near-term regulatory overhang which has been in place for a number of months. EML can now launch new higher margin programs at the expense of legacy lower margin programs before growth limitations are removed in 12 months.
KFC restaurant owner Collins Foods (+10.2%) rallied following the release of its first half earnings. Australian restaurants were resilient with very strong same store sales compared to the prior period and European restaurants rebounded strongly following reopening. The Netherlands continues to look a promising market for Collins and offers considerable medium term growth opportunities
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/181279710.pdfOctober, 2021
The Dynamic Fund rallied 1.2% in October as the domestic market shrugged off concerns about supply chain bottlenecks and energy shortages. The Fund moderately outperformed the S&P/ASX Small Ordinaries benchmark which returned 0.9%.
Performance was once again led by Paladin Energy (27.5%) which rallied on the favourable supply and demand dynamic appearing in the uranium market. The market continues to tighten and the view on uranium as a reliable, low carbon energy source continues to improve globally.
Australian Ethical Investments (+23.8%) continued its stellar run over the past few months. Australian Ethical is one of the oldest and longest standing ethical fund managers in Australia. They are exposed to the boom in ethical investing and are the fastest growing superannuation fund in Australia over the last 5 years by members and Assets Under Management
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180510563-1.pdfSeptember, 2021
The Dynamic Fund fell 1.3% in September, moderately outperforming the S&P/ASX Small Ordinaries benchmark which dropped 2.1%. It’s been an incredibly strong period of equity market performance considering uncertainties like lockdowns, elevated government spending and inflationary pressures with the Fund returning 5.8% for the quarter and 33.5% for the year. Performance was led by IDP Education which rallied 18.4% over the month on optimism about the great reopening. IDP has been a stalwart of the Strategy for the past 5 years. We first bought at $3.90 in January 2017. IDP have many of the characteristics we look for in a quality company and we think it provides one of the only direct exposures to India, growth in Global Higher Education and the proliferation of English language testing.
Lifestyle Communities (+13.3%) continued its stellar run over the past few months. Lifestyle is one of the key founder-led/founder-associated businesses which make up nearly 25% of the Dynamic Fund. Lifestyle is the owner and operator of affordable, independent living communities catering to the elderly, semi-retired and retired Australians. Residents own their own home, and lease Lifestyle owned land/facilities from where their homes are located. Community facilities are incredible and they’re finding high demand amongst a large demographic of between 55 and 69 year olds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179493658.pdfAugust, 2021
The Dynamic Fund returned 6.1% in August, outperforming the S&P/ASX Small Ordinaries benchmark by 1.1%. Overall, we saw strong results from companies over reporting season, and somewhat unsurprisingly a lack of future earnings guidance. This resulted in a rather forgiving equity market. The optimism allowed us to take profits in some of our strong performing core positions and redeploy across new ideas. Performance was led by DGL (Dangerous Goods Logistics), an IPO that listed in May, which rallied ~44% following upgraded guidance. DGL is a founder-led business exposed to the logistics and storage of specialised chemicals. There are stringent regulatory requirements to ensure personnel and environmental safety which leads itself to high barriers to entry. The thematic is growing globally as environmental awareness improves.
Lifestyle Communities (+14.9%) another founder-led business, upgraded its 3-year settlement guidance for their in-demand homes. Lifestyle is the owner and operator of affordable, independent living communities catering to the elderly, semi-retired and retired Australians. Residents own their own home, and lease Lifestyle owned land/facilities from where their homes are located. Community facilities are incredible and they’re finding high demand amongst the key 55 and 69 year old demographic
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/178765977.pdfJuly, 2021
Despite the extended Sydney lockdown and gradual spread of the COVID-19 outbreak to other states, domestic equity markets remained robust through July. Lockdowns have been met with added fiscal support, which is proving supportive until higher vaccination rates allow an orderly reopening. The Dynamic Fund increased 1.0% over the month, 0.3% ahead of the S&P/ ASX Small Ordinaries index. Performance was led by diversified miner IGO (22.0%). Final quarter production results beat expectations reflecting better nickel, copper and especially lithium prices. IGO is the owner of the largest and lowest cost hard rock lithium mine in the world. Lithium is a critical component in battery storage and the take up of electric vehicles is a key long term demand driver.
Seven Group (14.3%) – the owner of Caterpillar dealership Westrac in WA and NSW, Coates Hire and a stake in Beach Energy – has now accumulated 70% of building materials group Boral. Incredibly, Seven has achieved effective control of up to approximately $5bn in available cash for distribution which equates to a good majority of their initial investment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/175518217.pdfJune, 2021
The Dynamic Fund increased 1.6% in June, trailing the S&P/ASX Small Ordinary index by 1.4%. Over the past 12 months performance has been strong with the Fund returning 38.5%, 5.2% ahead of benchmark. We were particularly pleased to outperform the market during three distinct phases over the past 18 months i) the COVID-19 sell-off in March 2020, ii) the subsequent V-shaped recovery, and finally iii) the vaccine paradigm. Over the last seven years since inception, the Fund strategy has captured approx. 112% of the market-upside and 67% of the market-downside.
Performance was led by interconnection software platform Megaport (+22.9%). Megaport is exposed to the growing thematic of global connectivity and demand for secure data connections. Momentum in the business is very strong and the offering is clearly resonating with customers. While we are believers in the long-term potential of Megaport, we took the opportunity to trim our position to revisit at more attractive prices.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174031369.pdfApril, 2021
The Dynamic Fund returned 6.4% in April, outperforming the S&P/ASX Small Ordinaries benchmark by 1.5%. The market was largely driven by the technology and materials sectors, with energy and consumer discretionary lagging.
Performance was led by a broad array of businesses which highlights our style neutral investment approach. Investment platform HUB24 (+21.8%) performed strongly after delivering impressive quarterly flow of $1.9bn, up 41% on prior comparable period. Strong flows strengthen our view that HUB24 is a structural winner as financial advisors migrate away from the major banks and AMP, towards more nimbler independent firms which are more likely to use HUB24
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/171115950.pdfDecember, 2020
After a volatile 12 months, 2020 was a strong year for the Dynamic Fund delivering a 17.4% return against the Small Ordinaries benchmark return of 9.2%. The Fund rallied by 3.2% in December outperforming the benchmark by 0.4%. Performance was led by diversified miner IGO, which rose 37.4% following the acquisition of the world's largest and lowest cost hard rock lithium mine in the world. Lithium is a critical component in battery storage.
The take up of electric vehicles is the key demand driver and there is growing evidence that this is once again accelerating in China and Europe. Digital forensics software platform NUIX was another key contributor after rallying 55.4% from IPO. NUIX is a global leader in normalising data from multiple sources before it can be forensically examined. Their key clients are impressive and include Amazon, the US Department of Justice, and the SEC. Revenues are largely subscription and the cyber security markets they operate in are forecast to grow rapidly. EML Payments (+12.1%) is well positioned to benefit from the structural shift to digital payments.
They generate revenue from Gross Debit Value which will continue to grow in line with contract wins across a multitude of sectors and new verticals. Laggards included international student placement and English language testing provider IDP Education (-18.9%) and COVID-19 beneficiary Fisher & Paykel Healthcare (-7.2%) – we retain a positive view on both companies. While the Fund's recent performance has been strong, the market remains volatile. We remain cognisant that we are in a period of elevated uncertainty with a broad range of potential market moving scenarios in play. Our decision over the past 3 months to favour recovery stocks has worked well. As a potential vaccine reduces the tail risk of a severe economic outcome, we remain cautiously optimistic into 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/163357966.pdfticker: ETL6978AU
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commentary_block: Array
factsheet_url:
https://milfordasset.com/funds-performance/dynamic-fund
Monthly Factsheet
asset_class: Domestic Equity
asset_category: Australian Multi-Manager
peer_benchmark: Domestic Equity - Multi-Manager Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Milford Dynamic (AU) targets outperformance of the S&P/ASX Small Ordinaries (TR) Index over a rolling five-year period (net of fees). The Fund aims to achieve its objective by investing primarily in small to mid-cap listed or soon to be listed Australian equities. Derivatives may be used for efficient portfolio management and for foreign currency hedging.