September, 2023
The Fund delivered a negative return for the quarter of -1.99%, which was in line with/slightly lower than the Mid Cap Composite Benchmark of -1.75%. The main contributor to this was more stock specific than from a sector perspective which is evident in the positives and negatives from an attribution perspective.
Corporate activity was fairly muted. Orora’s announced the acquisition of Saverglass in France, and there were further rumours around the sale of Incitec Pivot’s Fertilisers business, although nothing announced.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/205946597.pdfJune, 2023
The Paradice Australian Mid Cap Fund (the Fund) delivered a positive return for the quarter of 2.07%, which was 0.96% below the Mid Cap Composite Benchmark. The main contributor to this was more stock specific than from a sector perspective which is evident in the positives and negatives from an attribution perspective in the next section of this quarterly update.
Corporate activity was fairly muted. BHP’s takeover of OZ Minerals was completed and a proposed merger between USA listed Livent and Allkem was put to the market.
Positives
Bank of Queensland (BOQ) – Underweight Management changes and question marks over integration of ME Bank.
Vicinity Centres (VCX) – Underweight Retail shopping centre owner: raising cap rates and a consumer under pressure.
AUB Group Ltd (AUB) – Overweight Insurance Industry doing very well in current environment and optimism over Tysers acquisition.
Negatives
EBOS Group (EBO) – Overweight EBO lost the Chemist Warehouse contract to Sigma.
Champion Iron (CIA) - Overweight Iron ore price weakness on the back of Chinese growth slowdown.
ALS Limited (ALQ) – Overweight ALS has been sold off on the back of concerns that resource mineral exploration is cooling off, leading to less samples being processed by ALS.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/202691428.pdfSeptember, 2022
The Fund delivered a positive absolute return for the quarter of 0.80%, which was 2.68% below the index. Main contributors to this were being underweight coal, and a number of the strong performers from the June quarter giving up some of their gains. With higher bond yields and concerns about economic growth driven by rampant inflation and higher interest rates, it would seem odd that the top 7 performing Mid Cap holdings over the quarter were a mix of tech and resource stocks. There were no broad discernible trends outside of lithium and coal. Performance was very much stock specific and driven predominantly by results and management commentary. There was continued volatility in global equity markets during the June quarter with the MSCI World Net Total Return Index falling 6.19%, the S&P 500 Total Return Index falling 4.9% and the tech heavy NASDAQ 100 Total Return Index falling 4.42% (all in US Dollar terms). The Australian market outperformed these indices, with the S&P ASX 200 Total Return Index rising by 0.4%. A number of stocks generated in-line results but after strong runs into reporting season, were sold off if there was no quantifiable upgrade to expectations (e.g. Orora, Qube). The market also marked down stocks that made poor acquisitions and / or over-raised (e.g. Atlas Arteria, Orica).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/192040390.pdfMarch, 2022
The Paradice Mid Cap portfolio delivered a positive relative return for the quarter, generating -1.89% as compared to the Mid Cap composite index return of -3.03%, outperforming by 1.14%. The March quarter opening and closing months were polar opposites, highlighting the volatility of markets: the benchmark was down 8.77% in January and up 6.52% in March, following what was an overall very positive reporting season. The Australian market outperformed all major global indices given our weighting to Resources and Banks, with the NASDAQ Composite Index, for example, down 9.1% (in US Dollar terms) and the Dow Jones Industrial Average down 4.6% (in US Dollar terms).
The February reporting season was strong from a results perspective and the portfolio was generally favourably positioned. Overall “value” stocks outperformed relative to consensus and “expensive” stocks underperformed. Approximately 36% of companies saw consensus upgrades which is well above the long-term average. The Mid Cap composite index performance was driven predominantly by strong returns across the Materials sector and, to a lesser extent, Regional Banks. Standout from an unexpected perspective was a very strong result from JB HiFi which continued its strong run despite coming up against a comparatives historic period that was positively impacted by lockdown buying. Offsetting this strength were sell-offs in IT names and other areas such as stocks exposed to interest rate hikes. USA exposed stocks such as Reliance Worldwide and Reece were sold off on expectations that the rates cycle will have a significant negative impact on housing facing earners.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/PAMXB-202203.pdfJune, 2021
The Fund aims to outperform the composite benchmark of 70% of the S&P/ASX Mid Cap 50 Total Return Index and 30% of the S&P/ASX Small Ordinaries Total Return Index over a three to five year period
The Paradice Mid Cap portfolio performed broadly in line with the index. The Australian market performance was driven by strong performances in technology and discretionary. Strength in the USA was driven by the Nasdaq Composite Index returning +9.7% and the S&P500 returning +8.5% (in US Dollar terms). Bond yields drifted lower over the period (AU 10 years yield -14% and USA -16%) after a rapid rise in the March quarter. This apparent disconnect with inflation can be put down to a mix of factors including excess liquidity, Fed bond issuance weaker than normal and / or a sense that inflation pressures might be transitory. In Australia thematically the market was more mixed with standout under and over performance largely being driven by stock specific news flow.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/PAMXB-202106-FINAL.pdfDecember, 2020
The Paradice Mid Cap portfolio had a difficult quarter relative to its index. We suffered from being underweight the strong reflation sectors such as Energy, Financials and non-gold resources. We were also overweight more defensive sectors such as Healthcare. We were underweight technology stocks which (as mentioned in the previous section) counter intuitively outperformed in the quarter despite their “long tail” valuations. From a stock point of view the attribution indicated a few “mistakes” (in terms of companies within the portfolio not hitting their financial targets) but was more a reflection of the macro rotation we have described, with a number of the stocks that served us well during the earlier stages of COVID, underperforming.
The top relative contributors to performance for the quarter are as follows:
Evolution Mining (EVN) – Underweight Weak performance of gold stocks in general during the quarter in a risk on environment.
Mesoblast (MSG) – Underweight/Not held Biotech that failed in multiple clinical trials of its products during the quarter.
Nuix (NXL) – Overweight Strongly performing IPO that the portfolio participated in during the quarter. Nuix offers a platform for searching, analysing and extracting knowledge from unstructured data for use in such industries as the legal and law enforcement professions as well as forensic accounting.
The top relative detractors from performance for the quarter are as follows:
Ansell (ANN) – Overweight The stock underperformed despite upgrading F21 guidance during the period. This would seem to relate to USD weakness (ANN’s functional currency) and its perception as having been a COVID beneficiary in its Healthcare division, noting that the company is also exposed to rising industrial production through its Industrial division.
Chorus (CNU) – Overweight Yield sensitive stocks underperformed in the quarter.
Saracen (SAR) – Overweight Weak performance of gold stocks in general during the quarter in a risk on environment.
PORTFOLIO CHANGES
The December quarter saw one of the most significant index changes we have seen in a number of years with both Afterpay (APT) and Xero (XRO) exiting into the ASX 50 Leaders to be replaced by Oil Search (OSH) and Vicinity Centres (VCX). The sheer size of APT and XRO saw a significant change in the relative weights of all stocks in the index and, as they were both in the Information Technology Sector, also saw a significant change in the sector weightings of the portfolio’s benchmark. The majority of the proceeds from selling holdings in APT and XRO have now been reinvested.
ticker: ETL8772AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://investmentcentre.moneymanagement.com.au/factsheets/mi/o97q/paradice-australian-mid-cap-b
Quick Links => Provider’s Own Factsheet
fund_features:
The Paradice Australian Mid Cap Fund typically invests in 40-60 companies listed outside of the S&P/ASX 50 with a market cap lower limit of $400m, providing investors with an exposure to a diversified portfolio of emerging Australian businesses. The Fund believes equity markets are often inefficient due to investor emotion, short-term thinking and too much reliance on a single aspect of a company’s financial health – it’s profit and loss statement.
- Key focus is on management, current and future cash flows and the quality of the balance sheet.
- Our expertise lies in evaluating a company’s market position taking into account all factors from balance sheet, macroeconomic drivers through an extensive visitation program.
- The Paradice Australian Mid Cap Fund aims to outperform the composite benchmark of 70% of the S&P/ASX Mid Cap 50 Total Return Index and 30% of the S&P/ASX Small Ordinaries Total Return Index over a three to five year period (after management costs and before tax).
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australian Small Cap
peer_benchmark: Domestic Equity - Small Cap Index
broad_market_index: ASX Index Small Ordinaries Index
structure: Managed Fund