December, 2020
The Wholesale Australian Share Fund delivered another strong quarterly return as it outperformed its benchmark, the S&P/ASX 300 Accumulation Index, by more than 4%.
Over what has been an unprecedented year for capital markets, the Fund performed admirably and delivered a pleasing return for investors. By investing in companies with above-market growth potential, high-quality earnings and robust balance sheets, the Fund outperformed the broader equity market by more than 20% in the 2020 calendar year.
Contributing to the Fund’s outperformance were the overweight positions in the Buy-Now-Pay-Later firm Afterpay (APT) and the cloud accounting software provider Xero (XRO). Afterpay moved +47.5% higher through the December quarter as it benefited from a raft of positive trading updates. Each update highlighted continued customer, merchant and sales growth while loss metrics remained relatively unchanged. The most recent trading update announced that the business had set a new monthly sales record in November, with more than $2.1bn in sales being processed through the platform. Adding further support was the partnership between APT and Westpac Bank, which will allow APT to offer Australian customers transaction and savings accounts along with other cashflow management tools. The additional products will help cement Afterpay’s dominant position in the market whilst also offering additional transaction data that will feed into APT’s risk control mechanisms.
XRO rallied +10.8% as expectations of a recovery in SME activity improved. A positive first-half result provided additional support, with XRO explaining positive subscriber growth and lower costs helped margins and earnings to grow above consensus expectations. Through its cloud accounting software, subscribers are able to efficiently view and submit tax return filings, monitor live data from bank feeds and access their ledger anywhere and at any time. These items place XRO in good stead to grow its market share, particularly in the US, and drive profitability.
Somewhat dragging on the Fund’s performance were the overweight positions in The a2 Milk Company (A2M) and Megaport (MP1). A disappointing trading update released in December was the key catalyst driving A2M’s -18.5% decline. The continued disruption to diagou sales activity, which represents a significant portion of infant nutrition sales, drove A2M to downgrade its FY21 sales and earnings guidance. Management noted that the protracted disruption, caused by lockdown laws and travel restrictions, had also spread to A2M’s other nutritional segments. While the overall trading update was disappointing, the release also included several positive items. Chinese MBS sales activity has remained strong through 1H21 with revenue growth expected to reach 40%. Further, the liquid milk businesses in Australia and the US have been performing well and are expected to deliver strong first-half earnings growth.
The cloud connectivity services provider Megaport (-11.4%) moved lower following the release of its first-quarter trading update in the early stages of the quarter. Despite adding an additional 566 ports and 138 customers in the first quarter of FY21, the market instead focused on the temporary slowing in revenue growth caused by a one-off repricing of legacy products. An investor presentation released later in the quarter helped MP1 to somewhat recover as management noted continued customer, ports and EBITDA growth. We remain attracted to MP1 given its global leadership in Software Defined Networking, offering corporates and enterprises flexible, scalable, on-demand cloud connectivity via its NaaS (Network as a Service) offering.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Wholesale-Australian-Share-Fund-Adviser-Quarterly.pdfticker: FSF0002AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.firstsentierinvestors.com.au/au/en/adviser/performance/literature.html
Under Fund Perfromance, see graphic below
fund_features:
The First Sentier Wholesale Australian Share Fund invests in a broad selection of Australian listed companies, with between 30 to 40 stocks typically held in the portfolio.
- The manager believes stronger returns are achieved by investing in growing companies that generate consistent returns and reinvest above their cost of capital. In-depth industry, stock and valuation analysis is the foundation of our process.
- The Fund predominantly invests in quality Australian companies with strong balance sheets, earnings growth and high or improving returns on invested capital.
- The objective is to provide long-term capital growth with some income by investing in a selection of Australian companies. The Fund aims to outperform the S&P/ASX 300 Accumulation Index over rolling 3 year periods before fees/taxes.
manager_contact_details: Array
structure: Managed Fund