September, 2023
Key contributors:
1. Coronado Global traded higher on the back of stronger met coal prices now back above US$320/t
2. Boss Energy rallied as uranium prices climbed to its highest level in over a decade on supply fears
3. Seven Group Holdings continued last months momentum following strong FY23 results
Key detractors:
1. CSL Ltd moved lower with the Health Care sector as surging yields put high PE stocks under pressure
2. Tietto Minerals announced a material downgrade to guided gold production following drilling results
3. Allkem Ltd provided a business update which included materially higher operating and capital costs than expected
Each month, the team tracks noteworthy macro news items. During September, there were 16 such ‘significant’ items that came across our desk; 15 of them were negative. And that in a nutshell is the story of September: the narrative (finally) turned negative.
Clearly the main driver was the breakout in US 10- year bond yields. Despite no action on the part of the US Fed (or RBA more locally), the market increased its expectations of further rate rises. And we would hasten to add that the cumulative effects of the inflation induced rate rises over the past 2 years look to be finally biting. Covid savings buffers have been eroded. Household spending is beginning to rebase. Corporate sales and earnings are coming under pressure.
Of course, all of this has taken 9 months longer to occur than we would have expected, given that markets are supposedly ‘forward looking’. The strength in the US indices (especially NASDAQ) has had us on the cusp of deploying meaningful capital in order to remain true to process. However, with the change in technical indicators, this pressure has abated for the time being. In fact, the market now looks to be oversold, and additionally October usually signals the beginning of the strongest period each year. So we would not be surprised to see a relief rally in the coming weeks.
But when we step back from the short-term machinations, there is a large headwind facing markets: the yield on bank deposits now presents a genuine alternative to stocks. This is likely to reduce the marginal flow of funds into equities and accelerate outflows, should fear take hold.
The fund is finally receiving some reward for its cash sleeve and remains well positioned with 30% in reserve. We shall endeavour to remain faithful to both patience and process. At this juncture we would expect to exit October with similar weightings to September
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230930-KAEF-Monthly-Update-September-2023.pdfAugust, 2023
Key contributors:
1. Megaport Ltd provided FY24 EBITDA guidance which beat analyst expectations and increased confidence in the product proposition
2. Wesfarmers Ltd released FY23 results which reaffirmed the resilience of Bunnings and Kmart
3. Altium Ltd FY23 results came in slightly ahead of expectations on customer wins and revenue guidance
Key detractors:
1. ResMed missed on FY23 earnings with gross margin recovery now expected to be a multi-year process
2. Elders Ltd lowered their full year EBIT guidance following weaker sales and product margins
3. Ramsay Health disappointed on FY23 earnings driven by high interest rates and inflationary cost pressure
August was a strong month for the fund on a relative basis, reporting a positive return despite the market declining -0.74%. The overweight cash position together with some excellent stock selection generated both top down and bottom up alpha. This was despite the strong performance in the consumer discretionary sector, in which the fund continues to hold a pronounced underweight position.
Whilst the index declined in August and may also in September, the reality is that we are heading into the seasonally strong period of the year. And reality is the key word here. Because this market has not acted as the vast majority of professional investors forecast. And some of the recent headwinds will soon reverse. For example China – which arguably generated, or at the very least accentuated, the current bout of inflation due to Covid lockdowns – is on the cusp of exporting deflation. In all reality, we are on the cusp of peak inflation and hence peak interest rates.
Yes, the laggard effect of monetary policy is yet to bite. But if it doesn’t impact share prices soon, then by the time it is actually being felt in the real world, the market may already be looking through the earnings abyss to the recovery on the other side.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230831-KAEF-Monthly-Update-August-2023.pdfJuly, 2023
Key contributors:
1. Megaport Ltd upgraded their EBITDA guidance for both FY23 and FY24, and confirmed they're now cash flow positive
2. Beach Energy Ltd beat production expectations in Q4 and is a beneficiary of rising east coast gas prices
3. Mach7 Technology announced a major contract win which includes expansion into the US Veterans Affairs contract – the largest in the US
Key detractors:
1. CSL Ltd failed to bounce from last months disappointing update. Health Care was also the weakest sector for the month of July
2. IGO Ltd announced a A$880-980m impairment to the valuation of the Western Areas assets driven by rising costs
3. Allkem Ltd released good production figures for Q4 but disappointed on sales as realised prices were below guided levels
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230731-KAEF-Monthly-Update-July-2023.pdfJune, 2023
Key contributors:
1. Delta Lithium announced positive drilling results at their Yinnetharra and Mt Ida Lithium Projects
2. Coronado Global bounced from an oversold position as the decline in Met coal prices found support
3. Allkem Ltd provided an update on their Ore Reserve confirming a 34% increase to 7.8Mt
Key detractors:
1. CSL Ltd provided a trading update which included underwhelming FY24 guidance pointing to tougher conditions
2. Regis Resources followed the Gold price lower and announced a 13% decline in their Reserves
3. Beach Energy abandoned their plans for drilling the Trigg 1 and 2 Projects following weak test results
May, 2023
Key contributors:
1. Allkem Ltd entered a merger agreement with Livent Corp valuing the combined company at over $10bn
2. Delta Lithium announced thick, high grade lithium results from their Yinnetharra project
3. Megaport Ltd rose as investors scramble to find ASX exposure for the growing AI thematic
Key detractors:
1. Coronado Global followed coal prices lower, Coking coal prices have more than halved over the past year
2. Mineral Resources continued last month’s selling following a disappointing Q3 result and investor concern on the direction of lithium prices
3. Mach7 Technologies followed the downward move of other small cap healthcare companies
April, 2023
Key contributors:
1. Genesis Minerals announced the acquisition of St Barbara's Leonora assets neighbouring their current assets in Western Australia
2. Megaport Ltd announced they expect EBITDA in FY23 and FY24 to be materially above market expectations driven by various initiatives
3. CSL Ltd bounced with the broader healthcare sector and also ran a European investor tour
Key detractors:
1. Mineral Resources delivered a below consensus March quarterly & lithium prices also continued to decline throughout the month
2. Elders Ltd earnings expectations likely to come under pressure from lower livestock and fertilizer prices
3. Seven West Media downgraded their outlook for the TV and advertising market
The market continued its upward trajectory in April, with all sectors rising except Materials (down 2.6%). Interest rate sensitive stocks in sectors such as AREITS and Technology were the best performers. Most likely predicated on the belief that rate rises have largely run their course. KAEF’s high cash balance and overweight Materials exposure provided a drag on performance. However strong stock selection once again enabled the fund to all but match its benchmark net of fees.
For near on 9 months, we have seen liquidity and the economic fundamentals continue to deteriorate, whilst at the same time, sentiment has improved. Clearly this dichotomy cannot persist indefinitely. One of the 2 opposing positions must yield.
During this period, the fund has adopted a cautious stance. Whilst the fund has still out-performed during this period, it has not out-performed by as much, given the high cash weighting.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230430-KAEF-Monthly-Update-April-2023.pdfMarch, 2023
Key contributors:
1. Liontown Resources received a takeover offer from Albemarle valuing the shares at more than a 60% premium
2. Resolute Mining benefitted from a record gold price reaching just shy of A$3,000/oz
3. Regis Resources received final approval from the planning commission for McPhillamys and also benefitted from a strong gold price
Key detractors:
1. Megaport Limited saw selling following the surprise resignation of its CEO Vincent English
2. Coronado Global traded lower with softer met coal prices
3. Macquarie Group followed the rest of the banking sector lower as the Silicon Valley Bank collapse sparked concerns on the health of the sector.
For much of March, the market was moving according to our base case as it plunged nearly 4% on the back of the Silicon Valley Bank panic. However, as the regulatory response came riding to the rescue, the market rapidly rebounded to close out the month almost square.
This of course is the danger in the current market. The positioning is universally bearish. For example, a report last week by Bank of America showed that 40% of US Fund Managers are overweight cash and an even higher 50% are underweight US equities. So the price swings lower do not have strong momentum, as investors are already positioned to the downside.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230331-KAEF-Monthly-Update-March-2023.pdfFebruary, 2023
Key contributors:
1. Aristocrat Leisure rallied on news NSW pokies might go cashless, they also completed their acquisition of Roxor Gaming and increased their buyback.
2. Seven Group Holdings beat expectations in their 1H23 results driven by WesTrac and Coates, full year guidance was also upgraded
3. Bank Of Queensland - rose on rumours of a potential merger with Bendigo Bank
Key detractors:
1. Mineral Resources fell on weaker than expected 1H23 results and softening spot lithium prices, the outlook remains strong
2. Domino's Pizza disappointed in their 1H23 result with sales falling short of expectations, they also reduced full year guidance
3. Allkem Ltd downgraded their full year production guidance as they continue grade control drilling at Mt Catt.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230228-KAEF-Monthly-Update-February-2023-3.pdfJanuary, 2023
Key contributors:
1. Mineral Resources rebounded with renewed commentary on the strong fundamentals supporting the lithium market
2. Norwest Energy continued last month’s rally following a takeover bid from Mineral Resources
3. Allkem Ltd also rebounded on the back of positive outlook commentary for the lithium market
Key detractors:
1. Beach Energy saw follow-through selling after pulling their bid for Warrego Energy last month
2. Megaport Ltd delivered a disappointing quarterly result missing on growth numbers
3. Nitro Software was weaker following concerns information relating to a takeover was leaked in media speculation
January’s strong rise (+6.44%) requires particular attention. At the end of 2022, the consensus positioning or narrative was that a dramatic decline in consumer spending would impact corporate earnings in the coming months and hence setup another down leg in share prices. But yet again the consensus viewpoint has proved to be wrong! We are fortunate that strong stock selection has covered our tactical decisions. But this cannot be relied on indefinitely.
The dilemma is 2-part. Firstly – the easier aspect. Consumer spending cannot defy gravity indefinitely: it will rebase lower and it will impact corporate earnings (especially in the discretionary and financial sectors). The more difficult aspect, is gauging a) how much of this has been factored in and b) how much the ‘market’ may be prepared to look through this earnings valley to the other side. In short, is this the final ‘head fake’ before a leg down, or conversely, continued evidence that sentiment has structurally turned? The clock is ticking and time is running out on our overweight cash position. As each month passes, we move closer to the earnings recovery, which ultimately will drive a sustained market recovery.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20230131-KAEF-Monthly-Update-January-2023-1.pdfDecember, 2022
Key contributors:
1. Norwest Energy received a takeover bid as interest for gas assets in the Perth Basin escalated
2. Strike Energy announced a takeover offer for Warrego Energy in the Perth Basin to increase their ownership above 50% 3. Yancoal Australia announced they will do an early debt repayment of US$459m resulting in a US$91m cost saving
Key detractors:
1. Mineral Resources saw profit taking as spot lithium prices retraced from record highs
2. Allkem Ltd also retraced with softening lithium prices
3. APM Human Services continued the previous months selling despite announcing a new acquisition of Everyday Independence
The seasonal ‘Santa Rally’ failed to deliver with the accumulation index closing -3.30% lower for the month. Every sector finished the month in the red, a complete reversal from the previous month which saw every sector finish in the green. Discretionary and Technology was hit the hardest falling -7.04% and -5.45% respectfully. Materials was the best relative performer closing down -0.85% followed by Utilities -1.19%.
The fund held on to out-perform for the month despite the lithium sell-down impacting some of the fund’s biggest holdings. This highlights the durability of a diversified portfolio during periods of heightened volatility. The fund has outperformed the accumulation index by 7.05% net of all fees for the 12 months to 31 December, 2022.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20221231-KAEF-Monthly-Update-December-2022-2.pdfNovember, 2022
November carried on where October left off, with the main accumulation index rising by 6.44%. For the first time in some years, every sector finished the month in positive territory. Utilities rose a remarkable 20.85% led by corporate activity in Origin and AGL. Materials were strong at +16.33% and Healthcare, Industrials and A-REITTS all saw rises of greater than 5%.
The fund was once again able to hold its own due to excellent stock selection across key holdings, especially in Materials. Despite the high cash weighting, the fund has out-performed the accumulation index by 6.75% net of all fees for the 12 months to 30 November, 2022.
Nonetheless, as Managers, we are in an uncomfortable phase, whereby the short term sentiment does not align with our medium term outlook. The recent dovish comments by the Chair of the US Federal Reserve have provided a sizeable sugar hit. Whilst this was as per our expectation, the rally has now surpassed the levels we were anticipating. This creates a degree of discomfort as our cash mitigates our performance. US corporate earnings reports in early January may well be the catalyst for the next leg down, but it is also possible that the rally could continue for several more months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20221130-KAEF-Monthly-Update-November-2022.pdfOctober, 2022
October was an extraordinary month in the US, with the main index the Dow Jones Industrial Average rallying hard from its October 13 low of 28,660 to close up 14% for the month at 32,732. Despite the larger year to date decline, the NASDAQ index failed to attract similar interest, rising by a more modest 3.9%.
With the fund entering the month holding >35% cash, a rise in the All Ordinaries Accumulation Index of 5.68% was always going to be difficult to match. This was exacerbated by the fact that the fund was underweight in the 2 best performing sectors being Financials (+12.2%) and A-REITs (+9.91%). To round out the trifecta, the fund’s largest weightings were in the Material sector which was one of only 2 sectors to end in the red (-0.09%).
Despite this perfect storm, some exceptional bottom-up stock picking enabled the fund to close within site of the benchmark, recording a respectable increase of 5.2% for the month.
The change in sentiment was driven by the belief that interest rate rises have largely run their course and that the market is past the ‘worst of it’. This is not the Katana team’s base case. To be clear, we see evidence that the fight against inflation has some time to run. But even more importantly, the impact on consumer spending and corporate profitability has not even registered. From what we see, consumers are ‘talking about’ reducing spending, but not actually acting on it as yet. Consumer spending represents 50% of GDP in this country and a whopping 68% in the US. When consumers reduce their spending, the impact on economic activity cannot be overstated.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20221031-KAEF-Fund-Update-October-2022.pdfSeptember, 2022
To recap a volatile period, the ASX Accumulation index declined by -9.51% in June, rebounded 6.34% in July and then declined by -6.41% last month (September). All sectors finished in the red. Interest rate sensitive sectors Utilities (-13.8%) and A-REITs (-13.6%) were hardest hit as US 10 year bond yields soared nearly 20% from 3.12% to 3.71%. The higher priced Technology sector also suffered significant declines (-10.6%). Industrials (-9.8%) and Consumer Discretionary (-9.1%) were also under heightened pressure. Materials (-2.34%) and Energy (-3.81%) were the best relative performers. KAEF continues to hold overweight positions in both these sectors.
KAEF continued it’s strong run, out-performing the index during the month of September by 1.56% net of all fees. The fund continues to out-perform the index net of fees over every timeframe since inception. This is an extraordinary level of outperformance over nearly 17 years.
We have spoken and written often about the current conundrum we face. On the one hand, we see a growing list of fundamental macro headwinds centred around an inflationary induced and interest rate led global recession. Compounded by China property issues and lockdowns and the war in Ukraine. On the other hand we see record consensus short positioning.
At the time of writing, the index has rebounded in excess of 5% for the month of October. With a high cash weighting, we do not have the luxury of spectating for too long. At some point we need to deploy capital.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220930-KAEF-Monthly-Update-September-2022.pdfAugust, 2022
Surprisingly in the face of a potential recession, the 2 best performing sectors during August were Energy (+7.81%) and Materials (+4.35%). Not surprisingly, A-REITs was the worst performing sector, as rising interest rates attacked everything from property valuations to borrowing costs.
Despite our defensive cash position, some excellent stock selection enabled the fund to once again outperform the broader index by a considerable margin. Looking forward, we face somewhat of a conundrum.
On the one hand, the structural outlook is more challenging than at anytime in recent memory. Between covid lockdowns and the rapidly deteriorating property market, China is in the worst shape it has been for nearly 2 decades.
Inflation has the global economy knocking on the door of recession. Interest rates and bond yields are attacking corporate profits and the capacity to grow. QT (Quantitative Tightening) is now underway and the rate of shrinkage has doubled to US$90bn/month from 1 September. The war in Ukraine is creating significant flow on effects such as the crippling European gas crisis.
Forecasts across the spectrum are perched on the cusp of a precipice. And finally, valuations are no longer cheap after the recent rally.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220831-KAEF-Monthly-Update.pdfJuly, 2022
After many long months of heightened selling, the retracement in bond yields enabled the Technology sector to finally catch a bid, rebounding by an extraordinary 15.23%. Of course, the same factors driving this rebound, were acting as a headwind to Materials, which was the only sector to finish in the red with a decline of -0.67%. respectable 31 basis points due to the quality of the stock holdings. This is testimony to the calibre of the people and investment process which underpin every investment decision. Last month we wrote “In the midst of a crash or correction, it can be easy to lose perspective. So recognising that what we have seen in June is extraordinary and almost unprecedented provides important context.” Despite our comments, we did not anticipate that July would be as robust as it was. But that’s how the market moves: when a viewpoint reaches consensus, it rarely transpires as investors have already positioned accordingly.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220731-KAEF-Fund-Update-July-2022.pdfJune, 2022
Key contributors:
1. Norwest Energy released a positive update on the Lockyer Deep Project 2. Woodside Energy successfully completed the merger with BHP's oil and gas portfolio and listed on both the London and New York Stock Exchanges 3. Aristocrat Leisure maintained last months positive momentum following the release of strong 1H22 results in May
Key detractors:
1. Mineral Resources was weaker after numerous research houses downgraded their outlook for Lithium, Iron Ore pricing also softened 2. Pepper Money was sold on concerns a possible recession would impact lending volume and bad debts 3. OZ Minerals was sold as fears of a recession weakened the outlook for Copper and other industrial exposed commodities
Throughout the first half of June, the fund was performing even more strongly versus its benchmark. However as the month progressed, investor focus transitioned from ‘inflation’ to ‘recession’. Whilst this may seem a subtle change, it had a profound impact on the Materials sector. Historically, Materials and Energy are the top performing sectors during bouts of inflation. However these sectors perform badly where the fight against inflation tips economies into recession, as this impacts the demand for everything from copper to oil. This change in narrative saw the Materials sector unravel in the back half of June to lead the declines with a fall of -12.4%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220630-KAEF-Monthly-Update-June-2022.pdfMay, 2022
As we highlighted recently, for over 16 years KAEF has outperformed 70% of the time when the market declines. We are happy to report that in May we once again outperformed the index net of fees by 1.23%. Whilst this was still a negative figure, it should be noted that the fund has returned +11.68% net of fees over the past 12 months – a significant outperformance of +6.95%.
We are in an environment where the list of things to avoid is growing and the converse is looking rather anaemic. As we enter an inflationary setting, we shall continue to focus on materials (especially EV facing), energy and to a lesser degree financials and bottom-up opportunities. In the case of the first 2 sectors, they are becoming increasingly crowded trades, and hence the risks are also becoming elevated. Especially in light of current geo-political events which have accentuated some of these prices. For the time being we shall hold our nerve, but we are most definitely shuffling away from the punchbowl in the direction of the exit.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220531-KAEF-Fund-Update-May-2022.pdfApril, 2022
Key contributors:
1. Mineral Resources provided a positive update on their lithium business and benefitted from continued strong Iron Ore and Lithium prices 2. Pendal Group announced a share buy-back and received a takeover offer from Perpetual valuing the company at a premium 3. Uniti Group continued last months rally following two takeover bids in quick succession
Key detractors:
1. Aristocrat Leisure was weaker on rising yields which puts pressure on valuations, especially long duration Tech stocks 2. Global Clean Energy ETF was also weaker on rising yields with many clean energy holdings having long duration earnings 3. Domino's Pizza received a few broker downgrades driven by inflationary pressures on operating costs.
Years, KAEF has out-performed the market in a negative month 70% of the time, by an average of just under 1%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220430-KAEF-Fund-Update-April-2022.pdfMarch, 2022
Key contributors:
1. Uniti Group received not one but two takeover bids valuing the company at $5/ps representing a healthy premium to the prevailing price 2. Mineral Resources rose on the back of stronger iron ore and lithium prices; iron ore trading back above US$160/t 3. Coronado Global rallied with coal prices; metallurgical coal up from US$400/t at the start of the month to over US$630/t fuelled by Russian invasion of Ukraine
Key detractors:
1. Ardent Leisure gave back some ground after rallying over 20% at the end of last month following a strong 1H22 result 2. Seven Group Holdings was sold on fears that floods on the east coast will impact their equipment hire segment 3. Resource Development Group share price retracing following a strong rise over the preceding 12 months
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220331-KAEF-Fund-Update-March-2022.pdfFebruary, 2022
Key contributors:
1. Woodside announced a strong FY21 result and a final dividend of US$1.05ps. Strong oil prices driven by Russia/Ukraine tensions also fuelled the stock higher.
2. Coronado Global reported a strong FY21 result and surprised the market with a US 9.0c ps dividend 3. Westpac released a positive first qtr trading update with a clear path to achieving cost reduction, this helped restore confidence following a cost uplift in FY21.
Key detractors:
1. Mineral Resources delivered a disappointing 1H 2022 result with high logistics costs and price discounting on iron ore impacting earnings.
2. Uniti Group reported a strong first half with revenue up 98% on the prior period. Despite this the stock saw heavy selling on rising yields.
3. Nitro Software reported results in-line with expectation but was also impacted by rising yields which saw heavy selling across the whole technology sector
On the positive side, Energy was again the leading sector, rising by 8.6% followed by Staples and Materials both up 5%+.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220228-KAEF-Fund-Update-February-2022.pdfJanuary, 2022
Key contributors:
1. Woodside posted a strong 4th quarter with a record average realised price of $90/boe, their share price was also boosted by a rallying oil price
2. Coronado Global announced a record revenue for the 4th quarter aided by record high coal prices
3. Unibail-Rodamco-Westfield rose on the news of COVID restrictions easing across Europe which effects majority of their centres.
Key detractors:
1. Sonic Healthcare was sold down with the broader healthcare sector on the back of rising yields putting pressure on growth stocks.
2. NEXTDC and Nitro Software, two of our technology exposures were also impacted by rising yields which put pressure on growth valuations. The technology sector as a whole was the worst performer down just over 18% for the month
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20220131-KAEF-Fund-Update-January-2022.pdfDecember, 2021
The fund was able to generate a solid return for the month despite a conservative stance typified by a high cash weighting and higher average market capitalisation. As the calendar year rolled off, the fund was slightly below its benchmark net of all fees (slightly ahead on an investment return basis). However, our 3 and 5 performance year numbers are now both tracking +3% per annum net of all fees. This is an exceptional outcome, especially in light of the fund’s reduced risk characteristics relative to many equity products. Strong share price gains and the resultant profit taking, has seen our cash balance creep closer to the 25% level. Whilst we are inherently more comfortable around the 15% level, the Managers will remain disciplined. This means only investing when the risk-return equation is compellingly in our favour. History shows that investing for the sake of doing so, is a certain precursor to a market correction! We remain tireless in our search for opportunities, but determinedly patient for the right ones to arise.
Key contributors:
1. Mineral Resources continued last month’s rally as the Iron Ore price recovered back above US$120/t and interest in lithium intensified.
2. Worley Ltd received broker upgrades following an investor strategy day which indicated improving activity.
3. Sonic Healthcare announced the acquisition of Propath which has around 50 pathologists in the US and strengthens Sonics presence in that market
Key detractors:
1. Nitro Software share price was diluted with completion of a $140m equity raise to fund the acquisition of Connective - Belgium's leading eSign SaaS business
2. Vaneck Global Clean Energy ETF was weaker in-line with its top holdings which saw possible profit taking from recent rallies
3. Ardent Leisure Group came under pressure as Omicron case numbers grew, threatening a new round of restrictions
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20211231-KAEF-Fund-Update-December-2021.pdfNovember, 2021
Key contributors:
1. Mineral Resources bounced with Iron Ore prices which closed back above US$100/t. MIN also reported a landmark Port & Rail agreement.
2. Seven West Media had a series of good news flow including favourable debt refinancing and the acquisition of Prime Media Group.
3. Genusplus Group won their first contract in the Defence industry worth approximately $16m over the next 6 months
Key detractors:
1. Coronado Global saw selling as coal prices took a breather from their recent rally.
2. APM Human Services had a disappointing debut on the ASX. A combination of investor fatigue and high Private Equity ownership a possible driver of weakness.
3. Woodside declined along with the whole energy sector on the back of weaker commodity prices and recent fears of the new Omicron variant
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20211130-KAEF-Fund-Update-November-2021.pdfOctober, 2021
Key contributors:
1. Apollo Consolidated gained more than 60% for the month following news of not one but two takeover offers.
2. Oz Minerals delivered a solid third quarter, better than expected production and grades for gold resulting in a full year earnings upgrade.
3. Macquarie Group saw strong buying leading up to their 1H results release which didn't disappoint and slightly beat guidance
Key detractors:
1. Mineral Resources reported a disappointing quarter with weaker than expected price realisation and shipping volume.
2. Pendal Group reported net outflows of FUM, of particular concern was outflows from their recent acquisition (TSW).
3. Kina Securities saw continued weakness from last month’s announcement that their acquisition of WBC PNG didn't gain approval
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20211031-KAEF-Fund-Update-October-2021.pdfSeptember, 2021
The rout in the iron ore market accelerated during September, with the price declining a further 29.7% from US$156 to $US110 per tonne. This was on the back of the $US40 decline in August. Not surprisingly, the Materials sector once again bore the brunt of investor nervousness, declining by 9.3%.
The higher priced sectors in Healthcare, Technology and Consumer Staples were also sold off by between 3-5%. This was largely in response to rising US 10-Year Bond yields, which increased 19.25% from 1.27% to 1.52%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210930-KAEF-Fund-Update-September-2021-1.pdfAugust, 2021
Key contributors:
1. Uniti Group soared after reporting record results on multiple fronts including a revenue increase of 175% on the previous year
2. Ardent Leisure rose after reporting strong EBITDA up 165% from the previous year; they also anticipate opening new centres in FY22
3. Downer EDI reported a return to profit backed by strong performance from transport projects
Key detractors:
1. Mineral Resources reported strong numbers but succumbed to selling post moving ex-dividend; iron ore prices were also weaker
2. Woodside saw heavy selling as investors grappled with the news of a BHP merger and quantum of shares to be issued
3. Seven Group Holdings results were in-line with expectations but the outlook is mixed for some divisions including Boral
It was a weak month for the Materials and Energy sectors, undergoing declines of 7.3% and 3.9% respectively. The decline in the Materials sector was clearly driven by the bursting of the iron ore bubble, with the price declining by just over US$40 per tonne (20.5%) during August. The decline in Energy was driven by a 7.4% decline in the price of West Texas crude, albeit Brent crude declined by a more modest 4.4%. The proposed merger of Woodside with BHP’s petroleum assets also placed considerable pressure on the former, with its price declining by 11%. On the flipside, August was all about technology. Square’s takeover bid for Afterpay drove the latter’s price up 39% for the month and contributed to the bulk of the 16.8% rise in the technology sector.
Despite our current positioning towards materials and our caution on the valuation of some ‘spec tech’; the fund was able to slightly out-perform. This was also despite our very conservative footing, where cash averaged ~20% throughout the month. To be able to beat the index (net of all fees) in a strong month - with an above average cash weighting - is a testament to the underlying investment process and team.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210831-KAEF-Fund-Update-August-2021.pdfJuly, 2021
The choppy trend continued throughout the month, with the top performing sectors for June, reversing strong in July. The technology sector declined by 6.88% and energy stocks declined by an average of 2.53%. On the flipside, the materials sector was up 7.13%, buoyed by a strong iron ore price, with support from base metals and aluminium. Industrials were up by 4.25%, and these 2 sectors accounted for most of the gains for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210731-KAEF-Fund-Update-July-2021-1.pdfJune, 2021
Technology was the outstanding sector during June, rising by an extraordinary 13.4% (see below). Communication and Consumer Staples both rose by more than 5% and Consumer Discretionary and Energy both by around 4%. Only the Financial Services sector finished in the red, down 0.2%.
Whilst our call on energy continues to track in line with expectations, we have been perplexed by the strength in the price of US bonds (which has driven the technology sector) Whilst this remains a work in progress and we remain aloft to the possibility that we may need to pivot in the coming months, at this juncture it would seem the past quarter is more of an anomaly than a break in trend. We expect that bond yields will continue their upward trajectory shortly, and drive profit-taking in long duration growth assets. This view is predicated on 2 key inter-related observations: 1. the return of above system inflation and 2. the inevitable winding back of the enormous level of money printing. The former will ‘force’ the central banks to respond by raising the official rate. The latter will drive a return to free market forces (at a much higher equilibrium) and accelerate the speed of transmission.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210705-KAEF-Fund-Update-June-2021.pdfMay, 2021
Our view that the rebound in the technology sector was not sustainable, was confirmed during the month, with the index dropping by 9.9%. Utilities also declined by 6.6% and Energy by 1.8%. We have held our nerve on the latter, and this has detracted from our performance of late.
However, our view that stock prices have disconnected from energy prices is starting to gain some traction, with the sector up nearly 9% in the first 4 days of June. Financials was the leading contributor to returns with the index up 5.7% in May. (Consumer) Discretionary, Healthcare and (Consumer) Staples were also strong contributors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210602-KAEF-Fund-Update-May-2021.pdfApril, 2021
April heralded the acceleration in the appreciation of stock prices, as a strong recovery in company earnings (especially in the US) added further impetus to unprecedented liquidity and record low rates (necessity).
Technology was surprisingly the top performing sector, recording a 9.7% gain for the month. Materials, Industrials and Financials were also strong. Energy was the worst performing segment, declining by 4.9%.
Whilst our monthly performance at positive 2.85% net of all fees was solid, our over-exposure to energy and under-exposure to technology detracted from our relative performance
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210504-KAEF-Fund-Update-April-2021.pdfMarch, 2021
Dancing to the same beat in March, the All Ords continued trading in a tight range closing the month up 1.84%. Market sentiment remains positive with global vaccine rollouts gaining momentum, fresh signs of travel bubbles and the economic recovery remaining strong.
The rapid rise of the yield curve which dominated investor attention last month appears to have slowed for now, which saw a recovery in last month’s heaviest hit sectors. Utilities +6.81% and REITs +6.48% were two of the best performers, while Technology failed to follow suit down -3.03%, Materials also struggled closing -5.03% lower
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210406-KAEF-Fund-Update-March-2021.pdfDecember, 2020
After the extraordinary rise in November of 10.16%, the index was able to consolidate in December to post a more modest but nonetheless respectable increase of 1.75%. Pleasingly, the Katana Australian Equity (KAEF) fund was able to increase by 1.96% net of all fees. Over the December quarter, KAEF returned 16.5% net of all fees versus 14.4% for the Accumulation Index. The quarter consolidated a particularly strong calendar year, during which KAEF returned 21.7% net of all fees versus a meagre 3.64% for the index. This placed the fund in the top 5 once more, in the Morningstar Australian equity universe.
Only 4 sectors recorded positive gains during the month, with Technology (+9.4%) and Materials (+8.8%) accounting for the bulk of the advances; the latter being driven by a record iron ore price and strength across the entire base metals complex. On the flip side Utilities (-6.8%) was the worst performing sector followed by Healthcare (-4.9%), which suffered from profit-taking and the strengthening AUD.
In the short term the market is generating conflicting technical signals. A significant number of stocks continue to reside in ‘overbought’ territory, yet at the same time the price action remains confirmatory. This adds to the current complexity and risk, and requires heightened vigilance. Over the medium term, we continue to see the market being ‘forced’ higher by the twin drivers of Liquidity and Necessity, which we covered recently
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/20210107-KAEF-Fund-Update-December-2020.pdfticker: KTA0002AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://katanaasset.com/katana-australian-equity-funds/#fund-updates
Lower Mid -> FUND UPDATES -> select the related year & month
asset_class: Domestic Equity
asset_category: Australia Large Blend - Absolute Return
peer_benchmark: Domestic Equity - Absolute Return Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Katana Australian Equity Fund aims to maximise risk adjusted returns to investors. The Fund is an All Opportunities, benchmark unaware, long only Australian Equity portfolio. The Katana Australian Equity fund employs a benchmark unaware, long only, Australian equity investment strategy.
- We have a focus on capital preservation and actively allocate to cash as a defensive mechanism whilst waiting for opportunities.
- We are also market capitalisation and sector agnostic