September, 2023
The Fund rose 1.6% for the quarter, which represented outperformance of 2.4% vs the S&P/ASX 200 benchmark return of -0.8%. While we wrote about the value we saw in discretionary retail names in our investor letter for the June quarter, we were surprised by the speed of the rerate, with portfolio holdings Premier Investments (+22%), Nick Scali (+23%) and Wesfarmers (+7%) amongst our best performing holdings in the quarter. We consider that the consumer discretionary sector remained remarkably resilient in the face of 12 consecutive interest rate hikes from the RBA. While for the last four halves, this resilience has been accompanied by commentary of “sure it’s resilient now, but the slowdown is coming!”, we remain of the view that the balance sheets and differentiated positioning of our portfolio holdings put them in a strong place to navigate the most anticipated downturn of all time when it arrives.
Other contributors include Seven Group (+23%), with a FY23 result highlighting the strength of WesTrac and Coates’s market position and end-markets, as well as News Corp (+8%), where tight cost management offset some anticipated weakness in advertising and circulation. Pleasingly, the tilt of the Dow Jones business to more of a subscription-led and professional services focus is taking hold, and we expect this to continue as Rupert Murdoch officially steps down as Chairman.
On the other side of the equation, detractors to the portfolio include all REIT exposures, with Charter Hall Group (-11%), Waypoint REIT (-8%) and Region Group (-10%) underperforming as rates rose and occupancy softened, particularly in the Office sector. We continued to add to our Charter Hall Group (CHC) position as it underperformed the REIT sector. Our view is that CHC faces near-term headwinds to AUM growth due to rising interest rates, which are resulting in devaluations as well as reduced transaction activity as buyers and sellers wait for rates to peak to know where to transact. There is uncertainty on how long it could take for these factors to resolve. However, we consider CHC is fundamentally cheap at 12.6x FY24 EPS guidance (vs ~17x historical average); we believe FY24 represents trough earnings as it consists mostly of the recurring fee streams and has minimal transaction and performance fees. While there are valid concerns around the Office sector more broadly, we would note it only accounts for ~34% of CHC’s overall FUM with the balance allocated to Industrial and Logistics (~28%), Retail (~16%), Listed Equities (~18%) and Social Infrastructure (~4%). CHC’s Office Portfolio consists of high-quality tenants in good assets as reflected by the 96% occupancy and 89% retention rate on new leasing transactions in FY23.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-September-2023-AASF45199.pdfJune, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-June-2023-AASF45107.pdfMarch, 2023
Over the quarter the performance of portfolio companies reflected the macro influences of strong performance from USA exposed cyclicals – Aristocrat, Reece, and James Hardie – as a potential pause in rate hikes would benefit the housing market. Meanwhile the poorer-performing portfolio holdings were mostly interest-rate sensitives – Charter Hall, Macquarie, NAB, and CBA – which also fell on worries of banking contagion and commercial real estate exposure.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-March-2023-AASF45016-VF.pdfJanuary, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-January-2023-vF-AASF44957.pdfDecember, 2022
The Airlie Australian Share Fund rose 8.7% for the quarter, underperforming the ASX200 index by 0.7% net of fees. Contributors to performance included PWR Holdings and EBOS Group. EBOS Group is Australia’s largest pharmacy wholesaler, and also owns a pet food business and distributes medical devices. We recently attended EBOS’ investor day in Melbourne in November, which coincided with the company’s 100th year of corporate history. We’d always put EBOS in the “under the radar” camp, a quietly-achieving company with a really solid track record of returns and earnings growth. However the very well-attended investor day, and subsequent strong performance of the share price over the quarter (+18%) has made it clear to us that this stock is very much on the radar, possibly over the radar. We have trimmed our position on valuation grounds, however it remains a core holding.
Our two largest detractors for the quarter were James Hardie and Medibank Private. While we were aware that we were effectively “taking the cycle on” in investing in James Hardie as the US housing market turned, we felt the valuation compensated for this. We also believed a sizeable backlog of activity would delay the coming earnings decline. We got this last part wrong, and were surprised by the speed with which a decline in new housing activity is being felt within the Hardie’s business, as evidenced by the November earnings downgrade. That said, after a 10% share price drop in the quarter, we feel the narrative of a sharp decline in US housing activity is factored into the current share price (if not consensus estimates which still look stubbornly high to us).
The cyber incident at Medibank Private totally sideswiped us, as is the nature of these incidents. However, the strength of the balance sheet (net cash and with surplus capital), and favourable underlying trends in private health insurance gave us conviction to add to our positions while the headlines were very ugly. While it remains to be seen how many people switch as a result of the cyber incident, in our minds inertia is a powerful force.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-December-2022-AASF44926.pdfSeptember, 2022
The Airlie Australian Share Fund rose 4.15% in the September quarter, an excess return of 3.76% after fees vs the S&P ASX200 index, which returned 0.39%. The flat performance of the benchmark belies another extraordinarily volatile quarter for equity and debt markets- the ASX200 traded a 20% high/low range, whilst the Australian 10-year government bond traded in a 106bp range.
Overall, the portfolio saw a sizeable rebound for most holdings from the very weak June quarter. Key portfolio moves include:
A big quarter for lithium as the market re-rated all names due to prolonged strong pricing for spodumene and lithium hydroxide. Portfolio holding Mineral Resources (+36%) also benefited from a mooted potential spin-out of its lithium assets into a separate vehicle.
PWR Holdings rose 35% in the quarter, with a cracking FY22 result highlighting incredible growth in the emerging technologies division.
Consumer discretionary stocks in the portfolio rebounded strongly led by Premier Investments (+17%) – as it reported a strong 2H22 profit result. Nick Scali (+12%) and Wesfarmers (+2%) also produced very solid profit results. Consumer spending has been remarkably resilient despite the rapid increase in mortgage rates. Obviously, this is not expected to last, however the rebound over the quarter shows what can happen when results are ‘less bad’ than expected.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-September-2022-AASF44834.pdfJune, 2022
The Airlie Australian Share Fund fell 14.5% in the June quarter whilst the benchmark (the S&P ASX 200 Index) was down 11.9%. A disappointing quarter for the Fund. Historically we’d expect to outperform in such a hefty down market given our focus on financial strength and business quality – attributes that usually prove resilient in times of market stress. However, our underweight in the Energy sector and overweight in Consumer Discretionary caused the underperformance. Despite being on the wrong side of the current ‘macro’ influences we can make a solid case for all our individual portfolio holdings.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-June-2022-AASF44742.pdfMarch, 2022
The Airlie Australian Share Fund (‘Fund’) fell 2.1% over the March quarter while the benchmark (the S&P/ASX 200 Accumulation Index) was up 2.2%. For the 12 months to March 2022, the Fund returned +20.6% (after fees) versus the benchmark's rise of 15.0%. For the March 2022 quarter, being underweight resources, particularly energy, was a major cause of the divergence between fund performance and benchmark.
The best performing stocks in the Fund included:
• BHP (+25%) – Due to strong iron ore, copper, and oil prices. Also, positive index effects of unification of the company's Australian and UK registers.
• PWR Holdings (+10%) – Solid profit result and outlook.
• National Australia Bank (+12%) – Turnaround of the franchise continues. Solid asset growth and margin outcomes.
• Northern Star (+14%) – Gold price rally on the invasion of Ukraine.
For the quarter the portfolio holdings that detracted were:
• James Hardie Industries (-27%) – Fears of the super cycle in US housing coming to a rapid end as mortgage rates shift higher.
• Aristocrat Leisure (-16%) – Fears of a looming recession in the US as the Fed hikes rates to combat inflation.
• Nick Scali Furniture (-26%) – Reversal from previous strong quarter as slowdown in consumer spending expected.
• Mineral Resources (-6%) – Disappointing 1H22 profit result due to higher costs in the iron ore business.
December, 2021
The Airlie Australian Share Fund rose 5.7% over the December quarter while the benchmark (the S&P/ ASX 200 Accumulation Index) was up 2.1%. For the calendar year, the fund returned +28.8% (after fees) vs the benchmark +17.2%.
The best performing stocks in the fund over the December quarter included:
• Mineral Resources (+25%) – Due to very strong demand globally for lithium miners and producers.
• Nick Scali (+48%) – Purchased competitor, Plush Sofas, for an attractive price and strong synergies are expected.
• Macquarie Group (+13%) – Strong profit result announced during the quarter.
• Dicker Data (+18%) – Major acquisition in New Zealand. For the 12 months, Mineral Resources (+50%) and Macquarie Group (+48%) featured again as strong performers, while PWR Holdings (+90%), ARB Corporation (+70%), and Commonwealth Bank (+23%) were other major contributors
For the quarter the portfolio holdings that detracted were:
• Smartgroup (-18%) – Private equity takeover approach fell over.
• Commonwealth Bank of Australia (-3%) – Margin pressures evident due to a competitive mortgage market.
• Pendal (-15%) – Poor second-half fiscal 2022 profit result.
• Aristocrat Leisure (-7%) – Acquisition announced.
Over the 12 months, the stocks that detracted included gold miner Northern Star (-25%), Coles (-1%), and mining service company MLG (-12%).
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-December-2021-AASF44561.pdfSeptember, 2021
The Airlie Australian Share Fund returned 4.7% net of fees for the September quarter, outperforming the S&P/ASX 200 Accumulation Index by 3.0%. Key contributors to the performance included PWR Holdings, which delivered a solid FY21 result and further outlined the long-term opportunity in developing cooling systems for electric vehicles and aerospace applications.
Dicker Data was another strong contributor following the acquisition of New Zealand-based IT distributor Exeed Group. Exeed is based in Auckland and is the second-largest IT distributor in New Zealand (behind Ingram Micro) with revenue of NZ$380 million (split NZ$310 million in New Zealand and NZ$70 million in Australia) and 1,200 reseller partners.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-September-2021-AASF44469.pdfJune, 2021
The Airlie Australian Share Fund return over the June 2021 quarter was 11.3% whilst the benchmark (S&P ASX 200 Accumulation Index) returned 8.3%. Best performing stocks in the portfolio over the June quarter were:
- Mineral Resources (+41%) - persistently strong iron ore prices and improving sentiment around lithium driven by the global car makers announcements regarding ramping up electric vehicle plans.
- Reece (+38%) - strong housing conditions in Australia and the USA.
- ARB (+25%) as the 4WD accessory business experienced strong demand and articulated future growth with a new contract with Ford.
- Aristocrat (+25%) - strong re-opening performances of casinos in the USA.
- Commonwealth Bank (+16%): strong mortgage market and successful asset sales providing excess capital to return to shareholders.
The key theme of the best performing positions was clearly the strength of the consumer in both Australia and the US. Low interest rates and various stimulus boosts will continue to drive healthy demand. Inflation concerns dominated investment debate during the quarter. There is no doubt inflation is picking up, but markets were unconcerned (for now) with the S&P 500 +8% and US 10-year yields falling from 1.68% to 1.47%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-June-2021-AASF44377.pdfMarch, 2021
The AASF return over the March 2021 quarter was +4.51% whilst the benchmark (S&P ASX 200 Accumulation index) returned +4.26%. Pleasingly, this brings the total return for the AASF over the last twelve months to 43.6%, 6.1% above a very strong benchmark return of 37.5% (net of fees). A good quarter overall for the Australian equity market, marking its sixth straight positive month. Eleven of the past 12 months have seen positive gains since the 21% fall in March 2020.
Best performing stocks in the portfolio over the quarter included Tabcorp (corporate approaches for its wagering business) and BHP (strong profit result amid a persistently high iron ore price), as well as recent addition to the portfolio, PWR Holdings. PWR Holdings is an Australian global success story, supplying cooling systems to Formula 1 teams (amongst other motorsports), and we are excited about the prospects for future growth in its emerging technologies division. A solid owner managed business with a net cash balance sheet, it has become one of our largest positions in the AASF.
Two core portfolio positions that detracted from performance were Ampol, on lower refinery earnings, and CSL. Despite a record 1H that exceeded our and consensus expectations, CSL underperformed as the market grappled with concerns around the impact of COVID-19 and US stimulus checks on plasma supply. Plasma donors in the US are paid, and most donors are typically low-income or unemployed people that supplement their income with regular paid donations. Given Biden's stimulus package has increased unemployment benefits for the next few months, and many will be receiving US$1,400 stimulus checks this month, we expect plasma donations to drop further, and industry supply to be tight. Fortunately, we consider this issue a one-off, and believe the sell-off provides an attractive entry-point in to a business with arguably the best track record of value creation on the ASX.
File: https://commentary.quantreports.net/wp-content/uploads/2021/05/AIRLIE-AASF-Retail-Factsheet-March-2021-AASF44286.pdfasset_class:
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manager_contact_details: Array
ticker: MGE9705AU
release_schedule: Quarterly
structure: Managed Fund
commentary_block: Array
factsheet_url:
https://www.airliefundsmanagement.com.au/airlie-australian-share-fund/reports/fund-updates/
fund_features:
Airlie Australian Share aims to provide long-term capital growth and regular income through investment in Australian equities.
- Long only, bottom up specialized and focused Australian equities fund.
- Concentrated portfolio of 15-35 stocks (target 25).
- Active, high conviction approach – Airlie’s ‘best ideas’