July, 2023
The underperformance was driven by negative allocation effects, whereas stock selection was slightly positive.
The overweight to healthcare, in particular, was a key detractor during a period in which the sector was the worst performer. Among our holdings, CSL sold off on a rebasing of consensus expectations after a miscommunication from the new CFO regarding gross margins. We view the downgrade to consensus as more of a result of a mismatch of expectations over a faster gross margin recovery to pre-COVID levels rather than of a deterioration of company or industry fundamentals. Another of our holdings, Pro Medicus (PME), performed well with consensus factoring in meaningful contract wins over the coming years. We regard PME as a high-quality name with a dominant global market in diagnostic imaging and a lack of competitors that can match its edge.
Elsewhere, our consumer-related stocks were also weak. The consumer discretionary space is a difficult space at the moment because of the downside risk to consensus earnings as a result of weakening consumer spending. Across our holdings, we sold off our position in IDP Education Ltd, which was a significant detractor from returns over the period, as its share price fell on concerns over the impact of new Canadian foreign student testing requirements on the visibility of the business over the coming years. In consumer staples, a key laggard was drinks and hospitality company Endeavour Group, on expectations that a more challenged consumer backdrop will curtail discretionary spending, as Australians are likely to eat out less. Regarding the hotels segment, there was also regulatory risk following the Victorian government’s announcement of new reforms on electronic gaming machines.
On a more positive note, we saw strong contributions from our IT and energy holdings. Xero stood out, as the positive investment thesis continued to play out, with the company continuing to make gains on cost savings and its planned price increases reinforcing its pricing power in core markets. We are positive about the company’s long-term growth story and the competitiveness of its product, and we believe that Xero is well positioned to gain market share as the transition to cloud accounting software picks up. In the energy sector, we saw several holdings perform well on the back of continued commodity price strength over the period, including Woodside Energy Group, Pilbara Minerals and Beach Energy. Operationally, all of these names have been performing in line with our expectations, as reflected in their earnings and production numbers through the review period. Elsewhere, mining company Northern Star Resources detracted over the period after its strong performance from the previous quarter, thanks to promising merger and acquisition news in the sector.
In terms of activity, we introduced a new stock in AUB, an insurance broker operating in Australia and New Zealand. A key pillar of AUB’s strategy is to acquire small and mediumsized insurance brokers. A change in management has led to AUB executing better than its peers in a supportive rising rate backdrop, and we see good visibility on earnings with plenty of growth levers for management to pull internally. In addition, we increased our overweight to cement manufacturer James Hardie and global gaming company Aristocrat Leisure. We added to both these positions on expectations that the respective dynamics
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/0002376325_FLY-COM-ENG-0823-abrdn-Australia-Equity-Fund_v1.pdfFebruary, 2023
To outperform the benchmark, the S&P/ASX 300 Accumulation Index excluding S&P/ASX 20 Leaders
Index, after fees, over rolling three year periods.
January, 2023
The Fund delivered a total return of 5.6% for the January month after all fees and expenses. The S&P/ASX 300 Accumulation Index returned 6.3% over the same period.
The Fund utilises abrdn's Sustainable and Responsible Investment process to invest primarily in a concentrated portfolio of around 20-35 companies that are listed or proceeding to listing on the Australian Securities Exchange (ASX) and have the potential for capital growth and increased earning potential.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/F_STD_en-GB-NN_AU60MGL01145-1.pdfDecember, 2022
The Fund returned -2.31% (gross of fees) and -2.37% (net of fees) in December. This was ahead of its performance target, which returned -3.21%.
Contributing to performance was our overweight in Spark New Zealand. The company announced that its TowerCo business Connexa will acquire 2degrees' tower assets, as well as close Spark Sport. Both announcements, while small in isolation, are incrementally positive, as the former suggests co-location benefits and thus valuation upside to Connexa, while the latter results in cost savings to the business. OZ Minerals continued its strong performance, thanks to its pending takeover by BHP. This supported the OZ Minerals’ share price, despite the broader market falling due to growing concerns of a recession in the year ahead. Auckland International Airport also outperformed the broader market, buoyed by news regarding the relaxation of China’s 'zero-Covid' policy, which should further boost a recovery in international passenger volumes.
On the other hand, our lack of exposure to benchmark heavyweight BHP detracted from performance. BHP’s outperformance was driven by the China reopening theme, with Chinese policymakers seeking to relax Covid-19 restrictions and support the property sector, which flowed through to higher iron ore prices. Having performed well over recent months, Pilbara Minerals underperformed, with recent market commentary and spot pricing suggesting that the lithium price may have passed its peak, which negatively affected the company's share price. Elsewhere, Charter Hall Group weighed on returns, despite no fundamental news. Its share price fell in line with the rest of the real estate investment trust sector as US 10-year bond yields crept back up on concerns that rates are likely to stay elevated for longer in the year ahead.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-14.pdfNovember, 2022
The Fund returned 2.97% (gross of fees) and 2.90% (net of fees) in November. This was behind its performance target, which returned 6.58%.
Detracting from performance was our overweight to Mercury New Zealand. The company was affected by the Reserve Bank of New Zealand raising its official cash rate by 75 basis points to 4.25%, though there was no stock-specific news. Also weighing on performance was our overweight to Elders, which underperformed during the month after announcing the departure of long-serving CEO Mark Allison. The stock was also affected by extreme wet weather in New South Wales that weighed heavily on the expected winter crop yield. Our lack of exposure to BHP hurt returns, as the business had a solid month driven by positive news flow from China, with Chinese policymakers releasing measures to relax Covid-19 controls and support the property sector. This resulted in a stronger iron ore price in November, which is beneficial to the business.
On the other hand, OZ Minerals outperformed, as the company received a revised $28.25/share takeover offer from BHP. This was a 13% increase on the original $25/share offer, which OZ Minerals had previously rejected. Elsewhere, our lack of exposure to Westpac contributed positively to returns. The stock underperformed after strong performance in October, as investors digested the potential risks of deposit margins unwinding and costs increasing in financial year 2023. The bank may also face potential credit risks in 2023 and 2024 if the macroeconomic environment deteriorates alongside borrowers making significantly higher repayments. Not holding James Hardie also contributed positively to returns. The stock was affected by its second-quarter profit result, which missed consensus expectations. James Hardie issued a significant downgrade to its financial year 2023 profit guidance. It now expects profits of USD 650 - 710 million, compared to its prior guidance of USD 730 - 780 million. In addition, readthroughs from contractor surveys and competitors reinforce the perception of ongoing downside risk to earnings.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-13.pdfOctober, 2022
The Fund returned 4.52% (gross of fees) and 4.45% (net of fees) in October. This was behind its performance target, which returned 6.04%.
Detracting from performance was our overweight to Medibank. The company is battling a very public and ongoing data breach that resulted in the theft of customer information by cybercriminals. While investigations will take time to finalise, it remains difficult to ascertain the longerterm impact on the brand and customer churn, while there will also be remediation, legal and other costs. Investors tend to assume the worse, and the share price has been accordingly affected. After a period of strong outperformance, OZ Minerals detracted in October. The company remains in the crosshairs of mining behemoth BHP, which had earlier proposed to acquire the business. While BHP's initial offer was swiftly knocked back by the OZ Minerals board on valuation grounds, public comments made by BHP suggest that it will be disciplined around increasing its offer price, which resulted in a softening share price for OZ Minerals during the month. OZ Mineral's high-quality copper assets remain very strategic to BHP and are increasingly crucial for the upcoming clean energy transition. Elsewhere, Megaport weighed on returns after a disappointing quarterly update. The new channel sales strategy is yet to produce results, and the company surprised investors with higher costs and capital expenditure, which have cast some doubt on Megaport's ability to self-fund itself to break even.
On the other hand, our overweight to IDP Education contributed to returns. While there was not any company-specific news, investors looked favourably on international student visa statistics that showed a marked improvement in the volumes of visas being granted to students from IDP's key source countries, such as India. It was also pleasing to note that higher education visas granted in the quarter to September exceeded the same quarter pre-COVID-19 in 2019. National Australia Bank also added to returns, with investors responding favourably to stronger nearterm net interest margins driven by positive deposit spreads, which will positively affect bank earnings in the short term. In the medium term, increasing competition, a weakening macroeconomic outlook and rising cost inflation are likely to offset some of these tailwinds. Finally, Shopping Centres Australasia staged a strong rebound in October. The real estate investment trust's key tenants are non-discretionary retailers, including the major supermarket chains, which are likely to provide strong rental income despite a weakening economic outlook. Furthermore, RBA's dovish tilt also provided further optimism that we are approaching terminal interest rates.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-12.pdfSeptember, 2022
The Fund returned -5.35% (gross of fees) in September. This was ahead of its performance target, which returned -6.17%.
Contributing to performance again was our stock selection in the materials sector, with both Oz Minerals and Pilbara Minerals continuing to perform strongly. Pilbara Minerals continues to benefit from an elevated pricing environment which has been exacerbated by structural supply shortages, with realised pricing at its September auction 10% higher than the early August equivalent. Strong electric vehicle growth in the US and China, and sales rebounding in the European market, have also contributed to a buoyant lithium pricing environment. Oz Minerals continued its strong performance on reports that BHP Group was considering raising its standing offer, with BHP looking to boost its exposure to metals central to the green energy transition. The company also approved the development of its West Musgrave project. Elsewhere, Resmed outperformed as its key competitor (Philips) suffered yet another minor setback, this time concerning its sleep apnea mask products.
On the other hand, Xero was caught up in a sector-wide selloff, with growth stocks out of favour for investors as global rates expectations rose after a strong August inflation print in the US. No stock-specific issues were identified. Similarly, there was no fundamental news flow to explain Goodman Group's underperformance. However, the stock heavily sold off, alongside the rest of the REITs sector, as US policymakers forecasted significantly more aggressive use of interest rates in an attempt to bring inflation under control. Finally, Pinnacle Investment Management weighed on performance, given its key underlying earnings driver (funds under management) is heavily linked to market movements.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-11.pdfAugust, 2022
The Fund returned +1.21% (gross of fees) and +1.14% (net of fees) in August. This was in line with its performance target, which returned +1.18%.
Contributing to performance was our stock selection in the materials sector, with both Oz Minerals and Pilbara Minerals performing strongly. Oz Minerals rose strongly after it received a non-binding indicative proposal by BHP to acquire the company at $25.00 a share. The board swiftly rejected the offer, citing that it undervalued the business. Our view is that the proximity of the assets means that BHP is in a unique position to extract valuable synergies. Therefore, we believe the initial offer may not necessarily be the last. Meanwhile, the tight lithium market continued to support elevated pricing for Pilbara Minerals amid news of Chinese power outages further affecting domestic production. We continue to view the business as a high-quality operator within the space, although am equally mindful that current elevated prices would continue to induce new supply to come online over the medium term. Elsewhere, our holding in Medibank boosted returns, with the company reporting good results thanks to solid policyholder growth and subdued claims inflation. Our view is that health insurers like Medibank will continue to benefit from the benign claims environment as the healthcare industry continues to grapple with labour shortages.
On the other hand, our lack of exposure to BHP hurt returns as the diversified mining conglomerate reported in-line results, supported by very strong free cash flows. That said, its share price fell towards the end of the month as the stock went exdividend. In addition, our overweight to the information technology sector weighed on returns, as the technology sector as a whole gave back some of the gains witnessed in the prior month's rally after Jerome's Powell speech at Jackson Hole, where he reiterated the Fed's commitment to containing inflation. Our overweight to Megaport was consequently a notable detractor. Finally, ASX was a laggard as the company provided yet another disappointing update regarding its CHESS replacement project, which has been pushed out to late 2024 (a soft target), while an independent review will be conducted. We suspect this could lead to further cost blowouts, though note that no revenue upside is being assumed by the market on this project; however, the core business remains well run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-10.pdfJuly, 2022
The Fund returned +9.02% (gross of fees) and +8.95% (net of fees) in July. This was ahead of its performance target, which returned +5.75%.
Contributing to performance was our lack of exposure to BHP as the company released soft FY23 production guidance against a backdrop of increased volatility in commodity prices. Our overweight to Megaport also boosted returns as the company benefitted from a return to favour for high-growth names as bond yield expectations fell. Another beneficiary of the change in market sentiment was Pinnacle Investment Management, which rallied on market expectations of lower long-term interest rates, which should be supportive of the business.
On the other hand, our holding in Elders was negatively impacted by a fall in cattle and lamb prices during the month due to reduced processing capacity from Covid-19 outbreaks. The risk of a domestic outbreak of foot-and-mouth disease was also a concern, causing farmers to rapidly offload cattle and sheep at reduced prices as a hedge. Finally, Auckland International underperformed. While the company is benefitting from a strong recovery in travel, there is increasing concern on how demand for both corporate and leisure travel will fare should a global recession eventuate.
There was no major activity for the Fund in July.
June, 2022
The Fund returned -7.94% (gross of fees) and -8.00% (net of fees) in June. This was ahead of its performance target, which returned -8.77%.
Contributing to performance was our overweight to the consumer staples sector, with both Coles Group and Woolworths Group performing strongly. Both companies were beneficiaries of the structural move away from the consumer discretionary sector to the more defensive consumer staples sector. Additionally, food inflation should be a boon to both companies, helping to reinvigorate growth into what is otherwise a highly mature sector. Also benefitting from the move to more defensive assets was renewable electricity generator and retailer Mercury New Zealand. Its strong earnings visibility was viewed favourably by the market, adding to performance.
On the other hand, our stock selection within the materials sector dragged on performance, as both Oz Minerals and Pilbara Minerals underperformed. Oz Minerals' share price dropped following the steep fall in the price of copper off the back of concerns that aggressive rises in interest rates will lead to an economic slowdown. These recessionary concerns also affected Pilbara Minerals, with the market expecting slower sales of electric vehicles to cause a softening in demand for lithium, despite spot prices currently remaining elevated. Elsewhere, our exposure to Megaport weighed on returns as it becomes more evident that its change in sales strategy is likely to drag on its growth outlook in the short term. Furthermore, with its profitability expectations delayed, it has been caught up in the global sell-off in growth-focused companies.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-9.pdfMarch, 2022
The Fund returned 5.21% (gross of fees) and 5.14% (net of fees) in March. This was behind its performance target, which returned 6.89%.
Detracting from the performance was the structural underweight to the resource sector, particularly mining, given the Fund
undertakes a Sustainability and Responsible Investing framework. As a result, we do not own the likes of BHP Billiton, a large benchmark constituent that outperformed in March. Fisher & Paykel also suffered as fiscal year ending 2022 revenue and gross margin guidance missed market expectations. Volatile demand, a challenging operating environment and questions over the sales base after a post-pandemic sales slowdown in an oversupplied market are also creating uncertainties. Meanwhile, James Hardie detracted as the market considered the impact of a more complex macroeconomic background for construction with rising mortgage rates and a more hawkish US Federal Reserve.
The economy is continuing its post-pandemic recovery, though the outbreak of war in Ukraine presents a degree of economic uncertainty at this point in time. Cost-push inflation has accelerated due to sharp increases in energy prices and key commodities, and supply chain disruptions during a period where demand remains robust. This has been exacerbated by the war in Ukraine, which also may present itself as a drag on global growth. The economy remains resilient, however, with unemployment at 4%, and underemployment also around its lowest level in over a decade. Inflation has accelerated faster than anticipated but remains low in comparison to Australia's global peers. How quickly cost-push pressures abate is the key source of uncertainty regarding the current outlook for inflation, though inflationary pressures are likely to remain elevated for much of this calendar year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-8.pdfJanuary, 2022
The Fund fell by 10.98% (gross of fees) and 11.04% (net of fees) in January. This was behind its performance target, which fell by 6.35%. In terms of individual stocks, Megaport underperformed following its latest operational update. While the company reported solid revenue growth, margin growth - a key driver in the company's goal to improve cash flows - was slower than expected, pushing breakeven expectations out to financial year 2023. Xero also underperformed, with the software company negatively affected by global inflationary concerns resulting in a sell-off in long-dated growth and tech-related companies. However, we expect investors to refocus on the longer-term fundamentals of the company after it reports in February. Also driving the underperformance was the structural underweight to the resource sector, particularly mining, given the Fund undertakes a Sustainability and Responsible Investing framework. As a result, we do not own the likes of BHP Billiton and Rio Tinto, both large benchmark constituents that outperformed in January.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-6.pdfDecember, 2021
The Fund returned 1.18% (gross of fees) and 1.11% (net of fees) in October. This was behind its performance target, which returned 2.75%.
In terms of individual stocks, Megaport underperformed, giving back some of the strong gains achieved in November as global inflationary pressures continue to build, steepening the forward interest rate yield curve and resulting in a selloff in growth and technology-orientated companies. Our holding in Pinnacle underperformed, following an equity raise to fund investment into a high-growth private equity boutique that met with a lukewarm response. This response was indicative of market fatigue and expectations of better uses of capital. However, we believe there remains a number of strategic and value-accretive transaction opportunities that Pinnacle can pursue over the medium term. Auckland International Airport suffered due to the emergence of the Omicron variant of Covid-19, with New Zealand announcing that it was postponing plans for quarantinefree international travel.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-5.pdfNovember, 2021
The Fund returned 0.66% (gross of fees) and 0.59% (net of fees) in November. This was ahead of its performance target, which returned -0.54%.
Performance was primarily driven by Goodman, after it released a robust first-quarter update for 2022, noting an increased development pipeline and continued demand for high-quality industrial assets. As the global fund manager of choice for industrial assets, we expect Goodman to continue to benefit from strong inflows into the subsector. Megaport and ASX were the other major contributors despite little fundamental news for either. Megaport potentially benefited from increased sell-side coverage and ASX a beneficiary of the RBA's announcement to end yield-curve control, signaling the potential for an earlier rate rise that should support ASX's futures business and interest income.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-4.pdfOctober, 2021
The Fund returned 1.65% (gross of fees) and 1.58% (net of fees) in October. This was ahead of its performance target, which returned -0.10%.On a stock-specific basis, Netwealth contributed to performance. Its share price gained after the firm achieved strongerthan-expected net inflows for the first quarter, leading to an upgrade to its growth outlook. Meanwhile, the company recently announced a proposed acquisition of wealth platform peer Praemium. While Praemium's board rejected the offer, we view these developments as strategically positive for Netwealth. Elsewhere, Xero outperformed amid a strong recovery within the broader technology sector. We continue to view the company as one of the highest-quality software businesses within the sector. IDP Education again performed well over the month. The pathway to the reopening of borders is now clearer, which is a positive step towards the return of international students to Australia
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-3.pdfSeptember, 2021
The Fund returned -1.27% (gross of fees) and -1.34% (net of fees) in August. This was ahead of its performance target, which returned -1.85%. Following a material pull back after the release of its fiscal year 2021 results in August, Altium's share price rallied in September as management outlined the firm's long-term strategic direction.
Elsewhere, IDP Education rose as increasing vaccination rates raised hopes that students would return to Australia in 2022. Macquarie Group also benefited performance after a positive trading update. Specifically, the commodities business is performing ahead of expectations and the company is benefiting from the sale and revaluation of assets in its infrastructure business. Moreover, within Macquarie Capital, the sales pipeline is now expected to be significantly ahead of the previous period. On the negative side, Xero (XRO), Pinnacle Investment Management (PNI) and Goodman Group (GMG) detracted from performance on no stock-specific news. All were caught up in the broader market selloff, with high-growth companies particularly affected. We feel that there is positive growth potential for XRO from geographical expansion, structural shifts and its ability to gain revenue as the platform is monetised. Given the performance of underlying affiliates, we are confident about PNI's outlook as it continues to attract funds under management.
Meanwhile, we continue to see strong earnings visibility in the medium term for GMG as it produces high-quality industrial products to meet increasing global demand. There was no major portfolio activity over the month. On the engagement front, we met with the Chairman of Charter Hall Long WALE REIT (CLW) following its bid for ALE Property Group and as part of the upcoming annual general meeting season. We discussed a variety of topics, including potential conflicts of interest given the external management arrangement through Charter Hall Group. Overall, the meeting provided comfort knowing that there are adequate checks and balances to ensure that CLW benefits when it comes to inorganic growth. We were also glad to hear that the board size will continue to grow in line with the growth of the portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-2.pdfAugust, 2021
The Fund rose by 5.76% (gross of fees) and by 5.69% (net of fees) in August. This was ahead of its performance target, which rose by 2.50%.
Pinnacle Investment Management (PNI) benefited from a strong rebound in funds under management inflows as prior investment in expanding the sales distribution team started paying off. Another positive was the strong performance of affiliate managers across a blend of investment strategies. Elsewhere, Afterpay (APT) benefited from an all-script takeover offer from US payment behemoth Square. The proposed transaction is subject to a shareholder vote and other customary approvals, and was struck at a 31% premium to the prevailing share price. Conversely, Altium (ALU) detracted, with the deferral of its 2025 targets (i.e. A$500 million in revenues) and the company backtracking on longer-term margin aspirations driving the share price down. This follows the Board's recent rejection of a takeover offer at a higher share price.
We continue to view Altium as a business with superior product intellectual property, although this needs to be matched by more consistent execution in order to fully realise long-term value. Cochlear (COH) also lagged over August. While the fiscal year 2021 result was largely in line with expectations, the shares underperformed as forward guidance disappointed, given the wide range for net profit after tax growth of 11- 20%, and continued investment in growing market awareness. However, we continue to view COH as the market leader in hearing implants, offering significant growth potential, which continues to support our longer-term thesis.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7-1.pdfJuly, 2021
The Fund rose by 1.03% (gross of fees) and by 0.96% (net of fees) in July. This was behind its performance target, which rose by 1.1%.During the month, Altium gave up some of last month's stellar outperformance, after bidder Autodesk announced that it was walking away from acquiring the company. While the news was disappointing, we continue to support management's longerterm product and platform ecosystem strategy, and expect growth to reaccelerate as the disruption from Covid-19 fades.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/C_COMDOC_en-GB-NN_SYUAV7.pdfMay, 2021
To outperform the benchmark, the S&P/ASX 200 Accumulation Index, after fees, over rolling three year periods.
The Fund utilises Aberdeen Standard Investments’ Sustainable and Responsible Investment process to invest primarily in a concentrated portfolio of around 20-35 companies that are listed or proceeding to listing on the Australian Securities Exchange (ASX) and have the potential for capital growth and increased earning potential.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/F_STD_en-GB-NN_AU60MGL01145.pdfFebruary, 2021
The Fund returned -0.52% in February (before fees), underperforming the benchmark by 1.97%.
Contributing to Fund performance: BHP announced a strong set of results that were topped off with a higher-than-expected dividend. While buoyant commodity prices were a key contributor, BHP also executed well operationally. It delivered record production in iron ore, and lower operating costs despite the effects of Covid-19, weather disruptions and other inflationary pressures. We retain a positive view on the sector, and see the expected global reflationary environment as supportive for commodity prices. This, in turn, will translate into higher shareholder returns and attractive free cash flow yields.
Detracting from Fund performance: Respiratory medical device maker Fisher and Paykel Healthcare detracted as the market rotated away from companies that benefited from the impact of Covid-19. With the global vaccine rollout underway, we expect hospitalisation rates to moderate and resultant hardware sales to reverse from current elevated levels. While this may optically impact short-term earnings, we remain upbeat on the longer-term opportunity to increase higher-margin consumables sales. This will be driven by both a larger number of devices now in circulation, as well as changes to hospitals’ best-practices that will see use cases for the company’s devices expand meaningfully. We continue to view Fisher and Paykel Healthcare as an attractive holding exposed to longer-term structural growth drivers. Major portfolio moves: We reduced our position in Auckland International Airport, given near-term valuations have fully priced-in an aviation recovery. We also pared our exposure to AusNet in view of the headwinds arising from a rising yield environment. We re-invested this capital by initiating Wesfarmers and Mercury New Zealand. Our investment in Wesfarmers reflects our view that the domestic housing recovery will continue to underpin robust earnings at household hardware chain Bunnings over the medium term. Furthermore, we think it will benefit from its recent investment in lithium processing. Meanwhile, our positive view on Mercury is due to its exposure to 100% renewable electricity generation, with the recent share-price pullback offering an attractive entry point.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/167519541.pdfJanuary, 2021
The Fund returned -0.72% in January (before fees), underperforming the benchmark by 1.03%.
Contributing to Fund performance: Fisher and Paykel Healthcare announced an earnings upgrade and contributed positively to performance. The company continues to benefit from the resurgence in Covid-19 cases in the northern hemisphere, leading to elevated levels of demand for both hardware and consumable sales. Importantly, this robust demand boosts product gross margins, with operating leverage expected to manifest into very robust profit growth over the next year. While we acknowledge that high hardware sales will normalise as the pandemic recedes, we continue to retain a positive long-term view on the stock. We expect recent growth in the installed base to drive highmargin recurring consumable sales in the coming years. Detracting from Fund performance: Cloud-based accounting software provider Xero detracted from portfolio performance after returning some of its hefty gains achieved in the December quarter. There was limited company-specific news flow, but the resurgence of Covid-19 and reimposition of lockdowns in many countries may pose a risk to near-term subscriber momentum. While we are conscious about rapidly-rising valuations, we believe that on a longer term horizon, Xero is better placed relative to its rivals to win market share, increase penetration and monetise its expansive app ecosystem.
These should collectively drive solid growth post-pandemic. Major portfolio moves: We reduced our position in APA, given macro sensitivity to a rising yield environment, as well as our view that growth opportunities available to the company in the near term appear limited. We reinvested this capital into NAB, reflecting our expectation of an improving economic backdrop supporting a more favourable lending environment, which should translate into provision releases and increased dividends.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/164892672.pdfDecember, 2020
The Fund returned 0.51% in December (before fees), underperforming the benchmark by 0.70%. Contributing to Fund performance: Cloud-based accounting software provider Xero enjoyed a strong re-rating and was a positive contributor to performance. The company’s own Australian small business survey released positive findings - with recovery in small business jobs now back to pre-pandemic levels, while small business revenues also continued to recover year on year for the sixth consecutive month. The stock also benefitted from market’s broader rotation into post pandemic recovery stocks, as well as new positive coverage from the sell side. Notwithstanding the global macro backdrop, we remain attracted to the company’s strong focus in product innovation and growth potential from its platform.
Detracting from Fund performance: Cochlear detracted from portfolio performance after returning some of the gains achieved in both October and November. With limited company specific news flow, the worsening of the pandemic in many developed countries reiterated concerns around hospital capacity which could impede on near term surgical volumes. Despite these concerns, we believe Cochlear is much better placed relative to its competitors, and furthermore initiatives that
the company have put in place over the years is now beginning to bear fruit, which collectively should drive solid growth post pandemic. Major portfolio moves: We reduced our position in A2 Milk following its earnings downgrade, which while expected, proved to be large in size. Despite trading at an attractive price, we remain concerned of potential inventory overhang while management failed to openly articulate their ability to reinvigorate the core daigou channel. Ultimately we felt it be prudent to de-weight and reassess once the new CEO is installed.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/163383615.pdfNovember, 2020
The Fund returned 8.30% in November (before fees), underperforming the benchmark by 1.91%. Contributing to fund performance: Oil and gas producer Beach Energy enjoyed a robust re-rating and contributed to performance. Oil prices rose from US$36 a barrel at end-October to US$45 a barrel at end-November, driven largely by the announcement of successful trial results from three major Covid-19 vaccine candidates.
This brought forward expectations about the resumption of economic activity, and in turn, a rebound in oil demand. While the macro backdrop has turned more positive, we are also attracted to downside protection offered by Beach’s healthy contracted gas book, along with a substantial pipeline of growth opportunities, given its balance sheet strength. Detracting from fund performance: ASX Limited detracted after returning some of the gains from earlier in the year. While ASX has proven to be a resilient business, despite the sharp capital market dislocation in the first quarter, more short term risks have emerged.
These risks include persistently lower fixed-interest futures volumes from the derivatives business, the delay of the CHESS replacement blockchain, and the recent trade outage that may point to the need for increased IT servicing and capital spending. Despite these concerns, we continue to maintain an upbeat view. We think its strong market position and technology initiatives will be key drivers of longer-term growth.
Major portfolio changes: In November, we trimmed our exposure to Rio Tinto and recycled the proceeds into BHP. We feel BHP offers higher relative returns, a better social responsibility culture and an asset mix that is better leveraged to the energy sector’s recovery. In light of the positive Covid-19 vaccine news, we also reviewed our investment in Sydney Airport and increased our position, with the timeline for an expected recovery in passenger volumes now brought forward. Together with cost cuts, a robust balance sheet, and relatively attractive valuations, we expect Sydney Airport to continue to outperform.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/161872043.pdfOctober, 2020
The Fund returned 2.57% in October (before fees), outperforming the benchmark by 0.64%.
Contributing to fund performance: ResMed delivered robust quarterly earnings and was a positive contributor. While sleep mask sales have been impacted due to Covid-19-induced restrictions reducing capacity at traditional sleep labs, home testing and other initiatives led to a quicker than expected recovery. This was supplemented by additional ventilator sales and solid cost control, which delivered bottom-line operating leverage. We see an attractive growth pathway for the sector and expect ResMed to continue to win market share.
Detracting from fund performance: Auckland International Airport gave back some of its recent gains. While many hurdles remain before unrestricted international travel becomes a reality, encouraging progress is being made, with the Australia-New Zealand travel bubble formally starting in October. Furthermore, with Auckland relaxing Covid-19 restrictions back to level one, the airport saw domestic capacity recover to about 65% of pre-pandemic levels, a good indication of resilient travel demand. While near term visibility remains challenging, we remain attracted to the strategic nature of Auckland Airport’s assets and are supportive of the company’s longer term growth strategy, which we believe will deliver solid returns for shareholders.
Major portfolio changes: In October, we exited Origin Energy as our view on relative stock returns has moderated. While Origin’s interest in the Australia Pacific Liquefied Natural Gas project is leveraged to a recovery in depressed commodity prices, this is outweighed by our increasing concerns around the longer term regulatory strain and structural risk of lower wholesale electricity prices as the shift to renewables accelerates. While Origin’s valuations appear attractive, we are cautious on its high gearing levels and expect shareholder returns to remain muted in the medium term. We recycled this capital into major banks, NAB and ANZ, narrowing a long-held underweight position. We have taken a tactical view of the record fiscal stimulus, forthcoming easing of responsible lending rules and the orderly management of Covid-19 loan deferrals as catalysts to support an earnings recovery. Given the banks have also de-rated materially, we see this as an opportune time to add to our positions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/160288630.pdfticker: MGL0114AU
commentary_block: Array
factsheet_url:
Go to:
LITERATURE
-Monthly Commentary
release_schedule: Monthly
fund_features:
The Aberdeen Australian Equities Fund is a high conviction actively managed Australian equity portfolio managed using a bottom-up approach with little reference to a benchmark.
- The Fund utilises Aberdeen’s proven investment philosophy and approach to invest in a concentrated portfolio of around 20-40 companies that are primarily listed on the Australian Securities Exchange (ASX) and have the potential for capital growth and increased earning potential.
- The investment objective of the Fund is to outperform the benchmark, the S&P/ASX 200 Accumulation Index, after fees, over rolling three year periods.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australia Large Blend - Broad Cap - Passive
peer_benchmark: Domestic Equity - Large Cap Passive Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund