September, 2023
The OC Dynamic Equity Fund returned +0.6% for the September quarter, underpinned by a strong August reporting season for many of our key portfolio holdings. This was comfortably ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were each down -1.9% for the quarter. Whilst the trajectory of consensus earnings revisions was generally negative across the Australian small-cap market in the August reporting season, we were pleased with the results of the Fund’s holdings overall and remain optimistic about their prospects for the year ahead, notwithstanding the current global macro-economic challenges.
The OC Dynamic Equity Fund continues to comfortably navigate the challenging small-cap market of the past few years, with the Fund up +9.0% per annum over the past three years. This is well ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which have returned just +2.6% and +0.5% per annum, respectively over the same period. The OC Funds’ investment team has a strong track record of delivering meaningful alpha to clients when sentiment in the small-cap market turns positive, and we remain confident and focused on continuing to do so in the future.
Hotel operator technology provider Siteminder (SDR, +58.6%) rallied strongly over the quarter following significant on market director buying in late June. The quarterly cashflow report and earnings guidance, issued in late July, and the August result were delivered in line with market expectations. These positively received results were largely driven by SDR demonstrating lower customer acquisition costs (CAC) and higher customer lifetime value. Increasing customer numbers are also an incremental positive, with the additions weighted toward the end of the year, providing a strong base for the period ahead. Investors are eagerly anticipating the company moving onto a cashflow generative footing, which SDR management continued to guide toward for the second half of the new financial year. Pleasingly the move to positive free cash flow generation is not coming at the expense of product development with the company outlining new product extensions which are likely to lead to incremental revenues. We remain optimistic for our holding in the stock and continue to anticipate ongoing growth to deliver operating leverage over the years ahead.
GUD Holdings (GUD, +35.9%) was a strong performer for the Fund after posting a solid FY23 result in the context of overall low market expectations and the stock trading ‘cheap’ on a relative basis going into the result. Of particular note was the core GUD aftermarket parts business which reduced inventory levels as supply chains normalised. This helped GUD reduce leverage from 2.5x net debt/normalised EBITDA in December 2022 to a more manageable 2.0x as at June 2023. Furthermore, the APG towbar manufacturing business delivered to expectations despite ongoing new vehicle supply constraints. Whilst APG has been affected by supply constraints from automotive OEMs over the period of GUD ownership, supply is gradually improving, and new car demand backlogs are not reducing. Over the medium term, a further recovery in APG volumes will augment ongoing organic growth at GUD, which now has a solid balance sheet and a reasonable valuation. Hence GUD remains a core position for the Fund.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230930-OC-Dynamic-Equity-Fund-Fund-Update.pdfAugust, 2023
The OC Dynamic Equity Fund enjoyed a solid August reporting period returning +1.7% for the month. This was comfortably ahead of the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which returned -1.3% and -1.5%, respectively, during August.
The standout performers during August reporting included: G.U.D. Holdings (GUD, +24.0%) which rallied following a result that exceeded expectations due to strong free cashflow generation, debt reduction and an improvement in the APG towbar business; and Life360 Inc (360, +20.7%) which posted both positive free cash flow and positive EBITDA in Q2 CY23, as well as strong customer acquisition metrics. Digital property exchange PEXA Group Limited (PXA, -12.8%) pulled back despite its Australian property exchange reporting a solid result against the backdrop of a weak property transactions market, with a lack of transparency on progress in the nascent UK market raising questions about delays and cost overruns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Aug23-OC-Dynamic-Equity-Fund-Monthly-Fund-Update.pdfJuly, 2023
The OC Dynamic Equity Fund kicked off FY24 in a positive fashion returning a solid +2.0% for the month of July. This was slightly behind the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which returned a robust +3.5% and +4.8% respectively.
Key contributors to the performance included: GQG Partners (GQG, +17.0%) which rallied largely in response to improved investor sentiment, being a strong beneficiary of rising equity markets; SiteMinder (SDR, +44.2%) which traded sharply higher on news that it expects to be EBITDA positive and free cashflow positive in H2 FY24; and Corporate Travel Management (CTD, +16.9%) which issued a trading update that confirmed strong trading in H2 FY23. Detractors for the month were smaller in scale and included APM Holdings (APM -6.1%) and Kelsian Group (KLS, -4.5%), both of which traded down despite no negative news after recent rallies, perhaps reflecting investors moving to riskier (higher beta) positions in the rising market.
The domestic economic outlook appears to be more challenging with conflicting signs as to the strength of the economy. Nevertheless, a near 50-year low unemployment rate of 3.5% and a solid (albeit falling) household savings buffer still leaves consumers in a reasonable position even allowing for near-term inflationary pressures and the lagged impact of the more recent interest rate hikes.
Reporting season has kicked-off, although the Fund is yet to have any companies report. We remain upbeat on the prospects of our core portfolio holdings and will share further thoughts with our investors in early September once we have analysed the numbers and met with the management teams.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230731-OC-Dynamic-Equity-Fund-Monthly-Fund-Update.pdfJune, 2023
Global equity markets enjoyed a solid quarter, led by a buoyant US market, with the US economy continuing to remain resilient and inflation continuing to moderate in the world’s biggest economy. Investor enthusiasm around artificial intelligence (AI) also provided a sugar hit to the big cap technology sector, with a stunning result from chip maker NVIDIA igniting the ‘animal spirits’ of investors and fuelling a mini boom in AI exposed big-tech stocks, including Microsoft Corporation and Alphabet (Google’s parent company). Local stocks to catch a bid on the back of the thematic included Fund holdings NEXTDC and Macquarie Technology Group, both of whom performed well during the quarter.
Key US indices were up strongly in the June quarter led by the tech heavy Nasdaq (+12.8%), the S&P 500 (+8.3%) and the Dow Jones Index (+3.4%). Other developed world bourses to perform well included the Japanese Nikkei (+18.4%) and the German DAX (+3.3%), whilst Australia’s ASX 200 eked out a positive return of 0.4%.
The Chinese equity market was under pressure on the back of underwhelming economic news with the Chinese Shanghai Composite down 2.2% and the Hong Kong Hang Seng was not immune, falling 7.3% for the quarter.
The domestic small-cap space was mixed during the June quarter with a raft of negative stock specific news-flow from consumer facing companies and weakness in the Materials sector being balanced by more positive news out of the Information Technology and Industrials sectors. The S&P/ASX Small Ordinaries Accumulation Index was down 0.5% for the quarter, materially behind the S&P/ASX Small Industrials Accumulation Index which was up 2.3%. The OC Dynamic Equity Fund significantly outperformed both small-cap indices, finishing the June quarter up 4.8%.
Despite all the doom and gloom in the media, the smallcap space bucked inflationary pressures and rising interest rates to finish the financial year comfortably in positive territory with the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index finishing up 8.4% and 9.5%, respectively, in FY23. Pleasingly, the OC Dynamic Fund posted an excellent return of 23.7% for the financial year, which ought to place us within the top-decile of our small-cap peers in industry performance surveys when they are released later in the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230630-OC-Dynamic-Equity-Fund-Fund-Update.pdfMay, 2023
May lived up to its reputation as a difficult month for equity markets as sticky core inflation and rising interest rates began to take a growing toll on leading economic indicators across global markets. Stock markets were also jittery ahead of the US Congress’ latest legislative action to raise the government’s borrowing limits, with the gravity of a potential default further reinforcing a ‘risk-off’ bias across the back end of the month. Key global bourses including the US Dow Jones (-3.5%), the UK FTSE (-5.4%), the Hong Kong Hang Seng (-8.3%) and the Chinese Shanghai Composite (-3.6%) sold off heavily.
The US tech heavy Nasdaq bucked the trend and rallied 5.8%, fuelled by a stunning result from chip maker NVIDIA which lifted sentiment to other big-tech stocks exposed to the artificial intelligence (AI) thematic including Microsoft Corporation and Alphabet (Google’s parent company).
The domestic small-cap equity indices too were choppy throughout May. A raft of profit warnings across the retail space, including from City Chic Collective, Adairs, Best and Less Group Holdings, Dusk Group and Universal Store Holdings spooked investors and liquidity remained below average for much of the month. The S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index were sold down -3.3% and -1.7%, respectively, during the month. The OC Dynamic Equity Fund again held up significantly better than the small-cap indices and finished the month flat (0.0%).
OC Funds Management is pleased to announce the nomination of the OC Dynamic Equity Fund for the prestigious 35th Annual Money Management Fund Manager of the Year Awards in the Australian Small Cap Equity category. This recognition reflects the Fund’s strong performance and dedication to delivering outstanding results to its investors. The Money Management Fund Manager of the Year Awards is a highly regarded industry event that acknowledges excellence in the investment management industry. It is Australia’s longest-standing independent and ‘wholeof-market’ fund awards program. The Small Cap Equity category specifically focuses on funds that demonstrate exceptional expertise in navigating the dynamic and challenging small-cap equity market segment. The Fund’s nomination (alongside two other Funds) follows on from the OC Premium Small Companies Fund’s recent nomination in the Morningstar Fund Manager of the Year awards in the Domestic Equities – Small Caps category. It underscores the team’s consistent track record of success in managing small-cap and micro-cap investments over a long time horizon. It also marks the fourth time since 2018, when OC Funds Management actually won the award, that OC Fund’s has been nominated as a finalist in the Australian Small or Small/Mid Cap Equity Fund of the Year category at the Annual Money Management Fund Manager of the Year Awards.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230531-OC-Dynamic-Equity-Fund-Fund-Update.pdfApril, 2023
Global equity markets rallied in April as fears of a global banking crisis moderated and investors became more comfortable that peak interest rates were approaching in key markets such as the US. Global bourses that rallied in April included the US Dow Jones +2.5% and the S&P 500 +1.5%, the UK FTSE 100 +3.1%, the German DAX +1.9%, the Japanese Nikkei +2.9%, and our own ASX 200 +1.8%.
The US first quarter reporting season is underway, with roughly 45% of S&P 500 companies reporting by the end of April. Results to date have moderately surprised on the upside with earnings numbers generally underpinned by margin resilience. This has engendered some confidence that the economic slowdown that is likely coming in the US will not deteriorate into a steep and protracted recession in the world’s biggest economy.
The domestic small cap market also had a buoyant April with both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index rallying, up 2.8% and 3.6% respectively. Corporate activity was again in focus in the small and micro-cap end of the market with Blackmores (BKL) entering a Scheme Implementation Deed with Kirin Corporation and SILK Laser Australia (SLA) receiving a non-binding, indicative and conditional offer from Wesfarmers’ (WES) subsidiary Australian Pharmaceutical Industries. This is hopefully a sign that some confidence is returning to the space following a difficult period since the beginning of calendar year 2022.
The OC Dynamic Equity Fund enjoyed a positive month, up +2.4%, although it did slightly lag both the smallcap indices. The Fund has preserved investors capital under the difficult equity market conditions of the past 12 months. The OC Dynamic Equity Fund is up +3.7% which is well ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which are down -9.4% and -7.6%, respectively, over the same time horizon.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230430-OC-Dynamic-Equity-Fund-Fund-Update-v3.pdfMarch, 2023
The March quarter was a volatile period across global markets with the ongoing battle between inflationary forces and central banks continuing to take centre stage. March itself was a particularly turbulent month for equities, with steep falls early in the month brought about by regional bank failures in the US that undermined confidence in the global banking system before US and European regulators and central banks steadied the ship with a series of guarantees and liquidity backstops which restored confidence across financial markets. This led to a sharp recovery late in the month as investor concerns about a full-blown solvency crisis from mark-to-market losses on banks’ portfolios receded.
The domestic small-cap equities indices also seesawed around key macro-economic news flow with the February reporting season providing a welcome respite by giving investors some stock specific insights. Whilst the reporting season across small caps was overall mixed, the Fund’s holdings, on balance, reported stronger results than the overall market which allowed us to outperform our benchmark during the quarter. The OC Dynamic Equity Fund finished the quarter up 6.8% which was well ahead of the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were up 1.9% and 1.3%, respectively, for the quarter.
The OC Dynamic Equity Fund has navigated the challenging macro-economic environment of the past three years well, posting a return of 23.4% p.a. This is ahead of both the S&P/ASX Small Companies Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which have returned 13.1% p.a. and 9.3% p.a., respectively, over the same time horizon.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230331-OC-Dynamic-Equity-Fund-Fund-Update.pdfFebruary, 2023
After a strong start to the calendar year, global equity markets retraced in February driven largely by fears that inflation will prove to be stickier and more persistent than had previously been contemplated by many investors. Increasingly hawkish central banks drove up real bond yields and most key global indices ended the month lower including the US DOW (-4.2%) and S&P 500 (-2.6%), the Hong Kong Hang Seng (-9.4%) and the MSCI All Country World Index (-1.9%).
The February reporting period was a mixed bag across the market, with divergent performance across the board from companies, often in the same sector, and few unequivocal macro-call outs. As expected, few management teams and boards were prepared to give numerical forward guidance, and most were guarded in their commentary on the economic outlook. The S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small industrials Accumulation Index were both softer in February, falling by -3.7% and -1.7% respectively. The Fund enjoyed a relatively strong month (+0.8%) with most of our core holdings producing solid results indicating that our investment theses remain intact.
The Fund has weathered the sell-off in small companies well over the past year and has protected investor capital in what has been a challenging investment environment. The OC Dynamic Equity Fund is up 6.6% over the past 12 months versus the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small industrials Accumulation Index which are down -8.0% and -7.4% respectively over the same time horizon.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230228-OC-Dynamic-Equity-Fund-Fund-Update-v3.pdfJanuary, 2023
Global equity markets had a strong start to the year with a growing view that inflation has peaked and that central bank tightening is nearing an end, as well as positive sentiment around China’s reopening, stirring the ‘animal spirits’ of market participants. Many investors, OC Funds included, entered the new year cautious on the global economic outlook with the impact of dramatic monetary tightening in 2022 yet to flow through to the broader economy and inflation still elevated. Whether this turns out to be a bear market rally remains to be seen. But many investors, nervous about being too conservatively positioned, have gone ‘risk on’ in recent weeks and, in many instances, last year’s biggest stock losers have started the year with the steepest rallies. The stock bourses that endured the steepest falls last year too were amongst the best performers in January including the US Nasdaq +10.7%, the Hong Kong Hang Seng +10.4%, and China H-Shares +10.7%.
Our own small cap indices bounced back strongly from their own annus horribilis in 2022, with the S&P/ASX Small Ordinaries Accumulation Index +6.6% (-18.4% in CY22) and the S&P/ASX Small Industrials Accumulation Index +6.3% (-21.8% in CY22) in January. Across the domestic small cap universe, many of the best performing stocks during the month were last year’s laggards including Kogan.com +28.6% (down 60.3% last year), Zip Co Limited +28.4% (down 88.2% last year), and fund holding SiteMinder Limited +23.7% (down 55.0% last year). The OC Dynamic Equity Fund had a solid month +5.4%, which was slightly behind both small cap indices. Clearly, we were not positioned for the sharp rally that left many investors, ourselves included, too conservatively positioned to keep pace.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/230131-OC-Dynamic-Equity-Fund-Fund-Update-v2.pdfDecember, 2022
Equity markets across the globe endured a challenging December rounding out a tough year for most asset classes across the globe. Stocks, bonds and property all suffered material falls in 2022 as the era of cheap money came to an abrupt halt with central banks ratchetting up interest rates in response to rampant inflation and reversing accommodative policies that had underpinned asset price strength in recent years. Stock markets across the globe fell steeply with several key bourses finishing at or near bear market territory including the US Nasdaq Composite (-33.1%), the US S&P 500 (-19.4%), China’s blue chip CSI Index (-21.6%), and the MSCI All-Country World Index (-19.8%).
Despite underperforming the small-cap indices in the December quarter, the OC Dynamic Equity Fund posted a credible return of -10.9% for the calendar year in challenging market conditions. Whilst we never like posting negative absolute returns for our investors, the Fund significantly outperformed the S&P/ASX Small Industrials Accumulation Index (-21.8%) and the broader S&P/ASX Small Ordinaries Accumulation Index (-18.4%) which both fell sharply over the year. The Fund’s outperformance has come despite the strong relative performance of single commodity/single mine resource stocks, in particular coal miners and unprofitable lithium stocks, which are typically screened out of our process as core holdings due to their elevated risk profiles and poor ESG credentials. In 2022, the top six performers in the small-cap Index (by contribution) were all single commodity resource stocks, namely coal mining trio New Hope Corporation, Whitehaven Coal and Coronado Global Resources, Canadian iron ore miner Champion Iron, African gold miner Perseus Mining and domestic oil and gas exploration and production company Beach Energy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/221231-OC-Dynamic-Equity-Fund-Fund-Update-v2.pdfNovember, 2022
Equity markets continued to recover in November after a softer than expected US CPI print and a dovish speech from Federal Reserve (the Fed) Chair Jerome Powell fuelled optimism that interest rates in the US may soon peak and that a protracted recession in the world’s biggest economy can be avoided. The domestic small cap market cruised through a relatively benign AGM season with a resurgent resources sector (S&P/ASX Small Resources Accumulation Index up 11.6%) helping to drive the S&P/ASX Small Ordinaries Accumulation Index up 4.9% for the month. The OC Dynamic Equity Fund had a solid month, up 3.1%, which was ahead of the S&P/ ASX Small Industrials Accumulation Index which finished November up 2.7%.
The Fund has clawed back a large portion of its drawdown over the past year and has now fallen by 3.5% over the past 12-months. This is a credible performance against a backdrop of sticky inflation and rising interest rates and is well ahead of the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which are down 14.0% and 18.3%, respectively, over the same time horizon.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/221130-OC-Dynamic-Equity-Fund-Fund-Update-v4.pdfOctober, 2022
Global equity markets bounced in October following a challenging calendar year to date as optimism grew that the US Federal Reserve may soon start to moderate the pace of interest rate hikes following a further 75 basis point rise in the federal funds rate in early November. Several other leading global central banks, including Australia and Canada, also hinted that the pace of interest rate increases could begin to slow to allow to monetary authorities time to properly assess the impact on the economy of the rapid fire monetary tightening that has been undertaken over the past six months. The markets seem to be in that counter-intuitive paradigm where bad economic news (aside from inflation) is taken as a risk on signal by equity markets participants on that basis that the emerging economic headwinds are likely bringing us closer to the point where central banks cease raising rates. This is a difficult time to invest because sentiment remains extremely fragile, and volatility remains heightened.
The OC Dynamic Equity Fund bounced strongly in October finishing the month up 5.0%. Whilst this was behind both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrial Accumulation Index, which were up 6.5% and 7.4% respectively, it was a nevertheless a credible result given our relatively conservative portfolio positioning and strong recent outperformance.
We did use the aggressive sell-off in the September quarter to add some quality names to the portfolio which had been sold down to attractive entry points, including Domino’s Pizza Enterprises and Johns Lyng Group. Our overriding focus at present remains on investing in quality business models at reasonable valuations that ought to have resilient earnings in a slowing economy. As a team, we remain attuned to the opportunity to add high quality stocks to the portfolio at valuations not seen for many years and we are pleased to report that we are making solid progress on that front.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/221031-OC-Dynamic-Equity-Fund-Fund-Update.pdfSeptember, 2022
Hawkish central banks, ructions in global currency markets, sticky core inflation in the US and concerns about a global economic slow-down weighed heavily on equity markets during the September quarter. Several key stock indices across the globe re-tested their lows of June and a number ended the quarter in bear market territory including the US S&P 500, the US Nasdaq Index, the Hong Kong Hang Seng Index and the German DAX Index. The sell-off gathered pace in the month of September with the US Federal Reserve (the Fed) increasing the Fed funds rate by a further 75 basis points following another elevated inflation print with subsequent commentary from the Fed leaving no doubt as to the near-term trajectory of interest rates in the world’s largest economy. The ensuing strength in the US dollar has created dislocations in bond markets including in the UK where the Bank of England had to intervene to stabilise the GBP pound after new Prime Minister Liz Truss’ mini budget of growth measures drove the sterling to its lowest level against the greenback in 37 years.
The domestic small cap indices gave up the double-digit gains of July when a short covering rally and optimism about a potential dovish pivot from key central banks drove a sharp bear market rally. Both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index finished the September quarter in the red, down -0.5% and -1.0% respectively. The OC Dynamic Equity Fund fared materially better, rounding out the quarter up +7.5%. We have for some time been significantly more bearish than the market consensus on both the outlook for inflation and economic growth and have positioned the portfolio accordingly. This has led to solid outperformance from the portfolio in this calendar year to date, which has been a tricky period to navigate equity markets.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220930-OC-Dynamic-Equity-Fund-Fund-Update.pdfAugust, 2022
The OC Dynamic Equity Fund returned +2.6% in August on the back of a solid reporting season for most of our portfolio holdings, continuing the positive momentum we saw in the July rebound. This was ahead of both the S&P/ ASX Small Ordinaries Accumulation Index and the S&P/ ASX Small Industrials Accumulation Index which were up +0.6% and down -1.0% respectively for the month. Whilst the trajectory of consensus earnings revisions was generally negative across the Australian small-cap market in August, we were pleased with the results of the Fund’s holdings overall and remain optimistic about their prospects for the year ahead, notwithstanding the current macro-economic and geopolitical challenges.
Nitro Software Limited (NTO +37.4%) rallied strongly in August after disclosing a non-binding indicative proposal from a private equity consortium comprised of Potentia Capital and HarbourVest Partners to acquire all the issued capital of NTO for $1.58 cash per share. The proposal is conditional on six weeks of due diligence, exclusivity provisions and board approval. Whilst the proposal is opportunistic, Nitro reduced its guidance for CY22 Annualised Recurring Revenue (ARR) by 12% in July and requires a solid operating outcome in the second half to hit its revised guidance. NTO was a relatively small position in the Fund and we elected to sell into the private equity consortium when approached in a pre-bid raid on the NTO register at the indicative bid price. OC Funds took the view that the certainty of a 40% cash premium in the short term is likely to provide a better outcome on a risk versus return basis than banking on future ARR growth and a potential re-rate in the revenue multiple in an environment where the US Federal Reserve is hiking interest rates and may yet raise rates further than the market expects. NTO is still burning cash and any further slippage in management’s forecasts is likely to be harshly treated by the market as it would result in the requirement for further equity funding before cash-flow breakeven is reached by the company. In terms of the indicative bid, the NTO board is intent on holding out for a better offer which may or may not emerge given that the current consortium holds a substantial 19.9% blocking stake.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220831-OC-Dynamic-Equity-Fund-Fund-Update.pdfJuly, 2022
Global equities rebounded in July following a very tough first half of CY23 on the back of a better than anticipated US reporting season and optimism that the US Federal Reserve could soon reduce the pace of interest rate increases as economic conditions tighten. The market shrugged off earnings downgrades and negative commentary from economic proxies like Walmart and United Parcel Service and instead focussed on the broader results period which exceeded expectations with about 75% of the S&P 500 firms reporting results that exceeded analyst estimates. It was a stark contrast to recent months with even bad news seemingly being good news with above consensus inflation in the US and large rate rises taken as signalling that the end of the interest rate tightening cycle may be nearer as longterm bond yields fell sharply.
The domestic small cap market again took its lead from the US with both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index bouncing strongly from a poor start to the calendar year, up +11.4% and +11.8% respectively for the month. Despite our conservative cash and sector positioning, the OC Dynamic Equity Fund enjoyed a strong rebound, up +12.1% for the month. It was pleasing to see the Fund keep pace with the red hot small-cap market this month after materially outperforming the small cap indices in the downturn in the six months to June 2022. This can be attributed to some strong stock specific updates from several investments during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220731-OC-Dynamic-Equity-Fund-Fund-Update.pdfJune, 2022
The potent cocktail of rising inflation, hawkish central banks, war in Ukraine and further supply chain disruptions has seen asset prices sell off dramatically across the globe over the June quarter. Australian smallcap stocks were no exception with the S&P/ASX Small Ordinaries Accumulation Index down a hefty 20.4% for the quarter. The S&P/ASX Small Industrials Accumulation Index fared only slightly better posting a 18.4% decline for the quarter. Whilst we are never happy reporting negative returns to investors, the OC Dynamic Equity Fund held up relatively well finishing the June quarter down -14.2%. Our decision earlier in the calendar year to further reduce our exposure to long duration growth stocks including technology names and to pare back our exposure to slowing international economies in the US, UK and Eurozone has provided some level of insulation for investors. Additionally, our overweight exposure to stocks that can grow outside of the economic cycle and a cash buffer of +10% has proven to be prudent. Financial Year 2022 will be remembered as a tough one for investors globally with several key offshore indices finishing the 12 months to June in bear market territory, (generally defined as a peak to trough fall in excess of 20%). These ‘bear market benchmarks’ included the Nasdaq 100 (-23.9%), the Hong Kong Hang Seng Index (-24.2%) and the Korean KOPSI Index (-29.2%). Domestic small-cap stocks endured their toughest year in over a decade with the S&P/ASX Small Ordinaries Accumulation Index finishing FY22 down -19.5%.
Resources stocks held up comparatively well over the 12 months on the back of surging commodity prices with the S&P/ASX Small Resources Accumulation Index recording a modest fall of -1.8% and significantly outperforming the S&P/ASX Small Industrials Accumulation Index which plummeted -24.0%. The relative outperformance of the resources sector proved to be a material headwind for the Fund given our aversion to investing in single commodity/single mine resource stocks which can be volatile and risky and are therefore screened out
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220630-OC-Dynamic-Equity-Fund-Fund-Update.pdfMay, 2022
Global markets sold off aggressively early in May as concerns mounted that economic growth will slow as central banks hike rates to target inflation, with the war in Ukraine and China’s lockdowns adding to investor apprehension. The key US S&P 500 Index briefly entered bear market territory (generally considered a 20% fall from peak) before bouncing back later in the month as investor fears around rampant inflation were tempered by a more moderate US April CPI print. The April inflation data showed that price rises slowed during the month leading to speculation that ‘peak’ inflation in the US may have already passed and that the US Federal Reserve (the Fed) interest rate trajectory may therefore be less aggressive than had been previously assumed.
Whilst the S&P/ASX 100 Accumulation Index and broader S&P/ASX All Ordinaries Accumulation Index both held up relatively well, underpinned by the solid relative performance of the big four banks and large-cap resource companies, the small and micro-cap end of the market was punished in May. The S&P/ASX Small Ordinaries Accumulation Index fell some 7.0% for the month and the S&P/ASX Small Industrials Accumulation Index fared even worse, down 7.4%. The OC Dynamic Equity Fund held up relatively well and closed May down 2.8%. Our decision to reduce our exposure to long duration growth stocks and companies with material exposure to Europe and the US over the past six months or so has proven to be a prudent one and provided the Fund some buffer against the significant falls across the broader small-cap space.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220531-OC-Dynamic-Equity-Fund-Fund-Update.pdfApril, 2022
April was a challenging month for markets as the prospect of slower global growth against a backdrop of rising inflation and increasingly hawkish central banks saw most global indices finish lower. The tech heavy US Nasdaq Index led the way entering bear market territory (generally considered a 20% fall from peak) during the month as investors recalibrated for rapidly rising bond yields and several key index bellwethers including Amazon and Netflix fell sharply on disappointing earnings updates. The Nasdaq is now 23.9% below the highs it set in November 2021, after finishing April down 13.6%. Other global indices to sustain material falls during the month included the US S&P 500 (-8.8%), the Shanghai Composite (-6.3%), the MSCI World Index (-8.4%) and the MSCI Emerging Markets Index (-5.8%).
On the domestic front, the broader Australian market continued to outperform (S&P/ASX 200 -0.9%) its global peers which is unsurprising given that surging commodity prices ought to allow our economy to better weather the challenging backdrop of the war in the Ukraine, COVID-19
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220430-OC-Dynamic-Equity-Fund-Fund-Update.pdfMarch, 2022
The March quarter was a challenging one for investors with a multitude of risks including surging inflation, tightening monetary policy, rising bond yields, the Ukraine war, Russian sanctions and soaring commodity prices conspiring to drive equity markets sharply lower across the globe. The domestic small cap market held up relatively well with continued strength in commodity stocks cushioning falls across the broader S&P/ASX Small Ordinaries Accumulation Index, which was down 4.2% during the March quarter.
The divergence in fortunes between the performance of resources and industrial stocks was stark during the quarter with the S&P/ASX Small Resources Accumulation Index up +14.5% for the quarter versus the S&P/ASX Small Industrials Accumulation Index which fell 9.1%. Russia and Ukraine together are major producers of gas, crude oil, coal, aluminium, nickel, copper, titanium, palladium, gold, neon gas, vanadium and cobalt and supply chain disruptions and heavy Western sanctions on Russia has seen energy and commodity prices spike sharply in recent months. Not surprisingly, resources stocks garnered significant investor support with money flowing out of high growth stocks, including technology names, into the commodity and energy names.
Against this backdrop, the OC Dynamic Equity Fund returned -6.2% for the quarter. This was a credible result given our aversion to investing in single commodity or single mine resource stocks which do not pass our strict risk management screens. Many of the companies that comprise the small resources universe on the ASX are pre-production and unprofitable, particularly the battery metals stocks which have performed spectacularly well in recent months.
For instance, early-stage Lithium hopefuls Lake Resources (LKE, +97.5%), AVZ Minerals (AVZ, +59.4%), and Liontown Resources (+13.2%) surged during the quarter and have market capitalisations of $2.5b, $4.3b and $4.1b, yet remain years away from production. In the absence of fundamental earnings support, these stocks will be vulnerable to steep share price falls when the mining cycle turns and commodity prices fall back to earth.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220331-OC-Dynamic-Equity-Fund-Fund-Update-v2.pdfFebruary, 2022
The OC Dynamic Equity Fund finished February down 4.1% which was behind both the S&P/ASX Small Ordinaries Accumulation Index (-0.0%) and the S&P/ ASX Small Industrials Accumulation Index (2.1%).
The strong performance of commodities provided a relative headwind for the Fund with the materials sector +6.9% and energy sector +9.3% during February. Key commodity prices including crude oil, coal, nickel, and safe-haven asset gold surged higher late in the month following the Russian invasion of Ukraine driving resource stocks sharply higher as investors scrambled to increase their exposure. Given the Fund’s aversion to investing in higher-risk single commodity and single mine stocks that dominate the small resources space, it was a challenging backdrop against which to keep pace with the broader index.
Inflation was once again in sharp focus driven by mounting evidence of more sustained pricing pressures across the global economy and increasingly hawkish posturing from central bankers, although the RBA remains an outlier on this. Against this backdrop, it was perhaps not surprising that the Fund's best performers in February included value names NRW Holdings (NWH, +36.3%) and Estia Health (EHE, +12.9%), whilst growth names like Life360 Inc (360, -36.6%), Nitro Software (NTO, -21.4%) and Uniti Group Ltd (UWL, -21.3%) were heavily sold-off.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220228-OC-Dynamic-Equity-Fund-Fund-Update-v2.pdfJanuary, 2022
Equity markets entered the new year with considerable momentum but swiftly reversed course and closed the month well down as concerns about the trajectory of inflation intensified and the prospect of rising interest rates precipitated a short and sharp sell-off. The domestic small cap indices were not spared with the S&P/ASX Small Ordinaries Accumulation Index down 9.0% and the S&P/ ASX Small Industrials Accumulation Index down 9.8% for the month of January. The OC Dynamic Fund fared better, but still closed the month down 7.4%.
Last quarter we flagged our concerns that inflationary pressures were becoming more broad-based and persistent and that central banks were becoming more hawkish. We had consequently increased our exposure to companies that ought to be able to weather a sustained increase in global inflation. This rotation proved timely in January with companies exhibiting solid pricing power or an ability to pass on emerging cost pressures to their customers generally outperforming the market as inflation prints in the US and Australia spooked.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/220131-OC-Dynamic-Equity-Fund-Fund-Update.pdfDecember, 2021
The domestic small cap market continued to track higher in December, brushing aside the rapid spread of the highly infectious Omicron COVID-19 variant across the globe and a hawkish pivot by key central banks, including the US Federal Reserve, to round out the quarter on a positive note. Resource stocks again did the heavy lifting in December rounding out a strong quarter in which the S&P/ ASX Small Resources Accumulation Index was up 14.2% which was well ahead of the S&P/ASX Small industrials Accumulation Index (-1.2%) as the lithium price continued to surge and gold tracked higher for quarter. The broader S&P/ASX Small Ordinaries Accumulation Index rounded out the December quarter up 2.0%. The strength in single commodity/single mine resource stocks which the OC Dynamic Equity Fund typically avoids as core positions presented a material headwind for the Fund versus the small ordinaries index during the quarter, although it still finished the quarter in the black, up 1.0%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/211231-OC-Dynamic-Equity-Fund-Fund-Update-1.pdfOctober, 2021
The emergence of the COVID-19 Omicron variant late in the month triggered a sell-off in global equity markets which plunged the domestic small cap equity market into the red for November. The S&P/ASX Small Ordinaries Accumulation Index finished the month down -0.3%, ahead of the S&P/ASX Small Industrials Accumulation Index which was down -1.4% with resources once again outperforming. The OC Dynamic Equity Fund was marginally ahead of both indices and managed to finish almost flat for the month (-0.1%).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/211130-OC-Dynamic-Equity-Fund-Fund-Update-v2.pdfOctober, 2021
October was a disappointing month for the OC Dynamic Equity Fund with the Fund finishing the month down 1.8%. This was behind both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which returned +0.9% and -0.6% respectively for the month. The Small Resources Index (+6.5%) again materially outperformed Small Industrials Index (-0.6%) during October which provided a significant headwind for the Fund given our general aversion to single commodity/single mine resource stocks due to their risk profiles being incompatible with our investment process. The relative underperformance of the Fund during the month was due to two separate factors.
Firstly, the ongoing strong performance of single commodity stocks such as early-stage lithium company, Liontown Resources (LTR, +31.9%), uranium company Paladin Energy (PDN, +27.5%), lithium miner Pilbara Minerals (PLS, +7.3%) and gold miner Silver Lake Resources (SLR, +26.5%) which were the four largest Index contributors for the month, and which are screened out of our investment universe due to their elevated risk profiles and their more speculative nature. Secondly, some negative outcomes for a few Fund holdings (discussed below) during the month which weighed on the Fund’s monthly performance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/211031-OC-Dynamic-Equity-Fund-Fund-Update.pdfSeptember, 2021
The domestic small cap market enjoyed a solid September quarter, shrugging off concerns about supply chain bottlenecks, rising freight costs, rising energy costs and other inflationary pressures, as well as fears of financial contagion around the China Evergrande debt crisis to grind higher over the quarter. The S&P/ASX Small Ordinaries Accumulation Index finished the quarter up +3.4% and the S&P/ASX Small Industrials Accumulation Index was up +3.8% both of which shaded the OC Dynamic Equity Fund which rose +3.2% for the quarter.
During the quarter, optimism about the reopening of the Sydney and Melbourne economies and the reopening of major global economies was a key catalyst for the domestic small-cap market. Re-opening beneficiaries delivered handsome returns for investors during the quarter, with a basket of ‘re-opening’ stocks tracked by JPMorgan having outperformed the ASX300 Index by a staggering 20.41% since 19 August when the nation crossed the threshold of 50% of the population having received one vaccination. In the domestic small-cap space, the rush of money into re-opening beneficiaries is perhaps best illustrated by the outstanding performance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210930-OC-Dynamic-Equity-Fund-Fund-Update.pdfAugust, 2021
The August reporting season brought a continuation of the positive momentum in equities with the domestic small-cap market shrugging off the impacts of the COVID-19 Delta variant and protracted lockdowns in both NSW and Victoria, as well as news that both the Reserve Bank of Australia and US Federal Reserve will likely begin to taper bond purchases later in the year, to surge to fresh highs. The markets looked through the COVID-19 restrictions and instead focussed on a likely reopening of the economy in the coming months as vaccination levels surge with so called ‘re-opening’ trades exposed to global growth amongst the best performers for the month of August.
The OC Dynamic Equity Fund returned +2.8% in August, which lagged both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were up +5.0% and +6.1% respectively for the month. The underperformance versus the Index was partially due to a lack of exposure to the two largest stocks in the Small Ordinaries Index, lithium miners Pilbara Minerals (PLS, +26.0%) and Orocobre (ORE, 11.5%) which tracked higher as the Spodumene price rallied, and partially due to not owning a handful of global reopening beneficiaries such as Lovisa (LOV, +25.3%), Nanosonics (NAN, +24.7%) and City Chic Collective (CCX, +15.0%) which spiked as optimism grew around the global economy rebounding from COVID restrictions. On balance, we were comfortable with the results of the Fund’s holdings in August and remain optimistic about their prospects for the year ahead.
The August reporting season was broadly positive in domestic equities with investors looking through lockdowns in NSW and Victoria to instead focus on optimism around the likely reopening of our two largest state economies once vaccine targets are met (expected to be 70% to 80% vaccination rates), which is currently projected to occur in October and November respectively. Earnings per share (EPS) across the ASX 200 grew an impressive +28% in FY21, although an elevated number (~45%) of companies still missed consensus expectations, which is well above historical averages. Few companies were bold enough to offer earnings guidance for FY22 with most pointing to uncertainty around lockdowns and government-imposed restrictions for their reluctance to forecast for the year ahead.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210831-OC-Dynamic-Equity-Fund-Fund-Update.pdfJuly, 2021
The new financial year continued the positive recent momentum in Australian listed equities with the S&P/ ASX Small Ordinaries Accumulation Index recording its sixth consecutive monthly gain and the S&P/ASX 200 Accumulation Index stretching its winning run to an impressive 10 months. Whilst the month was relatively quiet from a company news flow perspective with many companies in ‘black-out’ ahead of August results, corporate activity kicked up another gear with several M&A proposals disclosed during the month including bids for Sydney Airport, Spark Infrastructure Group and Iress Limited. News headlines were dominated by the misery caused by the highly infectious Delta variant of COVID-19 which has plunged much of the country back into lockdown and caused significant economic damage at a time when government subsidies and hand-outs have been substantially wound back.
The OC Dynamic Equity Fund started the financial year on a positive note with the Fund returning +2.0% for the month. This was a solid result given that resource stocks were particularly strong in July, led by battery material names, which saw the S&P/ASX Small Resources Accumulation Index (+7.4%) materially outperform the S&P/ASX Small industrials Accumulation Index (-0.9%). Long-term investors will be aware that the OC Dynamic Equity Fund does not hold core positions in resource stocks due to their elevated risk profiles, so the outperformance versus the Index during the month was particularly pleasing.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210731-OC-Dynamic-Equity-Fund-Fund-Update.pdfJune, 2021
The OC Dynamic Equity Fund finished the June quarter up +6.8%, which was behind both the S&P/ASX Small Industrials Accumulation Index (+7.3%) and the S&P/ASX Small Ordinaries Accumulation Index (8.5%). FY21 was in many ways an extraordinary year with markets casting aside monumental health and economic challenges brought about by COVID-19 to post equity returns which were nothing short of spectacular. The S&P/ASX Small Ordinaries Accumulation Index rallied some +33.2% over FY21 and the S&P/ASX Small Industrials Accumulation Index was up +33.0%, which were the best returns from both indices in over a decade (since 2007).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210630-OC-Dynamic-Equity-Fund-Fund-Update.pdfMay, 2021
The domestic small cap index finished modestly higher in May, with the focus of markets still firmly on inflation and particularly on whether the inflationary outbreaks we are witnessing are structural or transitory and the broader implications for monetary policy.
Cyclical stocks continue to outperform as the ongoing rotation from growth to value continues, and technology and other high multiple stocks drift as investors reduce exposure to growth names. The S&P/ASX Small Ordinaries Accumulation Index eked out a small +0.3% gain for the month, with strength in commodity stocks underpinning a solid outperformance versus the S&P/ASX Small Industrials Accumulation Index which was down -0.6% for the month. After a strong 12 months, the OC Dynamic Equity Fund was down -1.5% in May. The Fund’s underweight position in commodity stocks, as well as disappointing earnings updates from Perenti Global and Costa Group were the key reasons for the lacklustre monthly return.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210531-OC-Dynamic-Equity-Fund-Fund-Update.pdfApril, 2021
April was a strong month for equities globally and the domestic small cap market was no exception, with the S&P/ASX Small Ordinaries Accumulation Index rallying throughout the month before finishing up +5.0%. Bond markets stabilised following the release of benign inflation data and central banks in key markets continued to talk down the prospect of rate rises in the short to medium term.
The low interest rate environment is clearly supportive of elevated stock valuations, particularly in long duration growth names, and markets across the globe responded positively to the data during the month. The OC Dynamic Equity Fund posted a solid +5.4% gain in April which was ahead of both the S&P/ ASX Small Ordinaries Accumulation Index and the S&P/ ASX Small Industrials Accumulation Index which were up +5.0% and +3.9%, respectively, during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210430-OC-Dynamic-Equity-Fund-Fund-Update.pdfMarch, 2021
Global markets continued to bounce in the March quarter with a combination of unprecedented monetary and fiscal stimulus from governments and central bankers, accelerating vaccine rollouts in most countries and positive economic data supportive of a continued upwards trajectory in stocks. Following the global lead, the Australian small-cap indices tracked higher, with the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index up 2.1% and 3.3%, respectively, for the quarter. The OC Dynamic Equity Fund too posted a positive March quarter, up 1.3%, albeit our performance marginally lagged the small-cap indices. The OC Dynamic Equity Fund has bounced strongly out of the COVID-19 induced equity market pummelling of the March 20 quarter, with the Fund up 77.5% over the past year. This is comfortably ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which returned a solid 52.1% and 49.7%, respectively, over the same time horizon.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210331-OC-Dynamic-Equity-Fund-Fund-Update.pdfFebruary, 2021
The OC Dynamic Equity Fund enjoyed a solid reporting season finishing the month up +1.3%. The Fund performance was slightly behind the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were up +1.5% and +1.4% respectively for the month. It is now just on a year since the COVID-19 pandemic spread to our shores causing significant collateral damage in the domestic equity market. Over that period, the OC Dynamic Equity Fund has returned investors +27.3% which is well ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which are up +17.2% and +12.9%, respectively, over the same time horizon.
Tourism and transport business Sealink Travel Group (SLK, +32.6%) reported a strong interim result which reinforced the resilience of its business model given the significant operational challenges it overcame during the period operating a business exposed to COVID-19 induced tourism and social distancing restrictions. During HY21, the Transit Systems (TS) bus division reported a solid result as well as winning and renewing key contracts including in Singapore, Adelaide, Perth and the Northern Territory. The Marine and Tourism (M&T) division surprised on the upside with EBITDA of $34.7m, which is back to preCOVID-19 levels despite revenue not yet fully recovering. A focus on tight cost control and extracting operational efficiencies in the challenging COVID-19 environment saw the M&T division significantly improve its operating margins. The SLK business is very well positioned going forward with TS well positioned for success on material upcoming tenders, particularly in Melbourne and Sydney, and the M&T division is expected to benefit as domestic travel opens up in the coming months once the vaccine roll out gathers momentum. Around 83% of SLK’s revenues are now contracted, with governments being the main counter parties. We expect the stock will continue to re-rate in the coming months on further contract wins and as the market gains a greater appreciation of the high quality nature of the company’s earnings stream.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210228-OC-Dynamic-Equity-Fund-Fund-Update.pdfJanuary, 2021
Equity markets continued their strong momentum into the start of the new calendar year with most markets advancing in the early part of the month on the expectation of the vaccine roll-out and the promise of further fiscal and monetary stimulus, particularly in the US. However, early gains reversed as unprecedented retailled speculative activity in a handful of heavily shorted US companies unnerved investors, stoking fears of asset bubbles which perpetuated a brief sell-off across most equity markets.
The domestic small cap market gave up early gains to close January near flat, with the S&P/ASX Small Ordinaries Accumulation Index -0.3% and the S&P/ASX Small Industrials Accumulation Index +0.2%. The OC Dynamic Equity Fund also gave up early gains to finish the month down 0.9%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/210131-OC-Dynamic-Equity-Fund-Fund-Update.pdfDecember, 2020
The OC Dynamic Equity Fund continued its recent momentum in the December quarter with the Fund finishing the period up +14.6%. This was ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were up 13.8% and 12.2% respectively for the quarter.
It capped what has been a remarkable calendar year, in many respects, for equity market participants. We started the year with the panic selling of February and March as the gravity of the COVID-19 crisis dawned on the market with the ASX moving into bear market territory (a retreat of more than 20% from its high), at its fastest rate ever.
But this quickly gave way to a sharp and sustained recovery in markets as central banks and governments took extraordinary measures to shore up their economies and banking systems, while several credible vaccine candidates emerged offering optimism that COVID-19 may soon be in our rear-view mirror.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/201231-OC-Dynamic-Equity-Fund-Fund-Update.pdfNovember, 2020
The OC Dynamic Equity Fund successfully navigated the overwhelmingly positive vaccine news in early November to post a return of +10.4% for the month, ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were up 10.3% and 10.1% respectively for the month. Despite the strong headline numbers from indices domestically, it was a challenging month for fund managers given the high volatility in individual stocks as the share prices of perceived ‘opening up’ or ‘vaccine beneficiary’ companies rocketed and conversely the share prices of ‘COVID-19 beneficiary’ companies came falling back to earth.
November was the Fund’s third double digit monthly return since the March lows and the Fund is now well ahead of the broader S&P/ASX Small Ordinaries Accumulation Index over the past 12 months having returned +12.7% (versus +6.0% for the Index). This is particularly pleasing given that the Fund was poorly positioned heading into the COVID-19 pandemic, being overweight travel and global growth stocks at that time.
We have long told our investors that when the facts change, we are willing to change our investment views and we undertook a significant portfolio rotation again during the month as soon as the stunning Pfizer/BioNTech and Moderna vaccine results were released. In previous monthly reviews, we had talked of our “cautious optimism” around the likelihood of positive near-term vaccine news. As a result, the Fund had entered the month with a comfortable level of ‘vaccine insurance’ in the form of companies that were well capitalised and would benefit from positive vaccine news, including companies such as Sydney Airports. Concurrently, we had been reducing our exposure to perceived COVID-19 beneficiaries such as Kogan and NextDC which had served us well in the preceding six months, but were likely to face near term headwinds in the event of the rotation toward more cyclical stocks which would likely come from successful vaccine trials. Whilst both of these companies have long term structural tailwinds that we expect will to continue to drive growth in the coming years, we sought to get ahead of the herd who were likely to follow suit using perceived ‘COVID-19 beneficiaries’ as a funding mechanism for more cyclical or value-style companies.
Pleasingly, we navigated the major shift in market sentiment relatively smoothly by employing sensible risk management strategies and by further rapidly repositioning the portfolio as soon as the investment landscape changed.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/201130-OC-Dynamic-Equity-Fund-Fund-Update.pdfticker: OPS0001AU
commentary_block: Array
factsheet_url:
https://www.ocfunds.com.au/funds/oc-dynamic-equity/
LATEST REPORT
release_schedule: Monthly
fund_features:
OC Dynamic Equity Fund aims to provide investors with strong long-term risk adjusted returns through investment in high quality small to mid cap industrial companies with sustainable business models and attractive investment fundamentals.
- The Fund focus on companies where we can understand and forecast the key earnings drivers.
- Portfolio consist of 30 – 50 number of stocks.
- Suitable for investors seeking a diversified exposure to quality Australian listed. small and mid-cap companies, as well as shorter-term catalyst-driven opportunities.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australian Multi-Manager
peer_benchmark: Domestic Equity - Multi-Manager Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund