October, 2020
The Small Ordinaries Accumulation Index (XSO) achieved a positive return (up 0.5%) in October which contrasted the negative trend of global equity markets. The Eley Griffiths Small Companies Fund (SCF) returned 0.5% in line with its benchmark. After slumping in September, Financials recovered +5.5%, followed by Consumer Discretionary (+1.7%) and Consumer Staples (+1.7%). Healthcare was the worst performing sector over the past month, returning -8.6%, followed by Communication Services (-2.3%) and Energy (-1.0%).
Equities rallied through the first half of October (XSO up ~7% by the 19th) following the release of a Federal Budget that offered meaningful tax relief for consumers and businesses alike, including the extension of JobKeeper/Seeker programs and the unveiling of JobMaker. Also supportive for equities was dovish commentary from the RBA Governor Philip Lowe which opened the door to further policy easing and purchasing of longer-term bonds.
The final weeks of the month were impacted by news of record rises in coronavirus cases in the United States and parts of Europe. As a result, investor apprehension spiked on news that fresh lockdowns may cripple the global economic recovery. Adding to the risk-off sentiment were concerns a US stimulus package would not be agreed upon before the election and signs of a tightening US Presidential race which might raise the prospect of an unworkable US Congress. Contributing to performance in the month was financial holding and investment platform Netwealth Group (NWL; +13.8%) which made record highs following the release of an impressive first quarter update. Better than expected net inflows (up 29% PcP) confirmed that NWL continue to grow at the expense of rivals HUB24 (HUB) and Praemium (PPS). In a positive sign for domestic economic health, vehicle sales began there long awaited recovery across all Australian states and territories ex-VIC. Eagers Automotive, (APE; +18.7%) pushed higher on a compelling trading update highlighted by NPAT jumping 45% PcP. Combining with enhance revenue was evidence of a reducing cost base which has been achieved from efficiencies derived from its merger with AHG in August 2019. Annual general meetings dominated newsflow throughout October with seemingly above average levels of scrutiny directed to agendas, notably remuneration reports and management incentive structures. Updates in the main were positive, reflecting a prevailing buoyant consumer discretionary environment.
Automotive after-market group and EGG holding Bapcor (BAP) spoke reassuringly about trading for the first quarter of FY21. Stocks whose share prices had overreached fared less well with their management commentaries, such as Temple & Webster (TPW; -15.4%), Adairs (ADH) and Baby Bunting (BBN). Cloud interconnector Megaport (MP1; -16.3%) declined in line with tech sector weakness late on in the month. Investors were also underwhelmed by the company’s Q1 update, namely moderate revenue growth. Looking ahead, as borders begin to reopen the Reserve Bank deputy governor declared Australia is technically out of recession with the September quarter showing modest growth. As flagged by the RBA Governor, on 3 November the RBA reduced the cash rate to 10bp and announced $100bn quantitative easing (bond buying). Finally, the world (and markets) await the outcome of the US election and whether Washington will face policy gridlock issues.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/EGG-ECF-September-2020-Report-Factsheet-1.pdfSeptember, 2020
The Eley Griffiths Group Emerging Companies Fund (ECF) returned 0.5% in the month of September outperforming the Small Ordinaries Accumulation index, which retreated -2.8%. Despite the market weakness which was largely driven by a global sell-off of Tech/Growth stocks, Small caps added to their YTD outperformance the ASX100 which trended lower -3.7%. Energy was the best performing sector in September, up +2.7%, followed by Consumer Discretionary (+0.6%) and Telecommunication Services (+0.1%). Financials were the worst performing sector over the past month, returning - 10.7%, followed by Information Technology (-6.8%) and Materials (-4.1%). While the northern hemisphere braces for a resurgence of COVD-19 and consequent lockdowns, the Australian sharemarket entertained the idea of a vaccine being made available in the coming months, thus promoting rallies in tourism, travel and leisure stocks. Contributing to performance in the month was Coronado Global Resources (CRN; +54.0%) which completed an equity raising in the final days of August to strength its balance sheet. CRN is one of the largest metallurgical coal produces globally and favourably anchored to India’s steel production growth expectations. The met coal price spiked sharply in the month post price dislocation caused by COVID-19 and government announcements of fiscal stimulus infrastructure spending. Detracting from performance in the month was Sezzle Inc (SZL; -32.6%) which experienced a volatile month in line with the BNPL sector as investor enthusiasm diminished on earnings outlook and competitive tensions from PayPal. Despite the fall SZL has returned +84.4% for the Sep Qtr. BWX (BWX; -12.4%) traded lower, likely on a shakeout of recent placement stock. Domestically, the extension of Jobkeeper (with conditions), a bullish budget, and state boarder reopenings should further assist the operating environment for Australian small companies. Stronger household spending and business investment should logically follow. The AGM season is within line of sight and investors will be watching for trading performance updates as guidance updates are expected to be withheld, like reporting season, due to changes to continuous disclosure rules extended to March 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/EGG-ECF-September-2020-Report-Factsheet-1.pdfticker: PIM5346AU
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https://eleygriffithsgroup.com/emerging-companies-funds/
LATEST REPORT & FUND FACTSHEET
asset_class: Domestic Equity
asset_category: Australian Small Cap
peer_benchmark: Domestic Equity - Small Cap Index
broad_market_index: ASX Index Small Ordinaries Index
structure: Managed Fund