September, 2023
The Eley Griffiths Group Emerging Companies Fund (Fund) decreased -2.9% in August, outperforming the Small Ordinaries Accumulation Index which finished -4.0% lower. Since its inception in March 2017, the Fund has delivered a return of +13.1% per annum after fees for its unitholders.
In the month financial markets grappled with a shift in sentiment. Triggered primarily by the US Federal Reserve's (Fed) announcement of a more hawkish (tightening) monetary policy stance, investors shifted from the optimism of a smooth economic "soft landing" scenario, reverting to the "higher for longer" narrative, the prospect of a prolonged period of elevated interest rates. Escalating oil prices added to heightening anxieties about persistent inflation. Moreover, the looming threat of a US government shutdown due to a funding dispute added another layer of uncertainty.
The gold price experienced a decline in response to the more hawkish stance taken by the Fed. Typically, demand for gold softens as higher rates make interest-bearing assets more attractive in comparison to non-interest-bearing safe-haven asset like gold. Detracting from returns in the month were gold names Genesis Minerals (-13%) and Capricorn Metals (-10%). Leo Lithium's (-55%) performance suffered due to rising concerns about regulatory risks in its Mali operations.
Leading contributors to returns in the month was oil and gas explorer and producer Karoon Energy (+10%) and uranium holding Paladin Energy (+30%). Oil prices surged as U.S. crude inventories dropped significantly, surpassing expectations. Combined with OPEC's production cuts, this raised concerns about reduced supply, prompting a rally across the oil complex. Production downgrades announced by a major uranium producer triggered a notable rally in uranium prices.
Finally, Tuas Ltd (+11%) moved higher after reporting a 50% year-onyear increase in revenue. TUA, which owns and operates a mobile network in Singapore, has been making substantial investments in its network infrastructure to achieve the goal of surpassing 60% outdoor 5G coverage by year end.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/205413855.pdfAugust, 2023
The Eley Griffiths Group Emerging Companies Fund (Fund) increased +1.9% in August, outperforming the Small Ordinaries Accumulation Index which finished -1.3% lower. Since its inception in March 2017, the Fund has delivered a return of +13.8% per annum after fees for its unitholders.
In August, observers of the global macroeconomic landscape witnessed a potential peak in interest rates alongside further evidence of a decline in inflation. Despite Federal Reserve Chair Powell's cautious stance on inflation at the Jackson Hole summit, market analyst conceded a low likelihood of further rate hikes, and an eventual shift to potential rate cuts. International markets experienced weakness, primarily driven by concerns about China's economic slowdown and a fragile property market, with obvious repercussions for resource stocks.
Domestically, investors were trained on the reporting season. Shortterm volatility persisted, and the reporting season yielded mixed results, with a greater number of companies surpassing expectations. However, there was a prevalence of FY24 profit downgrades outweighing upgrades. Consumer strength emerged as a significant topic of discussion, as certain consumer-oriented companies surpassed modest expectations, amid mounting headwinds in the retail sector. Meanwhile, cost management proved disappointing, primarily attributed to elevated interest and labour costs, both having a discernible impact on sector profitability.
Detracting from the Fund’s performance was international money services provider OFX Group (OFX), finishing -18% lower following a robust rally in the previous quarter. Investor sentiment soured post the AGM trading update despite management reiterating its earnings guidance and providing commentary that short term trading conditions had stabilised.
This reporting season, investor support favoured early-stage companies with improved cash management and those nearing profitability. Notable examples, and key contributors to performance included Audinate (AD8) and Siteminder (SDR), with returns of +48% and +16% respectively. Media networking solutions provider AR8 reported a 40% revenue increase and achieved its firstever profit. Hotel software company SDR nearly doubled its global hotel customer base in a year. The company's focus on customer growth and cost reduction positions it for profitability in FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/204264575.pdfJuly, 2023
The Eley Griffiths Group Emerging Companies Fund (Fund) increased +4.0% in July, outperforming the Small Ordinaries Accumulation Index which finished up +3.5%. Since its inception in March 2017, the Fund has delivered a return of +13.7% per annum after fees for its unitholders.
International equity markets posted another strong month. Falling inflation and a predicted +25bps hike by the US Federal Reserve extended the Nasdaq’s (+4%) bull market.
The Australian market participated in the global rally, the Small Ords Index outperforming the ASX 100 in the upswing.
Local sentiment improved on a Reserve Bank of Australia (RBA) pause and the June Quarter CPI print coming in below expectations, marking the second consecutive quarter of lower annual inflation, also known as ‘disinflation’*.
Contributors to performance in July included SiteMinder (SDR, +44%), Megaport Ltd. (MP1, +41%) and Genesis Minerals (+13%).
Network-as-a-service company MP1 upgraded profit guidance. A pricing increase, cost control efforts and organic growth in recurring revenue (+40% YOY) driving the result.
Similarly, hotel booking platform SDR announced a positive trading update, the firm nearly doubling its global customer base over the past year. The normalisation of hotel booking activity had compelled hoteliers to increasingly employ SDR’s solutions.
On no specific news PSC Insurance (-15%), Tourism Holdings (-8%) and Silex Systems (-8%) drifted lower detracting from performance.
The focus has shifted from the macro to the micro as August corporate earnings session ramps up. The lead from the US 2Q reporting season has been better-than-expected. Stock fundamentals will reassert themselves again and valuations likely to be called into question. *
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/204032067.pdfJune, 2023
In May, the Eley Griffiths Group Emerging Companies Fund finished -1.0% lower outperforming its benchmark, the Small Ordinaries Accumulation Index decline of -3.3%. Since inception (March 2017) the Fund has delivered a return of +12.7% p.a after fees.
As throughout the year, investors have faced challenges such as high inflation and rising interest rates in the month. The resolution of the US debt ceiling issue in the final hour also added to the macroeconomic complexity. Negative trading updates from the retail sector, indicating a potential slowdown in consumer activity had an impact on market sentiment. A profit warning from Universal Store (UNI; -40%) triggered selling across the entire Consumer Discretionary sector (-6.4%).
Simultaneously, US chip-stock NVIDIA exceeded market expectations driven by surging demand for AI-related graphics processing units. This led to a significant rotation of investment from under pressure consumer/cyclical sectors into Information Technology (+6.9%). Tech companies with exposure to AI attracted investors' interest, as an example, new portfolio holding Appen surged +70% from its capital raise price.
Weighing on portfolio performance was weakness in Small Resources (-7.1%). However, there were more positive signs for the Lithium market, with indications of restocking across the battery supply chain and increased electric vehicle sales in China. Portfolio holdings Leo Lithium (+70%) and Delta Lithium (+43%) performing strongly.
Notable contributor to performance during the month was OFX Group (+28%). The company rebounded following the announcement of an above-consensus earnings guidance, share buyback and an acquisition.
Trading volumes decreased when interest rates began tightening in 2022, leading to decreased liquidity and sentiment, particularly in small/micro industrials. However, recent weeks have seen a rebound in trading volumes, approaching the long-run average. The economic cycle is not to be confused with the market cycle. The latter will move well ahead of time, discounting poor news and looking forward to consumer and business revival.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/200886278.pdfMay, 2023
In May, the Eley Griffiths Group Emerging Companies Fund finished -1.0% lower outperforming its benchmark, the Small Ordinaries Accumulation Index decline of -3.3%. Since inception (March 2017) the Fund has delivered a return of +12.7% p.a after fees. As throughout the year, investors have faced challenges such as high inflation and rising interest rates in the month.
The resolution of the US debt ceiling issue in the final hour also added to the macroeconomic complexity. Negative trading updates from the retail sector, indicating a potential slowdown in consumer activity had an impact on market sentiment. A profit warning from Universal Store (UNI; -40%) triggered selling across the entire Consumer Discretionary sector (-6.4%). Simultaneously, US chip-stock NVIDIA exceeded market expectations driven by surging demand for AI-related graphics processing units. This led to a significant rotation of investment from under pressure consumer/cyclical sectors into Information Technology (+6.9%). Tech companies with exposure to AI attracted investors' interest, as an example, new portfolio holding Appen surged +70% from its capital raise price. Weighing on portfolio performance was weakness in Small Resources (-7.1%).
However, there were more positive signs for the Lithium market, with indications of restocking across the battery supply chain and increased electric vehicle sales in China. Portfolio holdings Leo Lithium (+70%) and Delta Lithium (+43%) performing strongly. Notable contributor to performance during the month was OFX Group (+28%). The company rebounded following the announcement of an above-consensus earnings guidance, share buyback and an acquisition.
Trading volumes decreased when interest rates began tightening in 2022, leading to decreased liquidity and sentiment, particularly in small/micro industrials. However, recent weeks have seen a rebound in trading volumes, approaching the long-run average. The economic cycle is not to be confused with the market cycle. The latter will move well ahead of time, discounting poor news and looking forward to consumer and business revival.
File:April, 2023
The Eley Griffiths Group Emerging Companies Fund (Fund) increased 1.3% in April, compared to the Small Ordinaries Accumulation Index return of 2.8%. The Small Ords outperformed large caps in the month, turning a corner following a period of underperformance. Since inception (March 2017) the Fund has returned 13.1% p.a. after fees for unitholders. Market volatility subsided and sentiment improved in April. US regional bank failures were ringfenced when the US Federal Reserve established a lending program to help meet bank customer withdrawals, avoiding the need for banks to sell treasury bonds at a loss.
US company earnings results season kicked off on a positive note with better than feared results. Management track record, strategy and alignment are cornerstones of our qualitative assessment process. An example of highly regarded leadership is Raleigh Finlayson, MD of gold miner Genesis Minerals (GMD; +22%) who announced the proposed acquisition of St Barbara’s Leonora assets. Finlayson built his track record by creating value for shareholders at Saracen (now part of Northern Star Resources). Recently it was revealed that GMD may face competition for the assets, which will play out in the coming months.
File:February, 2023
After increasing +6.6% in January, the Small Ordinaries Accumulation Index retraced -3.7% in the month. The Eley Griffiths Group Emerging Companies Fund finished -6.9% lower and since inception (March 2017) the Fund has returned +13.6% p.a. after fees for unitholders. A collection of strong US economic data coming in ahead of expectations triggered moves across all asset classes. The data hit sentiment as it supported the view that the US Federal Reserve will be forced to stay on its interest rate tightening path.
Against this backdrop defensive names outperformed, the opposite to January which saw Growth stocks rally as investors speculated peak inflation had been reached. Gold names fell and detracted from performance as the US 10yr Treasury Yields rose by >40bps. Overall, the first half year reporting season showed top line revenue numbers remain robust. Higher costs are hitting corporate margins, especially wage inflation which is now the focus rather than labour availability. Management outlooks were generally conservative acknowledging that the economic backdrop is likely to soften.
Portfolio holdings which beat earnings expectation and contributed to returns in the month were Audinate Group (+9.8%), Tyro Payments (+11.1%) and HUB24 (+11.3%). The Chinese re-opening trade stalled, prompting Small Resources (-9.2%) underperformance of Small Industrials (-2.0%) with weakness across several commodity benchmarks and contracting companies citing cost inflation as prompting delays in capex intentions.
Looking ahead, despite the surprisingly strong US jobs data in the month, Chair of the US Federal Reserve, Jerome Powell said that the disinflationary process “had begun” and that the US was in the “early stages of disinflation” (7 February 2023, Economic Club of Washington speech). The expected gradual downward trend of inflationary data points is likely to lend support to equity markets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/197631341.pdfDecember, 2022
Equity markets could not maintain the strength of the previous two months and drifted lower in December. The Small Ordinaries Accumulation Index returned -3.7%, the Eley Griffiths Group Emerging Companies Fund finished -4.0% lower and since inception (March 2017) the Fund has returned +14.5% p.a. after feesfor unitholders. Despite the US November consumer price index (CPI) print coming in below expectations and the lowest in a year, US Federal Reserve chairman Jerome Powell’s signalled that interest rate increases will continue, albeit at a slower pace. Powell dampened hopes of a Fed ‘pivot’ suggesting rates may stay higher for longer to achieve price stability, implying a return to 2% inflation overtime. (Powell’s Press Conference December 14) Lithium names retreated In December amid concerns around the sustainability of electric vehicle (EV) demand and weaker battery supply chain destocking.
A rotation away from Lithium contributed to Gold’s strength as did the Bank of Japan’s unexpected reversal on its YCC policy (Yield Curve Control) which sent the USD lower triggering commodities priced in USD to trade higher. Contributing to returns in the month were portfolio Gold holdings Capricorn Metals (+9.5%) and OreCorp (+25.7%). Silex Systems (SLX; +12.2%) is commercialising its laser technology to enrich uranium and silicon. In the month SLX announced the achievement of several key project milestones. Beacon Lighting Group (BLX; +10.4%) traded higher as investors anticipate its strategy to develop its Trade (and International) business will offset and outweigh the risk of a cyclical downturn triggered by the rapid cash rate increases over the past 6 months. Detracting from returns in the month was property settlements platform company PEXA Group (PXA; -17.9%). To pay down borrowings, Link Group (LNK) sold 10% of its existing 43% stake in PXA, its remaining shares to be transferred to LNK shareholders via an in-specie distribution. As we move past peak inflation prints central banks will balance guiding inflation lower without bringing economic growth to a grinding halt. As the pace of central banks rate hikes decline, governing company earnings and market direction will shift from monetary policy to bottom-up company fundamentals.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/194754019.pdfNovember, 2022
Equity markets continued to rally in November, the Small Ordinaries Accumulation Index finished +4.9% higher taking quarter-to-date gains to +11.2%. The Eley Griffiths Group Emerging Companies Fund increased +2.6% and since inception (September 2003) the Fund has returned +14.8% p.a. after feesfor unitholders. In the month, buyers turned up on softer October US consumer price index (CPI) print which was accompanied by comments made by Federal Reserve Chairman Jerome Powell that the time for moderating the pace of interest-rate increases may come as soon as December (Brookings Institution speech).
The pattern is bad economic news is good news for markets as deteriorating datapoints validate the central bank pivot narrative. China taking concrete steps toward easing COVID restrictions on a path to re-opening triggered Small Resources (+11.5%) to materially outperformed Small Industrials (+2.6%). The Fund was well positioned for the broad-based rally across the commodity complex with a 20% portfolio weighting to Materials. A +27% surge in the iron ore price saw portfolio holding Mount Gibson Iron up +23%, whilst mineral sands and rare earths miner Strandline Resources gained +18%.
Supported by a rebound in the gold price (+8.3%), portfolio gold holdings Ramelius Resources (+16%), Genesis Minerals (+11%) and Capricorn Metals (CMM; +24%) contributed to the month’s performance. In addition, CMM rallied +10% upon announcing the estimated production from its Mt GibsonGold Project will increase by 32%. Detracting from performance in the month, Life360 (-10%) which executed an equity raising after stock rallied +40% last month on monthly pricing changes. Despite reconfirming earnings guidance at their Annual General Meeting, Ridley Corporation declined -7%. Of note, small cap stock valuations have now reset in line with pre-covid, long term averages. The 12-month forward Price-Earnings (P/E) multiple for the Small Ords is now trading at 14.8x, compared to the 10-year average of 15.0x (Source; EGG, Factset Nov 22)
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/193121590.pdfOctober, 2022
Major developed equity markets rebounded in October headlined by US Dow Jones which recorded its best month since 1976, up +14%. The Small Ordinaries Accumulation Index gained +6.5% whilst the Eley Griffiths Group Emerging Companies Fund finished +5.1% higher and since inception (March 2017) the Fund has returned +14.5% p.a. after fees for unitholders. Markets moved higher on data released in October showing signs of inflation slowing. Global shipping costs, median rents and wages growth measured by the Employment Cost Index (ECI) all moderated in the month. US corporate earnings results proved more resilient than expected aiding the market upswing. Of the firms that had reported, 70% had beaten analyst’s forecasts (UBS Research, 2 November 2022).
Domestically, the Reserve Bank of Australia (RBA) increased the cash rate by 0.25%, nonetheless equity markets rallied on commentary that rises will likely slow (Minutes of the Monetary Policy Meeting of the RBA, 4 October). Contributing to returns in the month were Information Technology holdings despite weaker results from US Mega Cap Tech, with strength in Life360 Inc (360; +40%), Objective Corporation (+13%) and Data#3 (+11%). 360’s update on monthly pricing changes was well received by the market. Global tourism operator Tourism Holdings (THL.NZ; +36%) obtained clearance from competition regulators to merge with Apollo. The combined group is expected to create material cost synergies and greater business resilience through greater geographic diversification. Weighing on returns was video game developer Playside Studios (-13%) which quarter on quarter revenue growth results and operational costs underwhelmed investors. As company fundamentals have taken a backseat to economic and geopolitical news flow which has dominated the market narrative, no one investment style has consistently outperformed for more than two months this year. As a style agnostic manager, not being restricted by a style bias or sector exclusions has been advantageous against a volatile backdrop.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/192223080.pdfSeptember, 2022
After two months of gains, the Small Ordinaries Accumulation Index declined by -11.2% in September. Outperforming its index, the Eley Griffiths Group Emerging Companies Fund finished lower -9.6%. Since inception (March 2017) the Fund has returned +13.7% p.a. after fees for unitholders. Equities were routed when the US August inflation reading topped expectations, quashing investor confidence that a US Federal Reserve (Fed) pivot was conceivable. The Fed’s response was a predicted 75bp rate hike. What surprised the market was the hawkish "whatever it takes" commentary from Fed Chairman Jerome Powell accompanying the decision. The market sold off as a more aggressive rate tightening schedule was priced in. Strong demand has seen both Mining Services and IT Infrastructure sectors hold up against the volatile macro backdrop. Positive Investor sentiment toward Mining Services continued in the month with portfolio holdings Mader Group (+2.1%) and Monadelphous Group remaining resilient. IT infrastructure holding Data#3 Limited (DTL; +3.5%) moved higher upon posting strong revenue growth over FY22 as large companies and government agencies picked up the pace to migrate to cloud-based infrastructure.
The demand outlook is promising, DTL’s CEO Laurence Baynham stating “we continue to experience a steady increase in the pipeline of large integration project opportunities”. Detracting from performance, MA Financial Group Limited (MAF; -30.1%) was sold down as Australia’s Significant Investors Visa (SIV) scheme was called into question by Home Affairs Minister Clare O’Neil. SIV’s are a meaningful contributor to MAF assets under management. Looking ahead, Global transport giant FEDEX, a bellwether US stock for sensing the pulse of the global economy and consumer demand, cut guidance as changing economic conditions start to bite. Similarly, Apple Inc ditched plans to increase production of its new iPhones after demand fell short of expectations. With signs of economic fragility proliferating, investors are debating when the Fed will blink and slow or pause rate hikes. At time of writing early October, the Reserve Bank of Australia bucked the global trend by slowing the pace of interest rate increases sparking a market rally.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/191306375.pdfAugust, 2022
Australia was a relative outperformer posting moderate gains compared to the retreats staged by major global equity markets in August. The Eley Griffiths Group Emerging Companies Fund finished +1.9%, outperforming the Small Ordinaries Accumulation Index which gained +0.6%. Since inception (March 2017) the Fund has returned +16.0% p.a. after fees for unitholders.
The month began on a positive note with equities surging upward after the eagerly anticipated U.S. Consumer Price Index (CPI) print announcement came in below expectations. The “risk on” exuberance was short lived after several U.S. Federal Reserve (Fed) voting members made headlines that a Fed pivot was unlikely and that further rate rises were needed to dampen inflation. Toward the end of August, the month’s steadily accrued gains took a blow with the Fed Chairman’s hawkish rhetoric at Jackson Hole confirming the Fed would continue its tightening policy until confident inflation is returned to target. Small Resources (+5.6%) outperformed in the month driven by strength in Lithium/Battery Materials names.
At the portfolio level, Leo Lithium (+32%) contributed to returns. Sentiment towards Mining Services names turned more positive after better-than-expected FY22 results. Strong demand saw Monadelphous Group (+27%) post record revenue and a substantial new and extended contracts pipeline. Consumer Discretionary results were largely better than feared. EGG investment, fashion jewellery retailer Lovisa Holdings (+30%) was a standout. Information Technology (-4.6%) names remained volatile with weakness over the month. Global cloud connector Megaport (-25%) gave back some ground after July’s breakneck rally. Also weighing on performance was chemicals and logistic conglomerate DGL Group (-26%). While DGL announced a record profit, investors recoiled on the uncertain earnings outlook.
Overall, the domestic reporting season scorecard shows company earnings ‘beats’ trumped ‘misses’ verse expectations. Better than feared was bought, whereas downgrades were punished by the market. The season highlighted the deterioration effect higher than normal buffer inventories had on cash flow. Higher operational expenditure a consistent feature with both labour and material cost inflation. Finally, management outlook statements suggested that the consumer is still spending with no sign of slowdown yet.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190500949.pdfJuly, 2022
Global equity markets (ex-China) rebounded strongly in July. The Small Ordinaries Accumulation Index rallied +11.4% over the month, a significant outperformance against large caps which gained +5.5%. The Eley Griffiths Group Emerging Companies Fund finished +9.4% higher in the month and since inception (March 2017) the Fund has returned +15.9% p.a. after fees for unitholders.
There was early indication that bad news is now being discounted into stock prices. Markets pushed higher despite the US CPI report for June the highest print in 41 years, 9.1% year on year compared to the 8.8% estimate. Equities took the number in its stride failing to extinguish the “risk on” sentiment. As predicted, The Federal Reserve (Fed) raised rates by 75bp in response and whilst Fed Chair Powell’s broader messaging didn’t overly change, comments that the US economy may be showing signs of slowing were less hawkish than expected. The war on inflation is being won. The market responded by pricing in a lower peak Federal Funds rate and increasing the likelihood that rates may be eased in 2023 reflecting the impact higher rates will have the on real economy.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189451321.pdfJune, 2022
The downward trajectory of global equity markets continued in June as central banks displayed a willingness to hike rates aggressively in the near term to fight inflation. This hard stance increased concerns of a swift contraction in global economic activity. Against this backdrop, the Eley Griffiths Group Emerging Companies Fund finished lower by 14.2% versus the Small Ordinaries Accumulation Index, which declined 13.1%. Since inception in March 2017, the Fund has returned 14.2% p.a. net of fees.
The US Fed delivered a 75bp rate hike in June, the largest rise since 1994, after May’s CPI accelerated at the fastest rate since 1981 (8.6%). Chair Powell signalled another large hike in July to fight inflation “expeditiously.” Likewise in Australia, the RBA surprised markets with the largest rate hike in 22 years (50bp) to bring the cash rate to 0.85%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188508529-1.pdfMay, 2022
The Australian equity market run of outperformance relative to global peers came to an end in May. Big picture macro factors such as inflation, rate hikes and China’s Zero-COVID policy combined to weigh on the local market. The Eley Griffiths Group Emerging Companies Fund finished lower by 9.0% versus the Small Ordinaries Accumulation Index, which declined 7.0%.
Concerns that higher interest rates could impact consumer confidence dragged housing and consumer discretionary names lower. Softness in Beacon Lighting (-16.6%) and Universal Store Holdings (-14.6%) examples. Labour shortages and supply issues has become a familiar explanation of guidance downgrades. Portfolio holding Aussie Broadband (-24.8%) warned that sales growth could be impacted by reduced marketing during the election, mobile-phone handset supply issues and inferior customer service standards as they struggle to recruit for its call centre.
Actions by management, rather than company performance, saw two portfolio holdings sold down in the month. DGL’s (-26.8%) CEO made inflammatory comments about the performance of a fellow New Zealand based company IPO and its CEO. Johns Lyng Group (-32.9%) were marked down after the CEO and COO each sold 1m shares, accompanying the groups reaffirmed earnings guidance.
Against the volatile backdrop, low-beta, defensive portfolio holdings were bid, Propel Funeral Partners (+7.4%), Cobram Estate Olives (+9.4%) and G8 Education (+4.6%). Finally, chartered flights company Alliance Aviation (+7.4%) received a takeover bid from Qantas, three years after it acquired a 19.9 per cent stake in Alliance.
After 18 consecutive rate cuts (4.75% to 0.10%) the RBA increased rates for the first time in over 11.5 years +25 bps to 0.35% in May. In the US, rate increase forecasts softened after April CPI data comforted investors that the economy had moved past peak inflation. Subsequent to month end, a higher than expected inflation rate in May shook markets and reignited the prospect of a more aggressive tightening cycle.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187741411.pdfApril, 2022
Global equity markets were dragged down by the weight of big picture macro overrides in April. The Eley Griffiths Group Emerging Companies Fund finished lower by 3.6% versus the Small Ordinaries Accumulation Index, which declined 1.5%. The Australian market remained among the most resilient developed equity markets in the face of rising inflation prints, expectation of higher interest rates, and the geopolitical uncertainty was too much for most major global benchmarks to fight. The S&P 500 finished April down 8.8%, China’s Shanghai Comp fell 6.3% while the Tech heavy Nasdaq posted its largest monthly decline since 2008, losing 13.3%. The Australian Small Ords Information Technology sector followed suit, falling 12.5%.
The damage experienced among US Tech stocks has been extraordinary. More than 22% of Nasdaq holdings are down 75%. High profile representatives, Robinhood and ARKK Innovation ETF remain under huge pressure down -90% and - 70% respectively from all-time highs. An inflection point in inflation, pivoting to a negative rate of change would be positive for equity markets. A continuing positive trajectory would be negative. Overall, the portfolio has maintained a significant underweight to IT.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187143132.pdfMarch, 2022
After a sluggish start to the month, a widely anticipated 25bp hike by the US Federal Reserve (FOMC) triggered the equity market upswing. Stunning inflation prints instigated months of investor angst over the timing and pace of rate rises. Investor reaction to the eventual hike was a case of "sell the rumor, buy the fact", a reversal of the well-known adage. With a further 200 bp cumulative increase anticipated this year in the The US, investors now turn their attention to whether the Fed’s action can rein in inflation at 40-year highs without hard landing the economy.
The Small Resources (+12%) once again materially outperformed the Small Industrials (+2%) in March. The Fund has been well-positioned for the broad-based rally we have seen across the commodity complex. Materials and energy stocks now account for over 26% of the Small Ordinaries Index. Strength in Lithium holdings contributed to returns in the month, Core Lithium (79%) released promising drilling results from its Northern Territory site, the location of its supply agreement with electric vehicle giant Tesla forged in the month. Liontown Resources (+31%) extended is Offtake Term Sheet agreement to supply LG Energy Solution with one-third of its Kathleen Valley production commencing 2024. Gold holding Firefinch (+61%) off the back of exploration drilling published encouraging mineral resource and ore reserve estimate for its Morila Gold Project in Mali.
Growth, no P/E names struggled through the beginning of the month with Carbon Revolution (-26%) and Siteminder (-21%) detracting from performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/185711803.pdfJanuary, 2022
Hawkish comments from the US Federal Reserve and blistering global CPI prints saw global equity markets sell off in a volatile start to the year. The Eley Griffiths Group Emerging Companies Fund finished down -9.6% in line with the Small Ordinaries Accumulation Index (XSOAI) which declined -9.0%. US Fed Chairman, Jerome Powell emphasised that stronger than expected economic activity and tightening labour market has set the tone for interest rates to increase. Inflationary pressures have been mounting due to the rapid expansion of the US economy (GDP +5.5% in 2021), a tightening labour market and the debilitating effect of global supply chain disruptions. Further, futures markets are suggesting 4-5 rate hikes in 2022 and 2 in 2023 from the Fed.
Domestically, headline CPI surged in the December quarter whilst Australia’s core inflation clocked its fastest annual pace since 2014. Markets were in search of a market correction catalyst, the anxiety surrounding the FOMC’S timing and magnitude of interest rates hikes, and imminent balance sheet reduction were just the elixir for a retracement in stocks.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183044739.pdfDecember, 2021
In the month, the Eley Griffiths Group Emerging Companies Fund (ECF) gained +1.0%, compared with the Small Ordinaries Accumulation Index (XSOAI) which finished up +1.4%. The fund returned +34.2% versus the XSOAI +16.9% in 2021.
The XSOAI retraced as much as -4.5% in early December as news of the fast-spreading Omicron variant continued to weigh on risk appetite. As fears around the severity of the Omicron variant moderated, domestic markets staged a characteristic year end Christmas rally. Aiding the positive sentiment was commentary from Fed Chairman Jerome Powell, talking to the strength of the US economy which settled investor angst that a faster cadence of interest rate hikes might derail the economic recovery.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/182007035.pdfNovember, 2021
In a volatile end to the month, the Eley Griffiths Group Small Companies Fund (SCF) increased +2.46%, outperforming the Small Ordinaries Accumulation Index (XSOAI) which fell -0.31%. After posting solid gains midway through the month, two events triggered domestic equity markets to sell-off into month end. First was the discovery of a new COVID-19 variant Omicron in South Africa and its risk of derailing the economic revival. Whilst the World health Organisation has reported no deaths from Omicron, it could take weeks to determine how effective current vaccines and other treatments might be against it. While the WHO stress it is too early to draw conclusions, indications are that the new variant, while highly transmissible, may be less virulent.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/181250732.pdfOctober, 2021
In the month, the Eley Griffiths Group Emerging Companies Fund (ECF) increased +3.7%, outperforming the Small Ordinaries Accumulation Index (XSOAI) which returned +0.9%. The volatility seen in September tempered as concerns that one of China’s largest property developers Evergrande would collapse were alleviated when debt commitments were met. Furthermore, reporting of strong US corporate earnings helped dispel fears of slowing global growth.
Domestically, the resilience of the labour market and rapid reopening of the economy appears to have resulted in a materially higher-than-expected Q3 CPI data (2.1%) the highest since 2015. In response the market priced in several interest rate hikes for 2022, defying the RBA’s forward guidance of no rate hikes until 2024. The RBA subsequently withdrew this expectation on Melbourne Cup Day.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180358178.pdfSeptember, 2021
In a volatile month, the Eley Griffiths Group Emerging Companies Fund (ECF) increased +0.8%, outperforming the Small Ordinaries Accumulation Index (XSOAI) which declined - 2.1%.
Contributing to September’s weakness were fears that one of China’s largest property developers, China Evergrande Group, would fail under $300 billion in liabilities and leave 1.5 million buyers waiting for finished homes. The People’s Bank of China has been steadily tightening property market restrictions to rein in ballooning prices and household debt driven by rising urbanisation. The government announced they would introduce policies to avoid a hard property market landing vowing to ensure a “healthy property market” and protect homeowners’ lawful rights.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179510024-1.pdfAugust, 2021
In a strong month, the Eley Griffiths Group Emerging Companies Fund (ECF) climbed +7.7%, outperforming the Small Ordinaries Accumulation Index (XSOAI) which gained +5.0%. Small caps firmly outpaced large caps which gained +1.7% in the month.
In a reversal of July, the index strength was driven by the Small Industrials (+5.8%) overshadowing a softer Small Resources (+0.7%) performance, surrendering much of the gains of last month. A -15% plunge in the Iron Ore price (-45% from May’s highs) sent shockwaves through the commodities sector. The weakness in Iron Ore was likely triggered by a build-up in Chinese portside inventories and a pledge to curb steel production from a number of mills. Detracting from the portfolio’s performance were Mineral Resources (-13%) which gave back a wedge of July’s gains, whilst Sims (-8%) momentum stalled despite announcing FY21 earnings guidance had been exceeded.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/178465741.pdfJuly, 2021
The Eley Griffiths Group Emerging Companies Fund increased 1.6% in June compared to its benchmark, the Small Ordinaries Accumulation Index which finished +3.1%. Small caps added +0.9% to its outperformance of large caps, finishing up a robust 33.2% or 5.3% ahead of the ASX 100 for FY21.
The Fed worked to a hawkish tilt in the month, signalling tapering and ultimately putting tightening back on the table to avoid overshooting the targeted inflation band. The modified narrative flattened the US yield curve by 23bp, triggering moves across a range of asset classes. In equity markets, growth stocks came back into fashion clawing the Small Cap Tech sector back into the black (+3%) for FY21. Leading Small Cap sectors for the FY21 were Consumer Discretionary (+37%), Financials (+35%) Telecommunication Services (+31%) and Materials (+23%).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174050475-1.pdfJune, 2021
The Eley Griffiths Group Emerging Companies Fund increased 1.6% in June compared to its benchmark, the Small Ordinaries Accumulation Index which finished +3.1%. Small caps added +0.9% to its outperformance of large caps, finishing up a robust 33.2% or 5.3% ahead of the ASX 100 for FY21.
The Fed worked to a hawkish tilt in the month, signalling tapering and ultimately putting tightening back on the table to avoid overshooting the targeted inflation band. The modified narrative flattened the US yield curve by 23bp, triggering moves across a range of asset classes. In equity markets, growth stocks came back into fashion clawing the Small Cap Tech sector back into the black (+3%) for FY21. Leading Small Cap sectors for the FY21 were Consumer Discretionary (+37%), Financials (+35%) Telecommunication Services (+31%) and Materials (+23%).
The start of yield curve compression saw cyclical names sold off in the month. Commodity markets reacted sharply with inflation sensitive gold falling 8%. As a result, EGG gold portfolio holdings gave back ground after May’s healthy performance. Detracting from performance was West African Resources (-10%) which post month end, announced its Sanbrado mine had achieved a record quarter production result. Construction materials provider Wagners Holding Co (-10%) fell in conjunction with the cyclical retreat.
Contributing to performance was lithium exploration holding Liontown Resources (LTR; +53%) as investor appetite for EV/battery thematic remains resilient. LTR’s, Kathleen Valley project is a significant lithium deposits and management hope to have the mine online by 2025.
Fellow mining holding, Aeris Resources (AIS; +22%) bucked a softer copper price (-9%) in June which had broken through record highs in May. Supply growth for copper looks challenged compared to future demand from decarbonising economies. AIS recently completed capital raise to fund more drilling and extend the working life of its mines.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174050475.pdfApril, 2021
In a strong month, the Eley Griffiths Group Emerging Companies Fund (ECF) climbed +7.9%, outperforming the Small Ordinaries Accumulation Index (XSOAI) which returned +4.9%. Only a handful of names finished in the red for the month, largely attributed to company specific matters, such as earnings revisions and operational setbacks.
The release of subdued inflation data in the month was welcomed by investors apprehensive about the possibility of a stimulus driven inflation spike which could eventuate into policy tightening. With concerns alleviated, investors returned with enthusiasm to small cap stocks, especially those aligned to the recovering economy. Information Technology (+10.1%) and Financials (+7.3%) were among the better performing sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/172233848.pdfNovember, 2020
Global equity markets propelled higher in November on positive vaccine news and the US Election outcome. Locally the ASX200 posted its best November on record (+9.9%) and best month in over 30 years. The Small Ordinaries Accumulation Index (XSO) rallied 10.3% slightly ahead of the ASX100 (+10.2%) extending its YTD outperformance to 7.1%. The Eley Griffiths Emerging Companies Fund (ECF) gained 6.9%. Energy names surged +16.6%, followed by Financial +13.1% and Industrials +10.2%. Information Technology stocks lagged (-2.2%), followed by Communication Staples (+0.6%) and Communication Discretionary (+3.0%).
Thematically, three separate promising vaccine announcements from Pfizer, Moderna & AstraZeneca galvanised the economic re-opening trade triggering a breakneck rotation into Cyclical & Value names at the expense of Growth/Tech & Covid-19 Stay-At-Home beneficiaries. Furthermore, the energised risk-on sentiment saw Gold miners sold off. This shift was played out across global markets throughout November.
The month started on a positive note with the ASX200 rallying 2% on the day the RBA slashed the cash rate to 0.10% from 0.25%, plus announcing a new $100bn bond-buying program over the next six months to fulfil its mandate of achieving full employment. The US Election result was received positively by the market, first a Biden victory, second the Republican’s winning the Senate theoretically preventing major policy changes. A political standstill reduces the threat of tax hikes and increased regulation whilst applying pressure back on the Fed to continue its stimulus heavy lifting.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/162930545.pdfticker: PIM5346AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
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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
manager_contact_details: Array
fund_features:
Eley Griffiths Group Emerging Companies aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over a rolling 5 year period.
- The Fund principally invests in equities of Australian and New Zealand companies listed on the ASX and NZX that fall outside the S&P/ ASX200 Index and some cash.
- The Investment Manager is an active manager who makes decisions about buying and selling investments of the Fund on a daily basis.