September, 2023
The Fund weathered a volatile September, with a decline of 4.3% (net of fees) in line with its benchmark’s fall. The month saw a sharp move up in interest rates, particularly at the longer end of the curve. The yield on US 10 Year Treasuries spiked from 4.11% to 4.57%, driven by higher for longer rate expectations, a resilient US economy and sharply higher crude oil prices. Such dramatic moves drive increases in volatility and push up discount rates on equities, which especially hurts the longer duration infrastructure and technology segments of the market. Paladin Energy (PDN) was the best contributor for the month. The Uranium producer rallied as uranium prices globally began to climb, expectations around increased use of uranium globally in the energy transition lifted and as the company successful navigates the restart of its Langer Heinrich mine in Namibia, scheduled for 1 st Quarter 2024.
Ventia Services (VNT) also enjoyed a solid month. There was no specific company news released, although we note that VNT was not rewarded by the market after releasing a solid FY 23 profit result in August. With the flurry of results late, it may be the market was catching up with that news.
Finally, Metcash (MTS) was also a solid contributor. Again, there was little company specific news released but the read through from the results released by grocery rivals Coles and Woolworths, as well as hardware group, Bunnings, all suggested that MTS was more than holding its own, despite expectations of a loss of share in a post COVID normalisation.
Detracting from performance was Block (SQ2). The company suffered a small outage in its Square Seller retail point of sale equipment globally which hurt sentiment, while the march up in longer duration interest rates hurt its valuation as discount rates spiked, disproportionately impacting longer duration equities such as SQ2.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-2-1.pdfAugust, 2023
August was a disappointing month for the strategy, which delivered a return of -3.1 (net of fees), compared to that of its benchmark at -1.4%. While the market’s return for the month was relatively benign it masked some substantial volatility at a stock specific level in response to the results season outcomes. Over 20 companies in the ASX 200 moved up or down by more than 10% post report release – the highest number we can recall. This was despite limited levels of earnings revisions. Positioning and liquidity seem to be in command of stock prices at present.
Our best contributor for the month was Cochlear (COH), which delivered strong earnings growth as implant surgeries normalised as hospital waiting times globally began to return to pre COVID levels. More encouragingly, the outlook provided by COH was above expectations, even after allowing for a lift in development expenses, while implant surgery into older cohorts was called out as a focus of Sector allocation future growth. Given the importance of social interaction in a healthy aging process, we have been hoping to see this progress.
Medibank (MPL) also performed well in August. Like COH, it recorded a solid profit result, above the market’s expectations. It also showed a strong fourth quarter recovery in new policy additions, indicating the company was putting the operational impacts of last year’s cyber attacks behind it.
TPG Telecom (TPG) also had a good month. It confirmed it was in negotiations with Vocus to sell its fibre network for a sum of approximately $4.1bn. This is a very good price. It also enjoyed the benefit of market leader, Telstra, driving up mobile telephony yields, which it followed.
Detracting from performance were Block Inc (SQ2) and Judo (JDO). Having risen by more than 21% in July, SQ2 shares were sold down in August after reporting its 2Q23 results. This was despite the company exceeding expectations and upgrading full year EBITDA guidance. The decline appears to be driven by the outlook provided by management whereby 3Q23 gross margins were decelerating, as well as overall macroeconomic concerns. A material portion of SQ2’s earnings are exposed to transaction volumes in small and medium sized businesses, which are adversely impacted by a slowdown in US consumer spending.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-1-1.pdfJuly, 2023
The portfolio returned 3.1% net of fees in July, behind the benchmark which returned 3.4% during the month. Markets were strong as a series of data points has led markets to believe that a soft landing can be achieved. It appears that the market is more convinced that inflation can be curbed without a significant increase in unemployment, allowing Australia to avoid a recession - resulting in a “risk on” trade. Our strongest contributor was Block (SQ2) which despite limited stock specific news rallied 21.4% as part of the risk-on trade and more positive sentiment on the resilience of the US consumer.
Seek (SEK) also benefited from a shift in thinking about the macroeconomic environment. The market has previously been concerned about SEK’s volumes if the unemployment rate were to increase.
Judo (JDO) shares increased after providing an update which showed that it had grown its loan book by 46% to $8.91 billion in FY23.
Aurizon (AZJ) shares finished the month weaker. Late in the month the company held an investor day where it provided FY23 EBITDA guidance towards the bottom end of its previous target range of $1.42-1.47bn due to the impact of wet weather, production issues and labour shortages. In addition, the company provided FY24 EBITDA guidance of $1.59-1.68bn. At the investor day, Aurizon announced bullish FY30 targets for its Bulk business and containerised freight strategy, which the market is not yet giving the company credit for as it is early days on execution.
Tabcorp (TAH) was softer in July as the market grew concerned about the potential for regulatory change. The Standing Committee on Social Policy and Legal Affairs handed down its findings and recommendations in the prior month. Amongst the recommendations are a total ban on all forms of gambling advertising and sponsorship, a ban on all inducements and the creation of a national online regulator. Whilst we are cognisant of this risk, we believe that Tabcorp is likely to be the exclusive winner of the Victorian wagering license which could provide a significant uplift to EBITDA in the near to medium term.
IGO Limited (IGO) provided a strong Q4 production and sales update. However, the company also gave FY24 production and capex guidance, of which the latter disappointed the market as it was significantly ahead of expectations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-7.pdfJune, 2023
June was a roller coaster month with volatility in the Australian market moving up in a material fashion. The standard market benchmark index, the S&P / ASX 200 oscillated between a peak of 7,350 and a low of 7,090 points. Our benchmark, which excludes the Top 20 companies, generated a return of 0.8%. Amidst such volatility it was pleasing, that the Fund delivered a net return of 1.3% which bettered our benchmark.
The tug of war between inflation curtailing policies of central banks and resilient global economies continues, although there were clear signs that the Chinese economy has not rebounded as many had hoped in the wake of the lifting of all COVID 19 restrictions.
Our best contributor for the month was Aurizon (AZJ) which benefitted from a realisation in the market that its Central Queensland Coal Network asset is a beneficiary of the higher inflationary environment. This led to several broker upgrades which took the stock higher as investors sought inflation havens.
Ventia Services (VNT) also contributed well. In June, VNT continued to win new business and extend its existing contracts. We have liked VNT for its contract risk management processes and its exposure to contracts in relatively economically insensitive areas, such as defence.
Finally, Paladin (PDN) performed well as its share price rebounded after being sold-down in late May driven by fears of partial government intervention in its key Namibian asset, Langer Heindrich. It also benefitted from more positive sentiment towards nuclear energy as a genuine option in the global quest to drive down emissions from energy production.
Detracting from performance was Seek (SEK). There was no news released by the company, and the shares drifted lower on concerns about the outlook for job volumes in Australia and New Zealand, given market fears of a looming and significant recession in Australia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-6.pdfMay, 2023
Australian shares fell in May as lower commodity prices, higher interest rates and weak consumer spending cautioned investors.The sharpest falls were in the consumer discretionary and staples sectors given signs of a retail recession for consumer spending. The combination of higher mortgage interest rates, rising rents and stubborn inflation pressures is squeezing purchasing power.
There was also notable weakness in the resource sector given lower coal and iron ore prices on China concerns. Financials also disappointed given the prospect of lower profit margins with higher deposit interest rates and more sedate credit demand. Echoing the US market and the surge of investment interest in anything remotely related to artificial intelligence (AI), the Australian Information Technology sector posted a double-digit gain for May. The strategy generated a net return of -1.6% for the month, compared with our benchmark decline of -1.4%. Sector allocation Our best contributor was Telix (TLX). TLX held its AGM in May at which the company noted its plans to build on the success of Illuccix, which is used in the detection of prostate cancer and also on the results from its Phase III ZIRCON study of TLX250-CDx in clear cell renal cell carcinoma.
Management reiterated their strategy and confirmed $100m in R&D investment for 2023. Tabcorp Holdings (TAH) held its investor day where it outlined its progress towards its FY25 targets. The company highlighted its ongoing investment in data analytics and its new brand marketing initiatives. Worley (WOR) reiterated guidance at its investor day and put forward targets for margin expansion and double-digit growth over the medium term.
The company also highlighted that its pivot to sustainability is gaining momentum. Of stocks held in the portfolio our biggest detractor was IDP Education (IEL). IEL shares were sold off sharply on news that the Canadian government was opening the English testing in the Student Direct Stream market to other providers.
File:April, 2023
April saw markets rally on relief around signs that banking issues which flared in March had been adequately quarantined by regulators and central banks. Despite this, it was not a “risk on” month, rather one which saw outperformance of more defensive stocks. The strategy generated a net return of 3.4% for the month, in line with our benchmark. Our best contributor was Telix Pharmaceuticals (TLX). Shares in TLX enjoyed a stellar month after reporting revenue of A$100m for the first quarter of 2023.
Consensus broker estimates of revenue for the full calendar year 2023 were A$360m and following the disclosure of first quarter numbers that consensus forecast was increased to A$470m, an upgrade of 30% which in turn drove the stock price up 35%. Our decision to exit Mineral Resources (MIN) earlier in the year was rewarded as the stock provided a disappointing March quarter update and materially underperformed the market as a result, helping our relative performance. Sector allocation Finally, Northern Star (NST) rallied as gold received a fresh bid on signs that the US economy may be weakening.
This led to a weaker US dollar, thereby benefitting gold prices. Our biggest detractor was Block Inc (SQ2) which fell on the release of some research from a short seller which alleged that many of the cash app accounts on the SQ2 platform were fraudulent or used for nefarious purposes. We have read the report and following additional disclosure from SQ2, as well as a number of discussions with US based analysts and benchmarking of payment issues as disclosed by major US banks such as Bank of America, we feel the research to be unfounded and have retained our position.
File:March, 2023
The portfolio outperformed in March, delivering a net return of 0.4% which compared to the benchmark return of -0.6%. March was dominated by the uncertainty caused by the US banking crisis and an ongoing focus on central bank action in response to inflation. REITS and financial services underperformed while materials and communication services outperformed.
Of stocks held in the fund, our best contributor in March was Ventia (VNT) which saw strong share price performance after delivering a CY22 result in late February that beat consensus expectations and prospectus guidance. The result highlighted the non-discretionary nature and predictability of revenue and a business that has managed costs well in an inflationary environment. The company also provided guidance for CY23 NPATA growth of 7-10%, underpinned by strong pipeline visibility and record work-in-hand. Major shareholders Apollo and CIMIC also sold down 93 million shares in March, representing 22% of the company’s issued capital which has improved liquidity in the stock.
Northern Star (NST) shares rallied during the month as the US banking crisis saw gold prices increase by 8%. The company provided an update on its Pogo Operation in Alaska where gold production was halted in order to repair damage to the ball mill motor that was discovered during routine repairs. While the disruption is expected to impact production by 20-40k oz in FY23, the company’s production guidance remains unchanged.
Cochlear (COH) continued to perform well in March, following a strong result in February which saw earnings guidance for FY23 maintained. The post COVID recovery in elective surgeries continues and earnings are also likely to benefit from the launch of the Nucleus 8 product. We also believe COH shares may have benefitted from investors positioning in higher quality, defensive stocks given the market uncertainty in March.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-5.pdfFebruary, 2023
February saw markets cool after a strong January. The strength of the US economy is driving expectations of higher rates for longer which is creating increasingly negative sentiments in markets. The strategy generated a net return of -1.7% for the month, which, disappointingly, trailed that of our benchmark at -1.3%. We have historically performed well in reporting periods, this time however, we think the market had a very strong macro lens and has missed some interesting developments in key holdings. Our best contributor for February was Medibank Private (MPL).
We have maintained our view that the market over-reacted to the potential impact on customer retention after its cyber security incident. This was partially vindicated in its half year result as policy numbers stabilized and began to grow again in February, whilst claims inflation, a key aspect of our thesis, was lower than expected, which helped support the stock. Sector allocation Lottery Corporation (TLC) also enjoyed a strong month on the back of a result that beat expectations. Revenue growth was ahead of market and costs were well-managed leading to upgrades, taking the share price with it. Further, TLC benefitted from being seen as a “defensive growth” stock that could deliver in a choppy market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-4.pdfJanuary, 2023
The Fund returned 6.9% (net of fees) for the month outperforming our benchmark’s return of 5.6% by 1.3%. Equities started the year strongly. Despite inflation data exceeding market expectations in Q4, indications of a moderation in inflation continued and the market interpreted commentary from the US Federal Reserve as incrementally less hawkish. Whilst the labour market remains strong this has caused investors to increasingly price in the likelihood of a pause in rate hikes and a potential soft landing. This, coupled with news of China re-opening appears to have put markets into “risk-on” mode and driven the positive performance of equities for the start of 2023, with cyclical growth performing strongly and defensives lagging.
The portfolio benefitted from share price appreciation in a number of long duration growth names on the back of the interest rate outlook. Block (SQ2) was one such example which had limited stock specific news but appreciated in line with the Sector allocation broader US technology sector. Seek (SEK) shares were higher on the back of evidence that job listings are stabilising and that the number of candidates per ad is lifting, assisting the company’s dynamic pricing strategy.
IDP education (IEL) shares also rallied on the back of the China re-opening and Australian data that showed a very strong rebound in student visas for the December half. Of stocks owned by the fund, key detractors from performance included Medibank (MPL), with press reports in January suggesting that three law firms had merged their class action lawsuits against Medibank following the data breach last year. Tabcorp (TAH) and Aurizon (AZJ) were also both weaker on limited stock specific news.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-3.pdfDecember, 2022
December saw markets resume their declines on the back of continued hawkish language from global central banks about the need to maintain higher interest rates for longer to deal with inflation. These fears were magnified, somewhat ironically, by continued good economic news in the United States. Adding to the confusion was the COVID situation in China which had been deteriorating, yet we saw the authorities pivot quickly away from the strict COVID Zero policy to an almost full re-opening of the country.
The Fund returned -4.4% (net of fees) for the month which compared to our benchmark’s return of -3.4%. Of the stocks owned by the Fund, our best contributor for the month was Northern Star as gold prices continued to rally on the back of the weakness in the US dollar. As we noted last month, gold has been seen as a hedge for inflation.
QBE Insurance rallied with little new news. Given that QBE is a beneficiary of Sector allocation higher rates globally, the previously mentioned focus on higher rates for longer by global Central banks would be a positive for QBE. Tabcorp (TAH) enjoyed a strong month in December.
The company has shown good capital discipline in refusing to bid against itself for the Western Australian wagering licence. Further, its key focus on increasing market share in digital wagering has become apparent after the football World Cup. Anecdotal evidence suggests that TAH had a strong World Cup and took share from peers such as Sportsbet, reversing a long-term trend.
APM Human Services (APM) again detracted from performance. There was no new news regarding the company although the market may be increasingly nervous about potential reforms to government policy in the areas of assistance for the long term unemployed and those with disabilities seeking work, areas where APM is acknowledged as the clear market leader. Further, we understand that some in the market have interpreted recent contract wins as lower margins – our investigations indicate that this is not the case.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-2.pdfNovember, 2023
November saw markets continue their rally from September lows. Yield curves generally moved down in major markers, and the US dollar weakened after a very strong run – all of this helped risk appetite. Further, China provided relief for its under pressure property sector to recover and hinted that a roll back of its zero covid policies maybe on the agenda. Despite all this, we remain cautious given the tight conditions prevailing in fixed interest markets, which we see as a better indicator of economic conditions currently.
The strategy generated a net return of 3.5% for the month, which, while positive, trailed that of our benchmark at 5.5%. Our best contributor for the month was Northern Star as gold prices rallied on the back of the weakness in the US dollar. Gold has traditionally been seen as a hedge for inflation but has not traded in this way, rather it is inversely related to strength in the US dollar. Mineral Resources (MIN) was a strong performer in November as iron ore prices Sector allocation rallied on the back of the news that China was seeking to provide relief for its property sector. We also received a benefit in our relative performance from not owning a selection of stocks such as Pilbara Minerals, Xero, Sonic Healthcare and Lendlease Group.
Our biggest detractor was Elders (ELD). ELD fell after it reported its full year results. While the results were at the upper end of company guidance, the major issue was the retirement of long-term CEO Mark Allison, who has done a very good job in improving both the scale and predictability of the company’s returns profile. Further, there was some confusion around the outlook, as the company guided to weakness in certain cropping areas after the record spring rains. Not owning Origin Energy (ORG) also detracted from performance as it received an all cash takeover bid from Brookfield. The bid came at a more than 50% premium to the previous close.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund-1.pdfOctober, 2022
October saw markets rally back from the eventual falls in what was a volatile September. Nonetheless this occurred into the headwind of more hawkish rhetoric from the US Federal Reserve. While the US continued to talk about inflation and the need to stamp it out, other central banks, including our own Reserve Bank, eased some of the tightening pressure. Further, the month saw the arrival of major cyber crime in the listed Australian market with Medibank (MPL) targeted by an apparently sophisticated scheme.
The strategy generated a return of 5.8% for the month compared to our benchmark at 6.3%. Our best contributor for the month was Telix Pharmaceuticals (TLX) which continued to provide positive updates on both its existing Illucix product but also promising news about the pipeline of additional products it hopes to bring to market in coming quarters.
Qantas (QAN) also had a strong month, surprising the market with a major profit Sector allocation upgrade that was released in advance of its Annual General Meeting (AGM). With capacity remaining limited by the difficulties of restarting a major operation such as an airline, QAN is well-placed to benefit from excess demand relative to available supply. We were also heartened by the news that QAN staff would receive an earlier than scheduled pay rise given the company’s earnings recovery is so advanced.
Finally IDP Education (IEL) contributed well over the month. IEL held its AGM where there was little new news released. Rather, it has been the steady recovery in net migration to Australia that has improved sentiment towards the stock.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fund-profiles-antares-ex20-aust-equities-fund.pdfSeptember, 2022
September was a very volatile month in global markets, and the local ASX was no exception. The US Federal Reserve stepped up its hawkish language on the need to increase rates and snuff out inflationary pressures in that country. This has created significant pressures in global markets, with fear of another major downturn driving equity investors especially into predominantly macro based trading.
In the context that our style is focused on the bottom up fundamentals of our companies, it was pleasing to generate a net return of -5.4% compared to the -8.2% drawdown of our benchmark index. Resmed (RMD) performed well in the volatile markets as its major competitor, Phillips, continued to have regulatory issues in the United States. Further, the secure cashflow of a healthcare company was attractive to investors in a market highly concerned with weakening consumer spending. Finally, as RMD earns nearly all its profits offshore, the weaker Australian dollar sees those translated Sector allocation back at a higher value. APM Human Services International (APM) was strong in September as investors focused on its betterer than anticipated first earnings release in August.
Further, the company announced a deal to acquire Equus Workforce Services in the US. The market liked the price APM has paid, which is highly accretive, as well as the significant diversification of its business away from Australia and more fully into the US market, which is seen to have better contract structures. Elders (ELD) enjoyed a recovery in the market as the Bureau of Meteorology declared a third La Nina weather system in succession. This typically brings higher than average rainfall to the East Coast of Australia which buoyed sentiment in the agricultural sector generally.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/191694291.pdfAugust, 2022
The Fund delivered a net return of 2.3% for the month, while our benchmark returned 1.7%. It was pleasing to deliver consecutive months of positive returns that also outpaced our benchmark. It is an important internal aspiration to consistently outperform in the reporting seasons of August and February as this is when most companies provide audited information and investors can weigh real operating data from them. Stock selection is very important. Our best contributor for the month was Oz Minerals (OZL). The company received an indicative take-over offer from BHP of $25.00 per share which it rejected. It is currently trading above this price on expectations of a higher offer. IGO Ltd (IGO) also performed well in August. While its result was largely in line with its pre-released production report in July, lithium prices surged in July, and IGO was a beneficiary. Finally, Qantas (QAN) delivered a better than expected FY22 profit result, including Sector allocation strong operating profit guidance into FY23. Pleasingly, its balance sheet repair has moved ahead of schedule and the company also announced a surprise $400m share buy-back, which pleased the market. There has been a great deal of noise around QAN and while operational difficulties are frustrating and disappointing, we note that nearly all global airlines are facing the same issues, something we think worthy of consideration. Despite reporting a better than expected 4 thquarter profit from operations and a solid outlook statement, Megaport (MP1) detracted from performance. While we are satisfied with MP1’s progress towards its substantial market opportunity, interest rates pushed higher again in August and MP1 suffered from some profit taking after a strong run into the result.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190873797.pdfJuly, 2022
The strategy delivered a net return of 6.7% for the month, while our benchmark returned 7.6%. Markets globally surged in July in the belief that central banks were doing enough to contain inflation with front end loaded rate rises in most major economies. This saw a shift down in yield curves as the markets began to think the peak in interest rates would be nearer and perhaps shallower than previously thought. Our best contributor for the month was Telix Pharmaceuticals (TLX). TLX shares rose by more than 60% in July as the company made a string of positive announcements including the US commercial launch of its prostate cancer imaging product Illucix, completion of a 300 person trial of its kidney cancer imaging trial and appointment of a new CFO; this saw a significant lift in consensus earnings upgrades. Megaport (MP1) shares also surged. The company’s shares have been battered Sector allocation in recent months after a mediocre March quarterly. In July the company released a much better set of numbers which showed that profitability is closer than the market expected, thus reducing the chances of an equity raise. Further, sales in its existing networking services products surged after a pause in recent months, highlighting the growth potential of its portfolio. It was also helped by the fall in longer term rate expectations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190038706.pdfJune, 2022
The market was down sharply in June with our benchmark down 9.8%. The Fund outperformed the benchmark by 0.9%.
Contributing positively to performance during the month were positions in Iress (IRE), Tabcorp and Metcash. IRE rose nearly 10% on limited stock specific news. We believe investors are increasingly attracted to IRE’s cash generation and attractive valuation vs other software stocks. Tabcorp saw continued share price strength post demerger. Investors also reacted positively to the settlement of the Racing Queensland litigation (reduced uncertainty) and the announcement of proposed positive regulatory reforms in Queensland. Metcash released its FY22 results late in June, delivering solid profit growth in excess of market expectations across its three pillars. The company also noted that FY23 had started well with group sales growth of 8.6% for the first seven weeks, continuing the strong momentum of 4Q22. Sector allocation
Detracting from performance in June were our positions in Independence Group (IGO), Oz Minerals (OZL) and Qantas (QAN). IGO and OZL were sold down on the back of the risk of trade as global growth concerns have weighed on commodity stocks, albeit we note that copper prices (OZL) have fallen, while lithium prices have held up (IGO). The Qantas share price was also weaker. During the month the company reiterated its guidance for FY22 and significant debt reduction. It also announced capacity reductions for FY23 to combat higher fuel prices and resourcing pressure, noting that the reductions were not demand driven.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189403568-1.pdfMay, 2022
It was another challenging month for the market with our benchmark down by 4.0%. The Fund delivered a net return of -4.5% for the month.
Our best performer for the month was Santos (STO) which benefitted from rising oil and gas prices during May. Lynas Rare Earths (LYC) also had a relatively strong month. Early in May, the company confirmed it was well progressed with its Kalgoorlie Rare Earths Processing Facility in Western Australia, and continues to expect the project to be on time and budget.Treasury Wine Estates (TWE) also enjoyed a stronger month in relative terms as offshore peers reported incrementally positive results.
Detracting from performance was Nine Entertainment (NEC) which sold off during the month as the market grew more concerned around the outlook for the domestic economy, despite NEC suggesting at an investor conference that it expects to grow television revenues through the cycle through its high growth BVOD offering. Sector allocation Seek (SEK) was weaker as the global tech sell off continued in May on the prospect of rising rates and Metcash (MTS) gave up its April gains as the market grew more concerned about the impact of a cooling housing market on the company’s hardware business.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187900299.pdfApril, 2022
The Antares Ex-20 Australian Equities Fund delivered a return of -2.3% (net of fees) for the month of April 2022 while our benchmark returned -0.4%. The Australian market struggled as inflation became more apparent in the local economy and China’s “Zero Covid” strategy became increasingly severe with a concomitant impact on expected Chinese economic growth. The threat of a major disruption to the Chinese economy has taken sentiment towards Australia down, which has impacted both domestically oriented shares, as well as those of commodity producers. Further, costs are beginning to rise for Australia’s mineral producers.
Our best contributor for April was Qantas (QAN). Shares in the airline rose over the month as the oil price stabilised and a string of bullish anecdotes about demand for travel, both domestic and international, began to emerge. Shares in services company Ventia (VNT) rose as the company announced a string of contract wins. Further, major holder Cimic announced its two company appointed directors would stand down, helping investor perceptions of theindependence of VNT and its board
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187152725.pdfMarch, 2022
The Antares Ex-20 Australian Equities Fund delivered a return of 6.3% (net of fees) for the month of March 2022 while our benchmark returned 5.1%. The Australian market posted strong gains driven primarily by its large exposure to raw materials – mining companies posted the strongest gains. With the Russia Ukraine war threatening supply of many primary materials, Australia is a major beneficiary in filling the gap.
Our best contributor for the month was IGO, the WA based nickel and lithium producer. With sanctions applied to many of Russia’s industries, certain important metals are now in very scarce supply. Foremost amongst these is nickel, which saw hugely volatile price movements on the London Metals Exchange. Russia supplies around 20% of the world’s premium grade nickel, critical in the use of rechargeable batteries. Hence IGO rallied with the nickel price.
Sims (SGM) also enjoyed a strong month on the back of its better than expected February results. The market is becoming increasingly comfortable with the notion that scrap steel prices will remain elevated for longer as sanctions on Russia Sector allocation impact supplies of iron ore and coking coal.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/185996788.pdfDecember, 2021
The Fund delivered a net return of 0.9% for the month of December, trailing that of our benchmark which returned 2.7%. The market took a very decisive “risk off” turn mid-month which notably impacted some of our higher conviction positions. These are often longer dated in their assumptions which can at times leave them vulnerable to such corrections. What was surprising was that the quality nature of our portfolio left it exposed to this short term volatility. Our best contributor for the month was Lynas Rare Earths (LYC). Rare earth prices continued to move up during the month, while consolidation amongst major players in China supported industry structure. This provided strength to the LYC share price in the month.
Metcash (MTS) was a solid contributor in December following the release of a strong half year to October. While MTS’s grocery business did well, the star performer was the hardware business, in particular the recent addition of Total Tools, a retail business that is delivering great leverage to strong sales numbers. Our overweight position in OZ Minerals (OZL) also contributed strongly in December. The price for its major commodity, copper, remained strong, assisted by concerns around supply as the largest refiner of copper, China, struggles with energy and lockdown issues. Of all the investment opportunities provided by the energy transition away from hydrocarbons, it is copper that we feel is the lowest risk given its role in any electric technology.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/182422988.pdfNovember, 2021
The Antares Ex-20 Australian Equities Fund delivered a return of 0.9% (net of fees) for the month of November 2021.1 Australian shares recorded a slight fall in November with mixed performance across sectors. There were strong gains for the resources sector given the benefit of a lower Australian dollar and signs that iron ore prices were stabilising around US$100 per ton. Communication services and consumer staples also benefitted from investors taking a more defensive stance. However, these gains were offset by sharp falls in financials with some poor results and concerns that interest rate margins would be squeezed by future interest rate rises. The energy sector also disappointed with the slump in oil prices.
The Fund’s performance benefitted from our overweight positions in Lynas (LYC), Megaport (MP1) and IGO Limited (IGO).
LYC’s share price benefitted from a strong increase in spot NeodymiumPraseodymium (NdPr) prices which reached decade highs in November on the back of supply growth being constrained by power outages and environmental restrictions limiting production in China. MP1 saw continued share price momentum following a well-received 1Q22 update in late October. During the month, the company also announced a new distribution agreement with Arrow Electronics to distribution its Software Defined Network (SDN) platform. IGO continued to see strong share price support on the back of a solid 1Q22 trading update which included a maiden profit from its lithium joint venture.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/181787707.pdfOctober, 2021
The strategy delivered a net return of 0.2% for the month of October, a slightly positive return in a month which saw our benchmark return -0.3%. The market continues to consolidate around current levels as it weighs the prospect of higher than anticipated inflation, persistent supply chain bottlenecks and possible earlier than expected tightening in monetary policy against the gains made in global COVID-19 vaccination rates and clinical treatments.
Our best contributor for the month was Paladin Energy (PDN). With the Glasgow climate summit looming in November, investors have looked to uranium as a possible solution to baseload energy needs to replace coal. The current energy crises in parts of Europe and China have highlighted the shortfall between the limits of renewable energies’ abilities to meet actual demand requirements. Nuclear technology has advanced markedly in recent years and has the benefit of producing carbon free energy. OZ Minerals (OZL) also enjoyed a strong October. Its quarterly production statement saw it lower its cost guidance (based mainly on increasing gold credits). Further, the price for its major commodity, copper, remained strong, assisted by concerns around supply as the largest refiner of copper, China, struggles with energy issues. Of all the investment opportunities provided by the energy transition away from hydrocarbons, it is copper that we feel is the lowest risk given its role in any electric technology. Finally, Lynas Rare Earths (LYC) rallied in October. As with other basic materials, China is the major player in the refining of rare earths and the market has been concerned about supply given the energy disruptions there. LYC enjoys the strategic benefit of being the largest player in the market outside of China and rallied accordingly
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180945194.pdfSeptember, 2021
The strategy delivered a net return of -0.8% for the month of September1 , which wasmarginally ahead of our benchmark’s fall of 1.0% as the market consolidated recent gains.Our best contributor for the month was Qantas (QAN). The stock was supported by a slew of positive announcements on the re-opening of Australia’s borders, commencing with NSW.
Paladin (PDN) also enjoyed a strong month as the market began to realise the looming supply shortage of uranium for reactors. Our thesis to own PDN has focused on this supply issue due to the lack of investment in production of the mineral. IDP Education (IEL) also rallied strongly in September for similar reasons to QAN – namely the positive announcements of the Australian national border re-opening. Afterpay (APT) detracted from performance in September – technology stocks generally fell in the month as interest rates rose globally on inflationary fears. This affects the valuation of longer duration assets.
South 32 (S32) detracted from performance as the aluminium and coal prices rose driving the stock up in the month - we do not own S32. Finally, Northern Star (NST) detracted during the month as the US dollar strengthened, lessening the appeal of gold
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180243225.pdfAugust, 2021
The strategy delivered a net return of 6.8% for the month of August, while our benchmark delivered 5.1%1
It was pleasing to produce a positive return, both in absolute and relative terms, for our investors in August given it is the month which sees so much information provided by companies to the market as they report their results. Our best contributor for the month was Afterpay Ltd (APT). APT received an all share takeover offer from US financial technology company, Square, valuing the business at approximately $39b. This represented a 25% premium to the previous undisturbed market valuation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/178658703.pdfJuly, 2021
The Fund struggled through July, generating a return of -2.0% (net of fees)1 compared to that of our benchmark’s 0.8%. It was disappointing to generate a negative return, especially given continued strength in our benchmark. It was a month driven by the market’s focus on low interest rates. That led to opportunistic bids in stocks such as Sydney Airport and Spark Infrastructure. Our portfolio seeks longer term operational competitive advantage in our investments – hence such conditions are least favourable to our process.
Our best contributor for the month was IGO Limited (IGO). The shares rallied as lithium prices rallied strongly. The market has increased confidence that IGO will be a beneficiary of the drive to electric vehicles following its successful acquisition of a share of the Greenbushes lithium mine and associated downstream processing assets.
IDP Education (IEL) rallied in July following its deal with the British Council to acquire the exclusive rights for International English Language Testing System (IELTS) testing in India. This is the major market for students seeking university study abroad, and as such is also IEL’S major market. It is a highly synergistic acquisition with significant potential revenue benefits too.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/175715354.pdfJune, 2021
The Fund delivered a solid month in June, generating a return of 3.5% (net of fees)1 , which compared to the 3.2% generated by our index. It capped a pleasing 12 months whereby the portfolio generated a return of 34.6% relative to that of our benchmark at 23.0%. Our best performer in June was Afterpay (APT).
The company announced it had entered into a series of agreements with major US online retailers such as Amazon and Nike. While this announcement is significant, the stock was already enjoying a strong month, rebounding as fears abated that inflation would force an early and sharper rise in longer term bond rates globally, which affects the valuation of longer duration growth stocks like APT.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174919611.pdfMay, 2021
The Fund delivered a net return of 0.2% for the month of May, while our benchmark delivered 0.3%1
It was pleasing to produce a positive return for our investors in May, as the market was somewhat directionless in May. On the one hand, investors were concerned about inflation from the large stimulus delivered in many developed countries. But on the other hand, economic activity and “re-opening” continued to accelerate, supporting the outlook.
Finally Treasury Wine Estates (TWE) enjoyed a good month on the back of its Investor Day. Not only did the company upgrade its short-term guidance, it re-committed to its long term margin target of 25% operating profit to sales. It also provided the clearest indication yet on how it would manage the demand problems created by China’s decision to place 200% tariffs on Australian wine.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173406832.pdfDecember, 2020
The portfolio survived a volatile December month, returning 0.7% (net of fees) which compared to our benchmark of -0.3%1 . The market changed direction during the month as COVID case numbers surged in the Northern Hemisphere and fears were raised about a mutation of the virus in Great Britain which may threaten vaccination plans. This combined with a new outbreak in Sydney that led to border closures in Australia and took the wind out of the so-called “re-opening” trade.
Our best contributor for the month was Afterpay (APT). The change in market direction helped some of the “COVID-winners” recover their momentum and APT is chief amongst these. APT was promoted into the S&P ASX 20 in December, which aided sentiment. APT also provided an upbeat November trading update, albeit the release did not include a numerical update, only commentary. Finally, the RBA revealed it had concluded its investigations into the prevention of surcharging by buy-now pay-later operators, and concluded it was in consumers’ interests. This removed some of the regulatory concerns that some people have about the APT business model.
Mineral Resources (MIN) was also strong in December, driven primarily by the strength of the iron ore price. China’s demand for iron ore has been driven by its large COVID-driven stimulus and supply remains constrained due to continuing issues in Brazil. Also helping MIN in the month were the first signs that the Lithium market may have bottomed with demand beginning to recover. Alongside its mining services iron ore mining businesses, MIN is a major lithium producer. Polynovo (PNV) surged in December as the company provided a number of small, but positive updates on various trials and markets in the month.
In particular, it provided an update on a critical Investigation Exemption Device trial in the United States, which, if successful, will help its NovoSorb product meet the Standard of Care certifications required for mainstream acceptance in the US. It also announced entry into the Benelux and Swedish markets in Europe. Shares in A2 Milk (A2M) fell during December after the company provided downbeat earnings guidance. While the market had been expecting some weakness in A2M’s sales in 2021 as it struggled to replace the lucrative Daigou channel into China, the update revealed that the Daigou channel weakness has also found its way into the e-commerce channel in China, a bigger hit than had been previously anticipated.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/163249035.pdfticker: PPL5308AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.antarescapital.com.au/home/resource-library/fund-documents
Monthly Report
asset_class: Domestic Equity
asset_category: Australian Micro Cap
peer_benchmark: Domestic Equity - Micro Cap Index
broad_market_index: ASX Index Small Ordinaries Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Antares Ex-20 Australian Equities aims to outperform the S&P/ASX 200 Total Return Index excluding the companies listed on the S&P/ASX 20 Total Return Index (after management fee) over rolling five-year periods. The Fund is an actively managed, concentrated portfolio of Australian equities outside the largest 20 Australian listed companies by market capitalisation (as defined by the S&P/ASX 20 Total Return Index) that Antares identifies as having the potential to offer significant long-term capital growth. The Fund may also invest in equities expected to be listed on the Australian share market.