September, 2023
The Fund returned -4.31% (after fees) in September, to underperform the Index return of -3.80% by 50 basis points (bps). Over the longer term (7 years), the Fund’s return of 12.53% per annum (p.a.) is 126 bps p.a. ahead of the Index return of 11.27% p.a.
Key contributors to relative performance:
• Samsonite International S.A. continued to perform well, despite the weakness seen in many China and Hong Kong-listed shares last month. The driver was continued positivity, stemming from a robust trading update released in mid-August. As management met investors following the release, they have continued to express confidence in the businesses potential to achieve strong sales and profit growth.
• Haleon plc outperformed as the overhang created by planned stake reductions by GlaxoSmithKline and Pfizer cleared and we saw renewed investor appetite for stable growth companies, as economic data continued to deteriorate.
• Progressive Corporation responded well to solid monthly financial performance. Premium growth remained strong (at 16%) and costs remained well controlled, meaning that loss ratios came in lower than expected and earnings per share higher.
• Schlumberger N.V. and Worley Limited benefitted from the renewed strength in the oil price, as investors weighed the likely impact of continuing tight control over production rates by OPEC+, at the same time as stockpiles.
Key detractors to relative performance:
• Masimo Corporation was weak in sympathy with much of the MedTech space, as investors continued to weigh the potential impact of obesity drugs on an increasingly wide range of surgical procedures. It is fair to say, however, that Masimo’s stock specific beta / earnings risk also appears somewhat elevated because of their acquisition of Sound United and more volatile recent trading.
• Netflix, Inc. experienced some profit taking as a response to comments made by its management during a broker conference. These remarks indicated that the acceleration of revenue growth, driven by their efforts to curtail account sharing, had slightly diminished in September. Management remains confident, however, that this initiative is continuing to drive growth in revenues, without meaningfully increasing customer churn.
• Bio-Techne Corporation suffered as the company and other Life Science tools peers presented at several broker conferences this month. Although there were no new negatives (over and above the well-known headwinds posed by post-COVID destocking and tighter biotech funding), there was no concrete evidence yet that things are meaningfully improving. With rising bond yields also pressuring growth stocks this month, these factors combined to see the stock underperform.
• Amadeus IT Group SA underperformed as concerns grew that the rate of recovery in their travel booking business may be slowing, in sympathy with broader gauges of economic activity. With the company continuing to invest in their long-term growth drivers, this could lead to some short-term margin pressure.
• TransUnion succumbed to profit taking after a period of stronger performance. The catalyst was a renewed push higher in US mortgage rates, as bond yields rose over the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Global-Share-Fund-Sept-2023.pdfAugust, 2023
The Fund returned 2.36% (after fees) in August, to outperform the Index return of 1.14% by 123 basis points (bps). Over the longer term (7 years), the Fund’s return of 13.07% per annum (p.a.) is 137 bps p.a. ahead of the Index return of 11.69% p.a.
Key contributors to relative performance:
• Samsonite International S.A. outperformed on the back of a strong set of quarterly numbers, with sales in all regions returning to pre-COVID levels and significantly stronger margins, because of the new expense structure. Management commentary on continued global travel demand was very encouraging.
• Encompass H ealth Corporation rallied after releasing strong quarterly earnings. Patient volume growth is recovering more quickly than expected, following the disruption caused by COVID-19. At the same time, some of the cost pressures related to the public health emergency are continuing to normalise (principally staffing costs). The combination of these factors saw quarterly profits come in 15% ahead of market expectations and the company raised its full year guidance at the same time.
• Progressive Corporation was strong after issuing a reassuring trading update during the month. In particular, premium growth remained strong (at 21%) and the combined ratio came in lower than expected in its auto insurance business, after seeing some short-term pressure the previous month.
Key detractors to relative performance:
• Palomar Holdings, Inc. underperformed, as the company continues to face reinsurance headwinds. Despite this, the company should be able to successfully manage its way through these issues due to its sensible approach to underwriting, unique earthquake-focused book, and growth opportunities in the earthquake insurance market.
• Box, Inc. shares declined after cutting its full-year revenue forecast in its quarterly earnings release. The challenging macroeconomic environment has been affecting Box customers’ IT budgets, hampering user growth and revenue retention for the company.
• The Japanese market had been performing well versus other markets due to a combination of a more stable currency and a greater push amongst market participants for better capital allocation amongst listed companies. However, over the last few months, we have seen a combination of profit taking and renewed weakness in the Japanese yen, and this has been the major factor behind the relative weakness of Sony Group Corporation. Lacklustre results in August also weighed on the shares.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Global-Share-Fund-Aug-2023.pdfJuly, 2023
The Fund returned -0.25% (after fees) in July, to underperform the Index return of 2.40% by 265 basis points (bps). Over the longer term (5 years), the Fund’s return of 11.12% per annum (p.a.) is 74 bps p.a. ahead of the Index return of 10.38% p.a.
Key contributors to relative performance:
• Oilfield services companies Schlumberger N.V. and Champion X Corporation both performed well on strong results and an elevated oil prices.
• Booking Holdings Inc. outperformed on the back of positive travel trends. In particular, Americans are taking more time off work and vacationing more than they have in over a decade. This has benefitted Booking, which supports customers in making travel reservations.
• Singaporean bank DBS Group Holdings Ltd. outperformed after a lackluster first half of the year. DBS continues to deliver very strong return on equity and while loan growth remains subdued, management have managed asset quality well.
• PT Bank Mandiri (Persero) Tbk an Indonesian bank performed well on strong results. Higlhlighted by loan growth of 12%, improved margins, resilient asset quality and a notable reduction in non-performing loans.
Key detractors to relative performance:
• Hexagon AB declined following a short report which alleged that organic growth had been exaggerated, the exCEO’s investment company – Greenbridge – had been frontrunning Hexagon investments, buying mature earnings with low growth. The manager is not convinced that organic growth has been exaggerated, as the company is compliant with accounting rules and has been open about the fact that a reasonable proportion of growth is acquisition related. Regarding Greenbridge, this news is outdated and has already been addressed during the legal proceedings involving Hexagon’s former CEO, Ola Rollen. He was completely cleared of the allegations. The accusation regarding acquisitions with mature earnings and low growth is true regarding Integraph in the early 2000s but less obvious with later acquisitions such as Infor.
• Masimo Corporation fell sharply after issuing a profit warning at the start of the month – as demand undershot expectations in both its Healthcare and Consumer segments, the company was too slow to react (probably because senior management were distracted by the proxy fight with an activist shareholder). Thankfully, almost all the softness in their healthcare business was attributable to short-term factors (such as component and labour shortages), and management confirmed that incoming order growth was still running in the low double digit percentage rates. The Consumer division’s weakness may prove longer lasting and likely strengthens the hand of activist shareholders, who comprehensively won the recent proxy fight with management & are pursuing reforms that we believe will release substantial value for shareholders.
June, 2023
The Fund returned 2.17% (after fees) in June, to underperform the Index return of 2.87% by 70 basis points (bps). Over the longer term (5 years), the Fund’s return of 11.39% per annum (p.a.) is 101 bps p.a. ahead of the Index return of 10.38% p.a. Key contributors to relative performance:
• Chart Industries Inc. share price surged following the announcement of the sale of one of its non-core divisions – Roots, a low-pressure compression and vacuum business - for 300 million USD to Ingersol Rand. Divesting non-core assets was one of the core objectives for Chart’s CEO, Jill Evanco, after the company’s large acquisition of Howden Engineering, announced in November 2022. The acquisition had shone a light on Chart’s gearing and balance sheet strength, so this divestment was a welcome relief for shareholders.
• Schlumberger N.V. and ChampionX Corporation recovered after senior management reconfirmed their confidence in forecasts and future strength in energy services for the medium term at a sell side conference. Additionally, the Kingdom of Saudi Arabia further cut their oil production quota in response to continued weak commodity prices
Key detractors to relative performance:
• The Japanese market had been performing well versus other markets due to a combination of a more stable currency (as normalisation of policy was expected) and a greater push amongst market participants for better capital allocation amongst listed companies. However, in June, we have seen a combination of profit taking and renewed weakness in the Yen, and this has been the major factor behind the relative weakness of both Hoya Corporation and Sony Group Corporation over the period.
• Worley Limited struggled to keep up with a rising market, there was no stock specific reason that, in the manager’s view, could explain its weaker performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Global-Share-Fund-Jun-2023.pdfMay, 2023
The Fund returned -0.75% (after fees) in May, to underperform the Index return of 1.02% by 178 basis points (bps). Over the longer term (5 years), the Fund’s return of 11.36% per annum (p.a.) is 119 bps p.a. ahead of the Index return of 10.16% p.a.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Global-Share-Fund-May-2023.pdfApril, 2023
The Fund returned 4.57% (after fees) in April, to outperform the Index return of 2.80% by 177 basis points (bps). Over the longer term (5 years), the Fund’s return of 11.73% per annum (p.a.) is 182 bps p.a. ahead of the Index return of 9.91% p.a. In dollar terms, an investment of $10,000 in the Fund five years ago would be worth $17,412 today, comparaed to $16,039 if it was invested passively in the Benchmark.
File:February, 2023
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• Palomar Holdings shares outperformed, fueled by a positive reaction to their fourth quarter earnings release. Reinsurance pricing was the focus of investors heading into the print and whilst the tougher reinsurance market was acknowledged, management were able to ease investor concerns and evidence their ability to obtain sufficient reinsurance capacity at a better price than peers. Earnings visibility continues to improve with growth in Palomar’s fronting business and prudent management of potential losses.
• Progressive Corporation had a strong month, helped by a positive reaction to the release of their February results which showed robust growth in policy numbers. On top of this, rising bond yields offered a tailwind in February.
• Box, Inc. shares started the month strong and held onto those gains despite increased headwinds for the growth end of the market as the month progressed. This came after Box faced some pressure in February from an analyst downgrade, which prevented it from fully participating in the bounce last month.
Key detractors from relative performance:
• AdaptHealth Corporation shares fell at the end of the month after reporting a poor Q4 result. Investors were particularly disappointed by the lowering of full year guidance which accompanied the earnings release. While the revised guidance reflected only a minor lowering in top-line and earnings expectations, it was the fact that the existing guidance only lasted 6 weeks before adjustments had to be made which hit the share price.
January, 2023
The Fund underperformed the benchmark over the month.
Key contributors to relative performance:
• The credit reporting agency TransUnion recovered some of the losses it incurred during 2022. Last year’s weak performance was attributable to rising interest rates, which forced a decline in new mortgage applications, negatively impacting TransUnion’s credit business. Now that it seems like rates may have peaked, the shares look oversold.
• Online travel business Booking Holdings Inc. outperformed in January echoing the market’s preference for cyclicals over defensives. The Fed slowed the pace of rate hikes in December on the back of encouraging inflationary data, indicating that a softer landing could be on the cards in 2023. Additionally, demand for overseas holidays remains robust, supporting growth in travel-related stocks like Booking.
• The Spanish technology provider for the global travel and tourism industry, Amadeus IT Group, benefitted from similar factors to Booking during the month of January. Cyclicals outperformed defensives on the back of speculation that the Fed could be nearing the end of its aggressive interest rate cycle. Furthermore, robust demand for overseas travel remains a favourable trend for Amadeus.
December, 2022
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• Box shares soared on the back of strong quarterly results. Despite macro headwinds, Box posted resilient numbers, highlighting the compelling value proposition of the company. By bundling together sales of various solutions (addressing different stages of data management), Box have accelerated adoption of their technology – driving higher revenue per customer and sales productivity.
• AIA Group shares continued to outperform in December on the back of news that China was loosening its zero COVID-19 policy. This development should benefit AIA given the company’s significant exposure to customers in mainland China. Low insurance penetration across the region, favourable demographic changes and household income growth are supportive structural trends for AIA over the long term.
• Compass Group recovered following pressure on the shares after Q3 results. Margin guidance was below expectations, raising concerns that Compass may not be able to achieve its medium-term targets. We do not believe this is the case and attribute slight margin pressure to temporary, shortterm cost headwinds. We continue to believe that the structural increase in outsourcing of contract catering will support Compass’s robust growth over the long term.
Key detractors from relative performance:
• Palomar Holdings shares continued to fall on the back of investor concerns that the shift to a less volatile and less earnings-dense business mix is occurring more quickly than expected. Indeed, the fronting business, which is feeoriented but does not earn premiums, is now assumed to account for 25% of the mix by the end of 2023, compared to the previous forecast of 15%. In addition, the California Earthquake Authority (CEA), Palomar’s main competitor, is struggling to fully renew its reinsurance coverage. Importantly however, Palomar management is confident in its ability to get relatively better reinsurance terms than the CEA due to the company’s national footprint and exposure to multiple perils.
• AdaptHealth shares fell in December due to weakerthan-expected margins at Q3 results and the failure of the Philips’ sleep test results to provide a real clearing event in sleep apnea. The FDA is still considering the data and the timing of a response is unknown. Additionally, no update was provided on the impact of the consent decree. Given that Adapt is a key customer of Philips, this lack of clarity weighed on Adapt’s shares. Despite this, we continue to recognise that sleep apnea is one of the most profitable businesses at Adapt and a substantial backlog of untreated patients has built up in recent months. Getting these patients onto therapy should provide relatively secure sales and profit growth at Adapt in 2023 & beyond.
November, 2022
The Fund underperformed the benchmark over the month. Key contributors to relative performance:
• Taiwan Semiconductor (TSMC) shares rebounded from October’s weakness this month as sentiment improved towards growth stocks and cyclicals. November also saw the Wall Street Journal report that TSMC was looking to build another large facility in the US, to expand overseas production and tackle geopolitical risk. Finally, news that Warren Buffett’s Berkshire Hathaway had invested USD4 billion in the company added to improved sentiment.
• AIA Group shares rallied this month on hopes that China is looking to loosen zero-Covid policies and start to re-open. As a leader in the insurance industry in China, AIA is set to benefit from the re-opening. Low insurance penetration across the region, favourable demographic changes and household income growth should support strong new business value growth momentum over the long term.
• SolarEdge Technologies shares soared in November following strong quarterly results, in which revenue, gross and operating margins were all ahead of expectations. It was encouraging to hear that demand remains solid, especially in Europe, execution is improving as COVID-19 disruption to the supply chain eases and price increases are realised. SolarEdge also announced that it plans to build out US-based manufacturing in FY23 to capture domestic manufacturing tax credits in the Inflation Reduction Act. This could be a catalyst for earnings in FY24. What is more, California announced new proposals for net metering which signal that there is huge incentive to send electricity back to the grid – a positive tailwind for SolarEdge.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Nov-2022.pdfOctober, 2022
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• The US health insurance provider Elevance Health rose following robust quarterly results - driven by lower-thanexpected medical treatment costs and strong investment income. Both trends should continue into 2023. A strong showing for the Republican party in the upcoming US midterm elections would also reduce the risk of private health insurance being disrupted by Democrat-led reforms.
• Home medical equipment supplier AdaptHealth continues to recover well as sleep apnea device supply issues slowly improve, despite the ongoing restrictions upon Philips. This category is one of the most profitable for Adapt and a substantial backlog of untreated patients has built up in recent months. Getting these patients onto therapy should provide relatively secure sales and profit growth for the firm into 2023 and beyond.
• Post-acute healthcare services provider Encompass Health outperformed on the back of solid quarterly results. Inpatient Rehabilitation Facility demand growth remains strong and reimbursement is starting to improve. Furthermore, costs (including labour) are starting to normalise after COVID-19 distorted the nursing market. Price increases should also drive a recovery in EBITDA in 2023/24.
September, 2022
The Fund outperformed the benchmark over the month. Key contributors to relative performance:
• Specialist insurer Palomar Holdings continued to outperform this month. Strong quarterly results in August provided further evidence that the shift to more consistent product segments as the key drivers of growth is leading to improved earnings consistency. Palomar’s rapidly expanding fronting business is driving significant expense improvement whilst record premium growth is providing additional support to earnings.
• AdaptHealth Corporation outperformed after hosting its inaugural Capital Markets Day. Management confidently sketched out their long-term growth ambitions, as well as setting targets for stronger profit margins and improved cash generation. The company also talked positively about nearer-term growth, which will continue to benefit from the ongoing normalization in sleep apnea device availability as semiconductor supplies increase and demand from more economically sensitive areas starts to fall.
Key detractors from relative performance:
• Sony Group Corporation struggled to perform due to investor concerns around future growth prospects. The company is expected to see ongoing earnings pressure from a strong dollar and the market is wary of weaker prospects for consumer discretionary spending in the context of looming recession.
• Taiwan Semiconductor (TSMC) fell in line with semiconductor peers this month. Whilst the sector has not seen downgrades yet, there is clearly a bubble of excess demand relative to COVID-19 and previous semiconductor shortages. This inventory issue now needs to work its way through. Importantly, TSMC is at the better end of this downgrade cycle than peers, given its lower commodity exposure relative to the likes of Micron.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Sept-2022.pdfAugust, 2022
The Fund underperformed the benchmark over the month.
Key contributors to relative performance:
• Specialist insurer Palomar Holdings outperformed on the back of better-than-expected quarterly results. The rapidly expanding fronting business drove significant expense improvement, whilst record premium growth provided additional support to earnings during the quarter.
• Deere & Company, one of the world’s largest makers of farm equipment, recovered from their oversold condition caused by the roll over in soft commodities. The shares performed well ahead of quarterly results in August, which confirmed full year 2022 guidance. Furthermore, the slight easing of supply chain issues is helping the company to fulfil demand.
• Property and casualty insurer Progressive Corporation rebounded following a decline in July. August results were particularly strong providing further evidence that a turnaround is underway.
Key detractors from relative performance:
• SolarEdge Technologies underperformed this month after a quarterly results announcement in which margins disappointed meaningfully. This was partially due to Chinese lockdowns, which caused disruption in the supply of key components and led to stalled production globally. Worsening sales mix and euro FX also contributed to the margin miss. However, the runway for demand is very clear through the rest of the year, as tailwinds continue to be favourable around policy and high European energy prices.
July, 2022
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• Carlisle Companies shares rose following strong quarterly results. Earnings came in above expectations due to a strong operating performance. Importantly, demand remains robust in Construction Materials and management commented that orders are now booking out into 2023.
• SolarEdge Technologies, and other stocks related to the renewable energy sector, surged in late July after US Senator Joe Manchin and Majority Leader Chuck Schumer announced a deal that would see spending of approximately US$369 billion on climate and energy proposals. SolarEdge, a leader in solar technology, is well-positioned to benefit from this legislation.
• AdaptHealth continued to recover from deeply oversold levels due to increasing confidence that supply chain stress is easing somewhat in CPAP (sleep apnea machines). CPAP devices have been competing with consumer electronics for semiconductors in recent months and as demand for consumer electronics is starting to cool off, there is greater availability of semiconductors for CPAP.
Key detractors from relative performance:
• AIA Group underperformed in July due to China lockdowns significantly disrupting business in key markets, and a slower business recovery in ASEAN countries despite large, local re-opening.
• Palomar shares struggled to perform this month in sympathy with the broader insurance sector. Bond yields have been slightly softer in recent weeks as investors speculate that we may be at 'peak' inflation and benign monetary policy has increased.
June, 2022
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• Palomar outperformed after the company’s investor day, where management illustrated a path towards achieving two times underwriting profitability and greater than 20% adjusted ROE over the intermediate term. Evidently, Palomar’s business mix is becoming more diverse, driving sustained high premium growth levels, margin consistency and a lower risk profile.
• AIA Group outperformed following improving trends in the Asian life insurance industry. Life insurers witnessed a recovery in premium income growth driven by longterm savings demand against the falling interest rate environment in China. In addition, AIA announced this month that it had achieved regulatory approval for the Henan province. This news came somewhat earlier than investors had anticipated, illustrating AIA’s strong execution on its China expansion strategy.
Key detractors from relative performance: • Booking Holdings derated aggressively in June, echoing a broader aversion to Consumer Discretionary stocks. In the context of persistent inflation and early signs of consumer
demand beginning to weaken, a looming recession looks increasingly likely. Consequently, investors are stepping out of discretionary propositions and looking for safe havens in more defensive parts of the market.
• Taiwan Semiconductor shares have been negatively impacted by cyclical concerns regarding end-market demand for semiconductors. Whilst TSMC would not be immune if semi demand corrected in 2023, we believe that the company offers relative defensiveness given its scale, technology leadership and customer diversification
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Jun-2022.pdfMay, 2022
The Fund outperformed the benchmark over the month.
Key contributors to relative performance: • AdaptHealth shares recovered this month after the company’s quarterly results indicated there is light at the end of the tunnel on CPAP issues. The potential completion of the Philips recall in early 2023 and likely easing of chip supply issues will quickly restore organic revenue growth, margins and cash generation.
• Palomar outperformed following strong quarterly results. Most importantly, the company’s business mix is becoming increasingly diverse. This is driving sustained high premium growth levels, margin consistency and a lower risk profile. • Progressive shares rose, benefitting from its sensitivity to rising interest rates, via its large investment book. Additionally, recent monthly results illustrated that the company continues to see margin improvement in its personal auto business.
Key detractors from relative performance:
• LivaNova underperformed despite announcing solid quarterly results, with their core epilepsy and cardiopulmonary businesses doing well. Although the company’s updates on their pipeline were in line with previous comments, there was probably some mild disappointment that they hadn’t achieved statistical significance at their first read outs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-May-2022.pdfApril, 2022
The Fund underperformed the benchmark over the month.
Key contributors to relative performance:
• Carlisle Companies outperformed on the back of strong Q1 results. Management has disclosed new segmentation for their Construction division, which provides investors with greater confidence that the company will allocate more capital to these high return segments.
• Coca-Cola Company outperformed on the back of extremely strong quarterly results. The company achieved 18% organic revenue growth, of which 11% was volumeled, illustrating robust demand in a sustained inflationary environment.
• Anthem continued to outperform following Q1 results which reaffirmed the positive managed care setup for 2022.
Key detractors from relative performance:
• Sony Group Corp. underperformed as concerns grew over consumer discretionary spending as costs of living continued to increase. In addition, it is likely that Sony will experience further market share declines in its image sensor business in 2022 amidst competitive pressures.
• SolarEdge Technology shares declined on the back of the US Department of Commerce’s anti-dumping investigation of solar cell imports from China and Southeast Asian countries. Approximately 85% of US solar cell imports may be liable for anti-dumping tariffs if deemed to be circumventing rules. A decision is expected in August.
• AdaptHealth underperformed following an update from Philips regarding its sleep apnea product recall. Philips expanded its Sleep recall program to 5.5 million devices. The update provides a negative read across to AdaptHealth given it is a key distributor of Philip’s sleep apnea products.
February, 2022
The Fund underperformed the benchmark over the month. Key contributors to relative performance:
• Palomar outperformed following strong quarterly results. Premium growth was at the high end of the insurance sector. Growth is being driven by a strong rate environment, expanding total addressable market (TAM), market share gains and broadening distribution.
• Encompass Health shares rose following encouraging commentary from management on the Q4 results call. Whilst labour costs and constraints continued to be a significant headwind for the company in Q4, management believes the pressure (specifically related to the utilization of contract labour) is exclusively tied to COVID-19 and should normalise as this subsides. • Bio-Techne shares climbed following strong quarterly results, with 17% organic revenue growth and an 18% increase in the adjusted operating profits. Additionally, the Board approved a new share repurchase program authorizing the repurchase of up to USD 400 million of common stock.
Key detractors from relative performance:
• Masimo fell sharply following the company’s announcement of its planned acquisition of Sound United. Investors struggled to understand the strategic rationale behind the deal and were concerned about the USD 1 billion price tag attached to it. • Adobe continued to be the subject of profit-taking this month following an extremely strong year. There is evidence of moderating growth for the digital design industry at present after an exceptional 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-NA-Fund-Feb-2022-1.pdfJanuary, 2022
The Fund underperformed the benchmark over the month. Key contributors to relative performance:
• Progressive Corp outperformed this month on little stock specific news. The insurance sector generally enjoyed a good month as bond yields have moved higher. • Deere & Co contributed to performance. Agricultural commodity prices have generally been firm in January. With corn prices well known to have a strong impact on investment decisions made by farmers, this should bode well for continued strong demand for the products and services offered by the company, leading to outperformance during the month.
• Global Payments recovered some of the ground lost in recent months in January. Share price weakness last year had seen the stock de-rate to very attractive valuation levels. With big payments peers like Visa and Mastercard publishing strong earnings updates, this was enough to see the shares push higher and outperform a weak equity market.
Key detractors from relative performance: • Bio-Techne and Masimo both corrected more than 25% in January. There was no stock specific news behind these moves, with both stocks yet to report their latest quarterly earnings. However both stocks had relatively high valuations coming into the year leaving them very exposed to the abrupt shift in sentiment seen in January.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Jan-2022.pdfDecember, 2021
The Fund outperformed the benchmark over the month.
Key contributors to relative performance: • Accenture outperformed after releasing stronger than expected fiscal Q1 earnings and delivering an upbeat outlook for 2022. • Compass rose in the last two weeks of the month as early data suggested that the Omicron variant of COVID-19 may be much less harmful to those infected than earlier variants. This raised hopes that economic disruption may be relatively short lived and that beneficiaries of economic reopening such as contract catering businesses would enjoy a quick return to growth. • AdaptHealth benefitted from improved sentiment towards a potential return to more normal healthcare utilisation if the Omicron variant of COVID-19 causes less severe illness and disruption than the Delta variant. It was also announced that the CEO had acquired almost USD1m of shares in the company in December.
Key detractors from relative performance:
• Adobe fell after delivering marginally weaker than expected revenues in Q4 and offering initial 2022 revenue growth guidance. This led to profit taking in the stock after an extremely strong year. • HelloFresh fell after guiding to weaker than expected profit margins in 2022 as the company continue to invest heavily in expanding their competitive advantage
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Dec-2021.pdfNovember, 2021
The Fund underperformed the benchmark over the month. Key contributors to relative performance:
• HelloFresh enjoyed a strong month after boosting their guidance for revenue growth at the start of November. HelloFresh are continuing to enjoy good momentum in active users (up almost 40% year on year), despite fears over a potential increase in users churning off the service during the northern hemisphere summer months. • Sony outperformed after posting strong results right at the end of October, with better-than-expected sales and profits in their Pictures and Electronic Products as well as Solutions businesses.
• Adobe did well, in line with many technology stocks this month. There was little stock specific news that drove the outperformance.
• LivaNova and Carlisle Group also contributed to performance.
Key detractors from relative performance:
• Palomar underperformed despite starting the month with good financial results, where strong new premium growth was well received by investors. There was no stock specific news behind the sell-off.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Nov-2021.pdfOctober, 2021
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• Microsoft outperformed on the back of extremely strong quarterly results. Azure, Microsoft’s cloud solution, grew 50% year-on-year, exceeding guidance. • SolarEdge shares rose after a peer, Enphase Energy, published results at the end of the month, which reflected very strong demand for solar products. In addition, clean energy stocks soared after US President Biden unveiled his signature climate and social spending bill. • Anthem outperformed on the back of impressive quarterly earnings driven by strong revenue growth, favourable medical costs, and continued growth in earnings contribution from IngenioRx (its pharmacy benefits manager.
• Carlisle and Accenture also contributed to performance.
Key detractors from relative performance:
• HelloFresh (HFG) underperformed as the market is anticipating a weaker quarter for the company. Q3 is typically HFG’s weakest quarter due to seasonality. However, this Q3 is impacted by additional issues: 1) a couple of HelloFresh’s fulfilment centres in the US incurred damages caused by Hurricane Ida and were forced to close for a short period, and 2) the company is being impacted quite significantly by labour challenges.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Oct-2021.pdfSeptember, 2021
Key contributors to relative performance:
• SVB Financial outperformed materially towards month end as bond yields spiked again. They also announced an expansion into technology investment banking.
• Sony Group outperformed after announcing its intention to acquire a majority stake in India’s largest publicly traded television network (Zee entertainment). The merged entity would give Sony a powerful new growth driver in one of the world’s fastest growing major economies.
• Tractor Supply appreciated after management discussed the company’s ability to benefit from long-term tailwinds. The CEO commented that the surge in pet adoption will benefit the feed business over the next 5 to 10 years, and rural revitalization, driven by millennials moving out of cities, is supporting all business categories more broadly. • Anthem and Compass Group also contributed to performance.
Key detractors from relative performance: • Kingspan failed to keep pace with the market, following a strong run on the back of an earnings upgrade for FY21 in July. Rising input cost inflation is an additional factor weighing on the stock.
• Palomar also saw some consolidation after a strong run following impressive quarterly numbers in August. In addition, Heath Fisher, co-founder of the company and president since the beginning of 2014, announced his resignation as president effective April 2022. Investors will be keen to see the appointment of a strong successor
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-GS-Fund-Sept-2021.pdfAugust, 2021
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• HelloFresh outperformed on the back of another set of strong quarterly results. Management upgraded revenue guidance for the third time this year, reflecting continued strong demand for meal-kits despite markets re-opening after COVID-19 lockdowns. • Daikin performed strongly after quarterly results illustrated that the company is executing on the key themes of its medium-term plan.
Key detractors from relative performance:
• Anthem underperformed after one of its peers (Cigna) announced disappointing Q2 results which suggested that insurers could face elevated cost pressures in 2H21. • Encompass Health was impacted by weak results from a peer (Amedisys). Their Q2 results showed some near-term pressure on the Amedisys Hospice business - with a slower than expected recovery in admissions post COVID-19 and rising wage cost for nurses (exacerbated by poor management execution at the company).
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Nikko-AM-Global-Share-Fund-Aug-2021.pdfJuly, 2021
The Fund outperformed the benchmark over the month
Key contributors to relative performance:
• Kingspan outperformed on the back of an earnings upgrade for FY21 last month. Management indicated further volume and margin upgrades are likely.
• Transunion outperformed following better-than-expected results and this month and an upgrade to full-year guidance. The company’s leading position with fintech lenders contributed to outsized non-mortgage growth in the US.
• Accenture climbed after very strong results at the end of June and increased FY21 guidance, underpinned by sustainable organic demand.
• Palomar and Aon plc also contributed to performance.
Key detractors from relative performance:
• Tencent was negatively impacted after the company announced that it was suspending new user registration on WeChat in China as it works to comply with relevant laws and regulations. This reflects part of a broader crackdown on tech firms by Chinese regulators.
• HelloFresh failed to keep pace with the market this month as the shares consolidated strong gains following impressive Q1 results earlier in the year. What is more, the market is anticipating a potential lowering of the EBITDA margin guidance at Q2 results in a couple of weeks due to investments pulled forward.
• Royal Philips has been impacted negatively after the recall of its CPAP machines for sleep apnoea. The noise cancelling foam used in the devices can degrade over time potentially releasing granules of foam into the device (which could then be inhaled by the patient). There is no record of patient harm at this stage, however, the risk is that the US litigation
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/ngsf_fund_update-1-1.pdfJune, 2021
The Fund underperformed the benchmark over the month.
Key contributors to relative performance: • Adobe posted another set of extremely strong quarterly results, showing faster growth than expected – helped by ongoing macroeconomic recovery and the structural shift to digital media. This generated good earnings upgrades.
• Microsoft benefitted from the recovery in growth stocks and positive sentiment towards software companies, amid stronger than expected updates from peers. There was little stock specific news, although the company did announce the next generation of its operating system (Windows 11), which will have new features such as in-built Microsoft Teams.
• Bio-Techne benefitted from June’s style rotation, and also Danaher’s acquisition of Aldevron from Private Equity for almost USD 10 billion, which highlighted the scarcity value of high quality assets in the biopharma industry.
• HelloFresh and Accenture also contributed to performance. Key detractors from relative performance:
• Compass Group saw some profit taking in June, as cyclical stocks struggled, following some potentially hawkish commentary from the US Federal Reserve, hinting that monetary policy normalisation may start sooner than 2023 (as per consensus expectations).
• Encompass failed to keep pace with the market, after one of its peers (Amedisys) made comments suggesting that patient volumes at its Hospice business were recovering more slowly than in other care settings.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/ngsf_fund_update-3.pdfMay, 2021
Global equity markets continued to rise in May. The MSCI All Countries World Index gained 1.35% (AUD, unhedged). Despite a pause in underlying commodity price appreciation, the commodity-driven sectors of the equity market resumed leadership, with both the energy and materials sectors posting strong gains. Financials also outperformed. Within the cyclical parts of the market, only consumer discretionary bucked the trend, delivering the weakest performance of any sector in May.
The information technology sector was weaker. Although healthcare slightly outperformed (along with consumer staples), it was lower growth sub-sectors like pharmaceuticals and hospitals that led the way, rather than traditional growth bellwethers such as medtech.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/ngsf_fund_update-2.pdfApril, 2021
LivaNova remains a beneficiary of any return towards a pre-COVID-19 normal. Quarterly results showed revenues growing by 12% in their highly profitable US Epilepsy business as patients begin to return to the clinic. As a result, LivaNova’s group profits easily outstripped investor expectations.
• Burford Capital benefitted after one of its clients won a favourable judgement in the High Court and a large award of USD1.4bn. Burford’s share of the awards is unknown but it typically takes 30%, indicating it could receive up to USD400m. Additionally, the fact that Burford is funding the claimant, provides greater evidence of third party litigation funding becoming more mainstream.
• Transunion outperformed on the back of a significant recovery in US non-mortgage verticals, as lenders increased customer acquisition efforts and fiscal stimulus boosted large consumer purchase activity. At its Q1 results, management increased full-year guidance, indicating highsingle-digit growth for US markets, mid-teens growth for International, and low-single-digit growth for Consumer Interactive in 2021
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/ngsf_fund_update-1.pdfDecember, 2020
The Fund outperformed the benchmark over the month.
Key contributors to relative performance:
• HelloFresh outperformed on the back of an impressive Capital Markets Day, which provided investors with greater clarity around customer behaviour, 2021 financial guidance and long-term growth drivers. Additionally, the investor day provided in-depth insight into HelloFresh’s sustainability initiatives, highlighting the company’s commitment to ESG.
• LivaNova outperformed following several key changes to its Board structure. The heads of the Audit Committee and Compensation Committee, and Chairman, who have been responsible for the execution issues at LivaNova, have been replaced by seasoned healthcare executives. Management are demonstrating their desire to turn the company around and become more sensible stewards of capital.
• Palomar witnessed a recovery after the market digested management’s recent underwriting actions, prompted by Q3 insurance losses as a result of natural catastrophes. Management amended the reinsurance program to focus on frequency, and not just severity.
• Solaredge and Progressive also contributed to performance.
Key detractors from relative performance:
• American Tower sold-off due to expectations of a reduction in network spending as the economy opens up after COVID-19-led restrictions. Despite this news, the company remains confident that it can continue to deliver consistent growth through the acceleration of 5G deployments in the US and the development of wireless infrastructure in emerging markets.
• Tencent was negatively impacted by news flow around China’s regulatory antitrust investigation into Alibaba, that signals that a more perilous regulatory regime may be in store for the leading technology giants in China. Importantly though, recent habit formation around gaming has been significant, and Tencent’s world-leading platform shall continue to drive growth.
• Unilever suffered due to renewed lockdowns in Europe, where the company generates approximately 25% of its revenues.
• Daikin and Kingspan also detracted from performance.
asset_class: Foreign Equity
asset_category: Large Blend - Fundamental
peer_benchmark: Foreign Equity - Large Fundamental Index
broad_market_index: Developed -World Index
manager_contact_details: Array
ticker: SUN0031AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.yarracm.com/tools-and-resources/literature-centre/fund-commentaries/
fund_features:
The investment objective of the Sub-Fund is to achieve a long term capital growth.The Sub-Fund will seek to achieve its investment objective primarily through investment in equity securities listed and traded on the stock exchanges in countries included in the developed and emerging markets as defined by MSCI.
structure: Managed Fund