September, 2023
The Fund returned -4.7% (after fees) for the month of September, underperforming the S&P-ASX Small Ordinaries Accumulation Index by 0.6%
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-9.pdfAugust, 2023
The Spheria Australian Microcap Fund returned 0.8% (after fees) during the month of August, outperforming the S&P/ASX Small Ordinaries Accumulation by 2.2%.
The portfolio performance was influenced by the domestic FY23 reporting season, global equities abroad experienced a decline due to uncertainty regarding additional rate hikes in the US, despite signs of easing inflation and a weakening economic environment.
Positive contributors for the month were positions in Bravura Solutions (BVS.ASX), Praemium (PPS.ASX) and Mader Group (MAD.ASX). Whilst positions in Vista Group (VGL.ASX), Appen (APX.ASX) and Red Bubble (RBL.ASX) were notable detractors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-1-1.pdfJuly, 2023
The Spheria Australian Microcap Fund returned 7.4% (after fees) during the month of July, outperforming the S&P/ASX Small Ordinaries Accumulation by 3.9%.
Markets rallied in July as fears of further rate rises abated, supported by better-than-expected inflation data. Redbubble (RBL.ASX), Nuix (NXL.ASX) and Alliance Aviation Services (AQZ.ASX) drove the relative outperformance.
Whilst Praemium (PPS.ASX), Supply Network (SNL.ASX) and Pointsbet Holdings (PBH.ASX) were notable detractors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-8.pdfJune, 2023
The Spheria Australian Microcap Fund returned 0.7% (after fees) for the month of June, outperforming the S&PASX Small Ordinaries Accumulation Index by 0.7%.
Over the month the largest contributors to performance were from overweight positions in VGL.ASX (122bps), PBH.ASX (67bps), SNL.ASX (38bps), and PPS.ASX (34bps).
The largest detractors from performance included overweight positions in APX.ASX (-80bps) following a pull-back after touching a multiyear high earlier in the month, ABY.ASX (-69bps), MCP.ASX (-49bps) and AQZ.ASX (-33bps) as well as underweight positions in PDN.ASX (-22bps) and AUB.ASX (-16bps).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-7.pdfMay, 2023
The Spheria Australian Microcap Fund returned -1.8% (after fees) during the month of May, outperforming the S&P/ASX Small Ordinaries Accumulation by 1.5%.
Concerns over the US debt ceiling and fears of continued economic slowdown drove the overall market lower.
Appen (APX.ASX), Mader Group (MAD.ASX) and Maxiparts (MXI.ASX) were key contributors to outperformance. Whilst consumer names came under pressure due to a slowdown in spending, with Universal Store Holdings (UNI.ASX), NZME (NZM.ASX) and City Chic Collective (CCX) being notable detractors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-6.pdfMarch, 2023
The Spheria Australian Microcap Fund returned 2.7% (after fees) during the month of April, underperforming the S&P/ASX Small Ordinaries Accumulation by 0.1%.
Corporate activity continued in April with Blackmores (BKL) receiving a takeover offer from Japanese beverage company Kirin and Silk Lasers (SLA) a proposal from Wesfarmers (WES) - neither owned by the fund. The top performers for the month were Helloworld (HLO), Mader Group (MAD) and Bravura Solutions (BVS). Vista Group International (VGL) was the most notable detractor.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-5.pdfFebruary, 2023
Again, the smaller end of the market fell more than the larger end with the S&P/ASX 100 index down only 2.4% in February. This trend began at the beginning of last year with the relative underperformance now having extended to greater than 20%.
The reporting season was particularly “bizarre” with share prices hammered on any glint of negativity in a result. To us it feels like the market is becoming even more short term in nature which presents opportunities for those with a long-term investment horizon.
Major Contributors to Performance
Over the month the largest contributors to performance were Helloworld Travel (HLO.ASX, +25%), A2B Australia (A2B.ASX, +20%) and Horizon Oil (HZN.ASX, +13%).
A2B Australia (A2B.ASX) – share price rose 20% post the release of their first half 2023 result. The business returned to positive operating performance across all metrics versus pcp after being heavily impacted by COVID travel restrictions. Revenue rose 21% and the company reported a $3.7m profit after several years of losses. Fleet numbers and total fares increased substantially, with fares processed returning to 90% of pre-COVID levels for the six months. In the month of December alone fares returned to 99.8% of pre-COVID levels. Revenue is highly correlated to fares processed and fleet growth. Given the right-sized cost base it is possible that A2B’s earnings will revert to levels above that of pre-COVID levels in the next 6 to 12 months. The business also has significant property assets valued at over $100m, pre the sale of one asset which was sold in December for $19m. Post settlement the company will have a net cash balance sheet in excess of $12m. The business is trading on about ~4x normalised EV/EBIT, excluding the value of the remaining surplus property.
Major Detractors from Performance
The largest detractors over the month were City Chic Collective (CCX.ASX, -28%), Reckon (RKN.ASX, -16%) and Regis Healthcare (GWA.ASX, -16%).
Reckon (RKN.ASX) – share price fell over 15% post the release of their full year result which was lackluster but contained no obvious surprises. Group revenue grew 2% (adjusted for currency) and whilst overall earnings increased modestly, substantial growth capex in respect of the Legal group (practice management software for legal firms) weighed on overall free cash flow generation. This dynamic is likely to continue for several years as the company looks to grow the Legal division from $10m of revenue to >$40m. Prospects for the Business group (accounting software) remain modest given a competitive landscape, however, there is prospect of industry consolidation given a tail of sub-scale players outside of Xero and MYOB.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-4.pdfJanuary, 2023
The Small Ordinaries and the Mid-Small indices rose coincidentally 6.3% over January recouping some of the losses felt in calendar year 2022. Whilst smaller companies were most sold off last year (falling almost 18% over 2022 vs. the ASX 100 which was actually up 2.3%), the bounce in markets has so far been uniformly felt across both large and small company indices.
Last year saw a confluence of negative events – the re-emergence of inflation, rapid interest rate increases and a war in Ukraine/Russia which caused uneven spikes in commodities and energy. We can only hope that calendar year 2023 is a brighter year for markets and the world in general. We are often asked by our clients to take out and polish our crystal balls and to prognosticate on the outlook for 2023 and beyond. I only wish our vision was that clear, but if it were we might be making an alternative living dressed in gypsy clothes! The one thing we feel more certain about however is that even if we had perfect macro foresight – and we certainly do not – that would not correlate highly with investment success! The reason is simple.
The stockmarket is a forecasting machine itself. It consistently updates share prices based on the average investor’s perception of a company’s particular future and so much of what people think will happen (at least in next 12-18 months) is sort of baked into the current price. Our job is to assess whether we think the ‘baked in’ view is more or less likely than the average market participant and to invest accordingly. In other words, if we could predict the macro environment perfectly, we would not be focusing necessarily on the right things as much of the macro may already be factored into share prices. Our fear of a certain thing happening could be well and truly discounted into those share prices already.
The Spheria team spends most of our time looking at business fundamentals and assessing what has been put into share prices and whether we can opportunistically take a different view from the market. Inefficiencies are a small cap investors bread and butter. The other way we “stress test” our portfolio to reduce risks is to start from a conservative base. Our process is built around looking for businesses with cash flow conversion, strong balance sheets (50% of our top 10 holdings are typically net cash balance sheets – meaning they have no debt) and a supportive valuation. We believe this approach is likely to give our investors the best long-term advantage in outperforming the market whilst taking on less risk.
Major Contributors for the month
Over the month the largest contributors to performance were Helloworld (HLO.ASX, +33.6%), Mader Group (MAD.ASX, +19.0%) and City Chic Collective (CCX.ASX, +35.8%).
Major Detractors for the month
The largest detractors over the month were Nitro Software (NTO.ASX, -3.6%), Michael Hill International (MHJ.ASX, -4.5%) and Regis Healthcare (REG.ASX, -7.2%)
December, 2022
Positive performance contributions from companies owned included:
Bravura Solutions (BVS.ASX) – rallied +10% in December continuing to rebound after its share price collapsed at the beginning of November after announcing a significant downgrade to profit expectations which will result in the company losing money in FY23. We had a relatively small position ahead of this update which we increased substantially in the ensuing share price falls. We do not expect this to be a quick turnaround given many years of mismanagement which will require a material realignment of the cost structure on a now smaller revenue base, however, the software is difficult to displace/replace which means the revenue is "sticky" and provides breathing space to effect necessary changes. Also, we calculate the company will have +$25m of net c ash as at the December half year after restructuring charges and working capital imposts which we believe will provide sufficient liquidity to support the turnaround. BVS has now rallied nearly 50% from where we acquired the majority of our holding but still looks inexpensive on a through the cycle basis at about 4-5x EV/EBIT.
Nitro Software (NTO.ASX) – gained 5% outperforming the broader market as the bidding war between Alludo and Potentia carried over to December. We have discussed NTO in several commentaries after the company received proposals at $1.58 and later $1.80 from Potentia, followed by a $2 Board recommended offer from Alludo (a software company owned by KKR) in November. In December, Potentia matched the $2 bid, however, this was quickly countered by Alludo with an increase to $2.15. Post month end, both parties have lodged applications to the Takeover Panel alleging shortcomings in the opposite camp’s takeover offers. The share price is trading at a slight premium to the highest bid from Alludo on the expectation that Potentia raises its off er to $2.15 or higher thus escalating the battle for control.
Major Detractors for the month
City Chic Collective (CCX.ASX) – continued to fall in December after the company provided another weak trading update with global YTD revenue (as at 18 December 2022) down 7% vs the prior period due to weaker than expected Black Friday/Cyber Monday sales. The weaker retail environment and excess inventory position has forced increased promotional activity which has resulted in further gross margin compression. The company is now expecting a small loss in 1H23. We do not expect this equation to improve in the short to medium term as the company works through elevated inventory. Of greater importance at this point is liquidity and transitioning the balance sheet from a net debt to net cash position which unfortunately is at the expense of g roup profitability. We are taking a longer-term view on this company and will support the business in the event of a capital call.
Adore Beauty (ABY.ASX) – is a relatively new position in the portfolio. The share price fell almost 38% in December as ecommerce players continued to come under selling pressure as consumers continued their shift back to bricks and mortar. Adore Beauty is a leading online beauty retailer in Australia offering over 11,000 third-party products. The company listed in late 2020 at $6.75 and has fallen considerably over the last two years to be around $1 now. The business now has over 800k active customers with ~60% of its revenue from its customer loyalty program. The company’s market capitalization is now around $100m and it ha d nearly $30m of cash at 30 June 2022, which means its Enterprise Value (EV) is now a paltry $70-80m. The company generated positive free cash flow in FY22 unlike many of its peers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-2.pdfNovember, 2022
November was a strong month for share markets globally with both the Small Ordinaries and the Mid-Small Index rallying almost 5% each. Other markets were also up sharply with notable performances from the Eurostoxx up 9.1% and the Hang Seng leading the charge with a 21.5% rebound in A$ terms. The rebound appears to be largely driven by 10-year bond yields falling on the back of generally reducing pressures on inflation. We have been suggesting that there were many forces likely to drive inflation down including falling commodity prices, an unwind of the extreme pressure on goods trade (driven by the Covid surge followed by massive overstocking in the retail system globally) which in turn was driving down shipping and production costs in Asia. This has started to manifest in reported numbers which has got people thinking about when the current rates cycle may peak – possibly sooner and at a lower peak than previously thought.
Our sense is that the real economy will continue to slow in reaction to rate rises and some decisions around energy supply which are now causing system wide price increases. Pressures are being felt along the value chain with companies warning about margin pressures and deferrals in top line spending. In some cases, this is causing outsized reactions in share prices which is offering us opportunities in the small cap space. Whereas we were in a market where people would pay any price to OWN certain stocks, we have shifted to a market in which some people will ACCEPT any price NOT to own certain stocks. This flip in view can create opportunities for longer term and more fundamentally based investors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update-1.pdfOctober, 2022
The Spheria Australian Microcap Fund returned 6.4% (after fees) during the month of October, slightly underperforming the S&P/ASX Small Ordinaries Accumulation Index by 0.1%.
Positive performance contributions from companies owned included:
Nitro Software (NTO.ASX) – jumped almost 30% in October and is now up over 80% from its August lows after the business received two takeover proposals during the month. The first from Potentia Capital who increased their initial indicative offer from $1.58 announced in August to $1.80 via a formal takeover offer. The second from Alludo (a software company owned by KKR) at $2 a share. The Nitro board has unanimously supported the Alludo proposal, however, with two genuine buyers there is potential that the battle for control escalates. We continue to remain supportive of the business and despite the increased price, it still may be somewhat opportunistic given the recurring nature of the business’s revenue, growth potential, and its well-funded balance sheet.
Praemium (PPS.ASX) – rallied almost 25% in October, post their 1Q23 result as the business experienced strong net inflows despite market volatility. The share price has trended higher since the FY22 result in August when the company revealed a solid earnings base to work from post divestment of their loss-making international division. PPS has also introduced (to align with peers) an interest margin generated off client cash balances held on platform. This will be additive to revenue and earnings and will unlikely lead to churn given it is a market wide practice.
Mader Group (MAD.ASX) – rose almost 21% in October as the company delivered a strong Q123 result with revenue growing almost 50%. North America continued its strong performance with revenue growth of +200% as the business expanded its customer base and increased the volume of work delivered. Pleasingly the core Australian business also grew an impressive 34%, supported by the mining cycle and continued market share gains. On the back of a strong first quarter result management lifted their profit expectations for the year. With its North America operations still in their infancy, we believe there remains substantial upside to earnings and valuation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Spheria-Australian-Microcap-Fund-Monthly-Update.pdfAugust, 2022
The Spheria Australian Microcap Fund returned 6.9% (after fees) during the month of June, underperforming the ASX Small Ordinaries Accumulation Index by 4.5%.
Due to the strong appreciation in the index the most significant attributions came from stocks not owned by the mandate that either declined in absolute terms or didn't rise as significantly as the index. Contributors here included Champion Iron (CIA.ASX) down 11%, NIB Holdings (NHF.ASX) off 2% and Elders (ELD.ASX) down 10.5% over the month. Positive contributions from stocks owned included:
Universal Stores (UNI.ASX) - rose 19% over the month, recouping some of its losses over the past few months. With a backdrop of rising interest rates and high energy prices it's been easy to sell consumer discretionary stocks. Shooting first and asking questions later, however, can sometimes be a poor strategy. UNI remains one of the few genuine growth stories in retailing in Australia. Having opened 13 stores since their IPO they now have 78 stores and have officially launched their second brand - Perfect Stranger. Perfect Stranger began life as an own brand offered within the Universal Store and has proven successful enough to warrant its own roll out. The remaining roll out of Universal and the potential for Perfect Stranger means UNI could almost double its current footprint of stores without having to go offshore - an option that remains on the table. Trading on a forecast 9x EV/EBIT with a net cash balance sheet, we don't think the shares are on a demanding valuation for the opportunity ahead of this brand and management team.
Macphersons (MCP.ASX) - rallied 25% over July after having been sold off heavily over the previous month. MCP announced the commencement of its strategic alliance with Chemist Warehouse (CWG) whereby CWG has taken a 9.9% stake in MCP in exchange for increasing the MCP product range available in the CWG stores. In addition, MCP has been appointed distributor of the brands CWG including Wagners vitamins and Bondi Protein to other retailers around Australia. MCP has limited gearing and trades on around 7x our forecast EV/EBIT.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190037256-1.pdfJuly, 2022
The Spheria Australian Microcap Fund returned 6.9% (after fees) during the month of June, underperforming the ASX Small Ordinaries Accumulation Index by 4.5%. Due to the strong appreciation in the index the most significant attributions came from stocks not owned by the mandate that either declined in absolute terms or didn't rise as significantly as the index. Contributors here included Champion Iron (CIA.ASX) down 11%, NIB Holdings (NHF.ASX) off 2% and Elders (ELD.ASX) down 10.5% over the month. Positive controbutors from the stock owned included:
Universal Stores (UNI.ASX) - rose 19% over the month, recouping some of its losses over the past few months. With a backdrop of rising interest rates and high energy prices it's been easy to sell consumer discretionary stocks. Shooting first and asking questions later, however, can sometimes be a poor strategy. UNI remains one of the few genuine growth stories in retailing in Australia. Having opened 13 stores since their IPO they now have 78 stores and have officially launched their second brand - Perfect Stranger. Perfect Stranger began life as an own brand offered within the Universal Store and has proven successful enough to warrant its own roll out. The remaining roll out of Universal and the potential for Perfect Stranger means UNI could almost double its current footprint of stores without having to go offshore - an option that remains on the table. Trading on a forecast 9x EV/EBIT with a net cash balance sheet, we don't think the shares are on a demanding valuation for the opportunity ahead of this brand and management team.
Macphersons (MCP.ASX) - rallied 25% over July after having been sold off heavily over the previous month. MCP announced the commencement of its strategic alliance with Chemist Warehouse (CWG) whereby CWG has taken a 9.9% stake in MCP in exchange for increasing the MCP product range available in the CWG stores. In addition, MCP has been appointed distributor of the brands CWG including Wagners vitamins and Bondi Protein to other retailers around Australia. MCP has limited gearing and trades on around 7x our forecast EV/EBIT.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190037256.pdfJune, 2022
The Spheria Australian Microcap Fund returned -91% (after fees) during the month of June, outperforming the ASX Small Ordinaries Accumulation Index by 4.0%.
Major Contributor for the Month:
Vista Group International (VGL.ASX) - rallied 10% in June after being heavily sold down on the back of potential weakness in its customer base (being cinemas) and then more broadly with the technology sector sell-off. The company announced at the end of May it had entered into a 10-year agreement to transition an existing major enterprise client in Latin America to its Cloud platform. The deal will involve annual subscription fees for which the company sees a material uplift to revenue and then to earnings as the product scales with new client wins and existing client transitions. VGL is the largest ERP software provider to cinema chains globally with over 50% market share by screen count.
Major Detractor for the Month:
Here, There & Everywhere (HT1.ASX) - declined over 26% in June as the media sector came under pressure due to expectations around an advertising recession. However, we do not believe the outlook to be so dire and conversations with management and more broadly suggest advertising spend is holding up well currently, this will change but is more than reflected in the trading multiple, in our opinion. Balance sheet debt is under control at <$100m (vs $70-80m of EBIT) and the company has a 25% stake in Soprano which is highly profitable and growing strongly, whilst its key competitors are cash burning, which we think plays out in Soprano's favour. HT1 is the No.1 rated metro radio network in Australia and recently acquired the largest regional player (Grant Broadcasters), to expand and complete its national presence and grow its digital offering, IHeartRadio.
September, 2021
The Spheria Australian Microcap Fund returned 2.5% (after fees) during the month of September, outperforming the ASX Small Ordinaries Accumulation Index by 4.7%. Over the past year to the end of September the Microcap Fund has returned 65.6% beating its benchmark by 35.2%
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180077327.pdfAugust, 2021
The Spheria Australian Microcap Fund returned 5.3% (after fees) during the month of August, outperforming the ASX Small Ordinaries Accumulation Index by 0.3%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179246984.pdfJuly, 2021
The Spheria Australian Microcap Fund returned 3.1% (after fees) during the month of July, outperforming the ASX Small Ordinaries Accumulation Index by 2.4%.
Major Contributors for the Month Maxitrans (MXI.ASX) was the largest contributor to the Fund over the month rising 51% over the month. MXI is a truck trailer manufacturer with a leading share of trailer manufacturing in Australia coupled with a truck parts business called MaxiParts. During the month they announced the sale of their Trailer division for $30m and the sale of the underlying properties for a further $18m. As part of this process the company will pay a special full franked dividend of 12.5c a share. The remaining business, selling parts, is the stronger of the two businesses and is likely to be re-rated by the market. We continue to see value in MXI post the disposal with the business trading on sub 10x eb/ebit with a net cash balance sheet.
NZME (NZM.NZ) rose 31% over the month on no incremental newsflow from the company. NZM continues to undergo a cyclical recovery across its media operations (Radio, print and digital) in NZ and is rapidly digitizing its earnings stream. Along with many newspaper businesses, the stronger mastheads have managed to migrate their businesses online and raise paywalls. News consumers have learned that you generally get what you pay for. NZM operates the largest newspaper in NZ – the NZ Herald – with a daily audience of over 1.2m readers. We expect to see continued migration of this user base online and to eventually accept a paywall for higher quality journalism. NZM has also reduced its outstanding debt balances and is developing a strong online property portal (Oneroof) to compete with TradeMe property. The company continues to trade on an extremely attractive valuation of around 4.5x EV/EBIT.
Major Detractors for the Month Orecobre (ORE.ASX – not owned) Rallied 25% in sympathy with other Lithium producers on improving Lithium prices over July. Whilst we are cognisant of the tremendous demand for Lithium metal for the current generation of car and storage batteries, we believe at over 5x the invested capital based that ORE is pricing in a perfect future. Lithium remains a fairly abundant material with a relatively flat cost curve. With the multitude of announced and new projects coming to market our view is that super abnormal returns for miners are unlikely to remain sustainable.
Ainsworth Gaming (AGI.ASX) retraced almost 15% over July on limited newsflow. AGI has been one of the strongest performing shares in the fund over the past year and seems to have fallen in sympathy with the increased Covid Delta variant outbreak in Australia and abroad.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/176335569.pdfMay, 2021
The Spheria Australian Microcap Fund returned 1.3% (after fees) in May, outperforming it’s benchmark by 1.0%.
Major Contributors for the Month
Gentrack (GTK.NZ) a NZ based billing and customer care software provider to the Utility sector rose 34% over the month after reporting an improved h1 result and raising guidance for their FY21 year. Based on the stabilization of the business and the turnaround currently underway the company doubled its EBITDA guidance for FY 21. GTK has NZ$16m of net cash on the balance sheet, fully expenses its R&D expenditures. On our forecasts GTK is trading on around 12x FY 22 EV/EBIT for a SAAS utility software provider. Other contributors were APN Property Group (APD.ASX) which rose 59% over the month after it received an agreed takeover bid from Dexus. APD was trading extremely cheaply before the bid with the internal fund manager trading on only 4x EV/EBIT once you had backed out the stake in the property funds it managed. Supply Network (SNL.ASX) rose 12% over the month after being sold off on low volumes during the previous month.
Detractors over the month
included Vista Group international (VGL.NZ) which retraced 11% over the month after a strong performance so far this year on Covid concerns emanating from India. This makes little fundamental sense however as many of the markets VGL is exposed to (North America, Europe) are re-opening and cinema attendance is recovering. As the world’s leading cinema ERP software firm, we think the market is still underestimating the upside to earnings when cinema exhibition returns to something resembling normality. Seven West Media (SWM.ASX) declined 16% over the month on limited news flow.
The announcement in late May that Nine Entertainment Co (NEC.ASX) had also reached an agreement with Facebook and Google for content sharing worth in the vicinity of $30-40m pa continues to give us confidence that earnings are likely to materially recover in FY21 and FY22 with a substantial improvement in the balance sheet. Longer term media consolidation in Australia remains the most likely scenario. Austin Engineering (ANG.ASX) declined 14% over May after announcing he retirement of their current CEO despite reiterating profit guidance for FY21. ANG has extremely low gearing and is trading on a very modest 6x current years expected EV/EBIT.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173428380.pdfMarch, 2021
Spheria Australian Microcap Fund returned 0.7% (after fees) in March, marginally underperforming it’s benchmark by 0.1%. Over the quarter to the end of March the Fund rose 6.6%, outperforming the benchmark by 4.5%.
The market trended higher over March as the economy gently came off life support (read Job Keeper and Job Seeker Covid 19 supplements) which started winding down at the end of March. It is worth reflecting that the absolute nadir of the market was almost exactly a year ago on March 23rd, 2020. The Small Ordinaries is up a lazy 52.1% since the end of March or 64.4% from the absolute bottom. It pays to be brave. The absolute panic that gripped markets between February and March of 2020 almost feels like something of a distant memory now that Covid 19 vaccines – having been created in record time - are being aggressively rolled out in major geographies. Governments now compete to have the most vaccinated populations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/170293763.pdfDecember, 2020
Spheria Australian Microcap Fund returned 6.9% (after fees) in December, outperforming it’s benchmark by 4.1%.
Markets locally rose over December as strong returns in materials and a narrow grouping of high momentum tech stocks more than offset declines in “re-opening” trades, healthcare and a smattering of stocks that downgraded earnings. Materials performed strongly as iron ore prices reached highs not seen since 2011, Copper reached record high levels in $A terms and lithium prices rose off the canvas helping to supercharge already sky-high sentiment towards lithium stocks following Biden’s election to the U.S. Presidency. Multiple tech stocks made record absolute highs and rerated to record EV/Sales multiples. These include APT.asx and XRO.asx following their graduation in to the top 20 and top 50 respectively, REA.asx, NAN.asx and PNV.asx.
The Fund outperformed due to an overweight to media, retail and gaming exposures (which had lagged larger stocks in November), a significant rerating in City-Chic Collective (CCX.asx), the receipt of a takeover offer for portfolio holding Asaleo Care (AHY.asx) and underweights to some of the larger index detractors. Despite our recent outperformance we continue to observe and remain concerned about speculative excess in high momentum names. This is particularly so in areas that are viewed as COVID-19 beneficiaries like eCommerce, Fintech and Biotech but also in our view has more recently extended to certain areas of the materials space.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/163690114.pdfticker: WHT0066AU
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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
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fund_features:
Spheria Australian Microcap aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over the medium to long term. Focus on quality businesses and active investment management – Spheria is a fundamental based investment manager with a bottom-up focus. The investment team of Spheria has over 40 years’ experience investing in equities. The team believes in the potential for higher growth as microcap companies generally have more potential for growth relative to large companies as they may be in the early stages of development or are providing new services or technologies.