September, 2023
The Trust was down 3.8% outperforming the Index which was down 4.0%. For the quarter, the Trust is up 3.0%, outperforming the Index (which is down 1.9%) by 4.9%.
Financials markets were clearly in a risk-off mode again with long term bond rates moving higher and pockets of stubborn inflation around the world.
Given results were released in August, there was very little in the way of stock news. It was, however, the first chance for directors to trade post results as well as companies to commence buy-backs once the market had digested result announcements.
For our portfolio the signaling here was positive:
- 11 directors buying (1 selling)
- 2 active buybacks across the portfolio
Given the weak macro backdrop, such positive signaling from those closest to the fundamentals of the company was encouraging.
Several of our companies announced acquisitions during the month with Firstwave acquiring Saisei Networks and Hancock and Gore buying the remaining shareholding in Mountcastle (providing access to a growing and dependable cashflow profile).
We used the month to further engage with our portfolio companies on corporate strategy and governance and continued to build further conviction in the fundamentals. The average PE ratio of the portfolio is 11.1x, a sizeable discount to the Index which is 14.1x for FY25. A high portion of our holdings have low balance sheet risk (80% have net cash) and a superior growth profile to the Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0923_PVMOT.pdfAugust, 2023
The Trust was up in August +0.4% (net of all fees) outperforming the Index which was down -1.3% and delivering 6.0% excess returns over the quarter.
The strong performance in August was a delayed response to strong guidance in prior months by Veem (+43.5%) and Viva Leisure (+12.8%), with the actual delivery of the results being the catalyst rather than the guidance itself.
Likewise, there may be a delayed response to clear progress at the likes of Lark (+4.4%) with a renewed debt facility and an export deal in Malaysia, Envirosuite (down 15.2%) despite gross margins lifting from 47.9% to 51.6%, and Enero (down 12.8%) despite moves to unlock shareholder value by selling their stake in OBMedia.
Lumos Diagnostics (+75.4%) continued to recover from very depressed levels and now has a clean and simple balance sheet post the capital raise in July.
It was also another strong month for DUG Technology (+12.9%) with very strong earnings growth and cash flow resulting in a materially improved balance sheet. The order book for July is already ahead of FY23 revenues underpinning another strong year of growth in FY24.
The average PE ratio of the portfolio is 10.3x, a sizeable discount to the Index which is 15.0x for FY25. A high portion of our holdings have low balance sheet risk (80% have net cash) and a superior growth profile to the Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0823_PVMOT.pdfJuly, 2023
The Trust was up strongly in July +6.6% (net of all fees) outperforming the Index which was up 3.5%.
As mentioned in recent newsletters, there are signs of renewed interest in the sub $500m market cap space and it was pleasing to see the beginning of a broad recovery in the fund (12 stocks were up 15% or more in the month).
Most encouraging however was the improved earnings updates as well as strategic outcomes from several companies in the portfolio.
Companies confirming a transition to positive cashflow were embraced by a broader investor base. One example was Catapult which we added to the portfolio in June. It was up 18.6% in July after confirming their positive cashflow projection and 1Q revenue growth of >20%.
Earnings guidance from Alliance Aviation, RPM Global, Viva Leisure and Navigator also led to a lift in broker forecasts.
There were also strong strategic updates at Lumos Diagnostic (FDA approval), EcoFibre (Under Armour contract) and DUG Technology (a government grant for a new renewable powered data center).
The average PE ratio of the portfolio is 9.5x, a sizeable discount to the Index which is 15.0x for FY25. A high portion of our holdings have low balance sheet risk (80% have net cash) and a superior growth profile to the Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0723_PVMOT.pdfJune, 2023
For the month of June, the Trust was up 1.0% (net of all fees), outperforming a flat Index. We continue to expect two themes to come to the fore over the balance of the calendar year, namely: - Corporate activity/strategic interest in undervalued names; and - Renewed investor interest in stocks below $500m market cap.
As evidence of the first point, we were very pleased with the takeover of Limeade at $0.425 per share – a 254% premium to the prior month close. This is clear evidence the market is not accurately pricing stocks at the micro end of the market. This under pricing of many microcaps has caused recent poor performance but also highlights the potential upside from future takeovers.
Navigator (+34.3%) benefited after a strategic shareholder agreed to a placement at a significant premium to simplify the acquisition structure. Stocks below $500m that have defensive and growing revenue streams are beginning to attract market attention such as Qoria (+40.0%) and Envirosuite (+11.1%).
Despite these positives a significant part of the portfolio continued to be impacted by tax loss selling. Logically this ended on the 30th June, and we have seen a strong bounce in many names post month end.
The average PE ratio of the portfolio is 8.5x, a sizeable discount to the Index which is 13.8x for FY25. This is despite a higher portion of our holdings with low balance sheet risk (80% have net cash) and a superior growth profile to the Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0623_PVMOT-1.pdfMay, 2023
For the month of June, the Trust was up 1.0% (net of all fees), outperforming a flat Index. We continue to expect two themes to come to the fore over the balance of the calendar year, namely:
- Corporate activity/strategic interest in undervalued names; and
- Renewed investor interest in stocks below $500m market cap.
As evidence of the first point, we were very pleased with the takeover of Limeade at $0.425 per share – a 254% premium to the prior month close. This is clear evidence the market is not accurately pricing stocks at the micro end of the market. This under pricing of many microcaps has caused recent poor performance but also highlights the potential upside from future takeovers.
Navigator (+34.3%) benefited after a strategic shareholder agreed to a placement at a significant premium to simplify the acquisition structure. Stocks below $500m that have defensive and growing revenue streams are beginning to attract market attention such as Qoria (+40.0%) and Envirosuite (+11.1%).
Despite these positives a significant part of the portfolio continued to be impacted by tax loss selling. Logically this ended on the 30th June, and we have seen a strong bounce in many names post month end.
The average PE ratio of the portfolio is 8.5x, a sizeable discount to the Index which is 13.8x for FY25. This is despite a higher portion of our holdings with low balance sheet risk (80% have net cash) and a superior growth profile to the Index.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0623_PVMOT.pdfApril, 2023
For the month of April, the Trust was down 0.7% (net of all fees), compared to the Index which was up 2.8%.
Fundamental newsflow was more limited in April and trading volumes were down given the holiday period. Sentiment towards the micro end of the market remains poor with size remaining the dominant driver of performance instead of fundamentals – the latter being the true driver of shareholder value over the long term.
Sentiment (and therefore share prices) can change quickly and there may already be a shift underway with several encouraging articles about the attractiveness of small and microcaps in Australia from prominent investors during the month. If this smaller end of the market is ‘re-discovered’ by both institutional investors and mainstream funds, then share price moves can be dramatic.
The Trust is fully invested and provides a large exposure to stocks below $500m and also below $150m, and thus is well positioned should this shift occur in coming months. Early signs of renewed investor interest was seen in Superloop, Lark and Acrow during the month but is not yet widespread across the portfolio. We suspect corporate activity is the likely catalyst to realise value in other names.
The average PE ratio of the portfolio is 10.2x, a sizeable discount to the Index which is 16.6x for FY24, despite having a superior growth profile vs the Index.
File:March, 2023
For the month of March, the Trust was down 5.2% (net of all fees), compared to the Index which was down 0.7%. Relative performance was impacted by not holding takeover targets Liontown Resources (+89.7%, we had avoided given likely cost blowouts at the project) and United Malt (+33.0%, we avoided given very high debt levels).
We expect takeover activity to continue to be a feature this calendar year and believe several of our holdings are more logical targets given reliable and growing earnings streams as well as low debt (or in most cases no debt). Sentiment remains poor amongst microcap companies – by contrast this is where we have high levels of conviction in earnings, compared to a trickier outlook at the Index level. Our conviction in the portfolio increased further during March as we did follow up meetings with our key holdings.
We expect other investors and corporates will also notice these improving fundamentals in coming months. At this stage only DUG has gained investor attention (+16.2% for the month) but this provides a good preview of what is possible as investors return to microcap names. The average PE ratio of the portfolio is 9.6x, a sizeable discount to the Index which is 13.3x for FY24 given the superior growth on offer.
File:February, 2023
For the month of February, the Trust was down 5.6% (net of all fees), compared to the Index which was down 3.7%. The market returned to a pessimistic and “glass half empty” approach in February which in the context of continuing rate rises makes sense at an Index level but less so for those companies reporting strong fundamental improvements - such as those in our portfolio. There were plenty of earnings updates in February reporting season with JPMorgan reporting an average drop in earnings per share expectations for Small Cap Industrials of -1.7%. Against this the average adjustment in consensus earnings for our portfolio was +6.1%. While this was not rewarded in the short-term, we are confident this fundamental improvement cannot be ignored for long by other investors and corporates. As Warren Buffet’s mentor Benjamin Graham was reported as saying, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Pleasingly, post results there has been director buying in 4 of our names and a share buyback recommenced as the trading window reopens. The average PE ratio of the portfolio is 10.8x, a sizeable discount to the Index which is 14.1x for FY24 given the superior growth on offer.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0223_PVMOT.pdfJanuary, 2023
For the month of January, the Trust was up 4.6% (net of all fees), less than the Index which was up 6.6%. We were encouraged by several strong trading updates which attracted new investors back to the sub $500m market cap segment, where the bulk of our positions are. Liquidity also improved noticeably allowing us to exit four positions where progress to improving cashflow was weakest and allocated this capital to higher conviction names and some new positions. Our private holdings were a drag in January, given the strong market. In addition, we reduced the value of one position post de-merger to reflect lower trading volumes for that business, noting that given its cyclical nature this may prove conservative. There remains good value in these private names with some liquidity events looming over the next six months to unlock further value. There were noticeably strong updates from De.Mem, MedAdvisor and SciDev as well as a sales update from Envirosuite.
The market over-reacted to mixed quarterlies from Lark (better margins but lower sales as they cycle one-offs) as well as Cluey and Family Zone (where the cost of restructuring was in the quarter, but benefits are for future periods). All eyes are now on February reporting season where we expect the fundamentals of our positions to come through. The average PE ratio of the portfolio is 11.6x, a sizeable discount to the Index which is 14.1x for FY24 given the superior growth on offer.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0123_PVMOT.pdfDecember, 2022
For the month of December, the Trust was up 0.7% (net of all fees) outperforming a very weak market with the Index down 3.7%. The performance of the index reflected macro issues as it has for much of the year. Despite this, it was pleasing to see fundamentals at a stock level rewarded, enabling the Trust to outperform. This trend is pleasing to see given we focus on picking stocks on company fundamentals, something which has been out of favour all year.
The early shift in what is driving share price performance likely reflects the absence of the liquidity forced selling which was impacting Small caps for much of the year, but also the emergence of some risk appetite. This emerging risk appetite meant investors began adding new positions for the first time this year. The initial focus seems to be on stocks with a strong earnings outlook in a tough economic environment (where our portfolio is also focused). This positioning is best reflected in our large overweight position in Information Technology, where valuations have improved significantly, high margins can withstand inflation and revenues are still growing.
This contrarian position began to work with several tech names up more than 20% for the month – for example Limeade, DUG Technology and MedAdivsor. The average PE ratio of the portfolio is 12.2x, a sizeable discount to the Index which is 12.8x for FY24 given the superior growth on offer.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1222_PVMOT.pdfNovember, 2022
For the month of November, the Trust was down slightly (net of all fees) underperforming the Index which was up 4.9%. Markets moved higher during the month post lower-thanexpected US Inflation and hope the size of US interest rate increases will moderate going forward. November was busy (AGMs, results, investor days). It was pleasing to see positive reactions for key stocks; Genetic Signatures (+30%) and Lark (+22%).
It was however disappointing to see holdings drift lower on no new news flow despite fundamentals remaining solid (Alliance Aviation, RPMGlobal). In this regard, it’s interesting to see active buybacks in 2 of our held stocks, and in addition, this month, now 7 stocks with director buying. This is notable and certainly supports our view on the strong fundamentals of the companies we hold. We expect M&A to feature going forward and saw this emerge with PeopleIN which announced a strategic review process given the excessively cheap valuation metrics and solid momentum. The portfolio has many takeover candidates with the average PE ratio of 11.2x, a sizeable discount to the Index which is 13.9x for FY24 given the superior growth on offer in the portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1122_PVMOT.pdfOctober, 2022
For the month of October, the Trust was up 3.3% (net of all fees) underperforming the Index which was up 6.5%. The ASX followed global markets which traded higher during the month, with a betterthan-feared US reporting season and investor hope that the peak in interest rates is nearing. The underperformance of the Trust in a strong market was despite many clearly positive updates from the portfolio. There were 21 companies providing clear evidence on which the market upgraded expectations. Investors are still gravitating to the more liquid end of the Small Cap Index and thus share price responses were largely muted. Despite this, we are encouraged as these fundamental improvements continue to build the value in the portfolio which will benefit patient investors or attract strategic interest given increasing M&A activity. While the bulk of the remaining portfolio provided AGM updates reconfirming guidance, there were four which were negative (all less than 1% positions). We expect further company updates as AGM season stretches into November. The portfolio-average PE ratio of 11.2x remains at a sizeable discount to the index which is 13.4x for FY24 given the superior growth on offer in the portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1022_PVMOT.pdfSeptember, 2022
For the month of September, the Trust was down 10.6% (net of all fees) outperforming the Index which was down 11.2%. Markets sold off heavily during September, with global investor sentiment adversely influenced by a hawkish Fed committed to inflation curtailment. As a result, bond rates and the US dollar moved higher – both of which impacted equity valuations. To add to the turmoil, the UK announced tax cuts and energy subsidies with no clear plan on how these would be funded, sending the Sterling down to record lows. We continue to focus on company fundamentals with a preference for companies with positive revenue tailwinds to offset the tough macro environment and that offer strategic value to other corporates – while such attributes are largely being ignored by the market at present, we believe they will drive value over the medium term. A case in point during the month was Micro-X, which announced the A$15m strategic investment (at a premium) and technology collaboration with Varex Imaging. This validates the core Micro-X technology, unlocks new verticals and provides significant cash runway. The portfolio-average PE ratio of 11.2x remains at a sizeable discount to the index which is 13.7x for FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0922_PVMOT.pdfAugust, 2022
For the month of August, the Trust was down 4.8% (net of all fees) compared to the Index which was up 0.6%. The main drag on performance was one of our larger private assets which was priced lower during the period to match the current funding round and set the company up for an IPO or exit event in CY23. Importantly, the new value is still 2x our initial entry point. The month started positively with a better-than-feared domestic reporting season, but it then began to fall with macro concerns post the hawkish commentary from the Fed at the Jackson Hole summit. We were pleased with the strong fundamentals delivered in the August full year results from our portfolio companies.
Given the mood of the market, there were many cases where these fundamental improvements were ignored – Navigator (down 15.6%) was a case in point after beating earnings expectations and demonstrating inflows and positive absolute performance (a rarity amongst its funds management peers). Pleasingly, the market did begin to notice the improved earnings outlook at DUG Technology (up 30.1%) and Aerometrex (up 26.8%). The portfolio-average PE ratio of 9.7x remains at a sizeable discount to the index which is 15.2x for FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190936747.pdfJuly, 2022
For the month of July, the Trust was up 9.0% (net of all fees) behind the Index which recovered strongly, up 11.4%. Markets globally reacted to optimism that the peak in the interest rate cycle is closer than previously thought, seeing capital come back into growth stocks and a high level of short covering.
Many names in the portfolio provided positive fundamental updates during the quarter, albeit the share price response ranged from muted to several moves of +40%. The performance of the latter group was also likely impacted by a recovery from the large tax loss driven sell-off seen in June. Two more buybacks were announced across the portfolio (in addition to the two in June) reminding the market of both the balance sheet strength and the board’s view that the shares are undervalued. Buybacks increase earnings per share in future years and thus are an effective way to enhance future value. Two smaller holdings in the portfolio had a more mixed quarterly update, providing reason to exit or reduce. Following this, we shifted capital to companies with strong earnings momentum The portfolio-average PE ratio of 10.7x remains at a sizeable discount to the index which is 14.0x for FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189909797.pdfJune, 2022
For the month of June, the Trust was down 11.2% (net of all fees), ahead of the Index which was down 13.1%.
Markets globally were very weak as concerns around inflation and interest rate expectations increased fears of a recession in major markets. We believe our portfolio is well balanced for current conditions with a mix of defensives and cyclicals that have more robust revenue streams than is appreciated by markets (and most importantly with strong balance sheets). Given this backdrop, we saw weakness in cyclicals and resources. Some other parts of the portfolio were heavily impacted by tax loss selling as market participants looked to offset the large taxable gains from the first half of the year but they were doing so in very illiquid markets causing large share price falls.
It was positive to see the takeover bid for HRL Holdings during the month (at close to 100% premium) proving up the strategic value we have seen in the position for some time. There was also some encouraging fundamental updates across the portfolio in June which should lead to improving share prices as this is digested by the market. Across the portfolio, there were two buybacks announced (followed by two more in early July) and an accretive acquisition – in each case earnings per share is boosted in future years but share prices are yet to respond. The portfolio-average PE ratio of 9.8x remains at a sizeable discount to the index which is 13.0x for FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189094348.pdfMay, 2022
For the month of May, the Trust was down 10.8%, underperforming the Index which was down 7.0%. The market was dragged down by continued concerns around inflation and the prospect for higher interest rates as well as the impact on the economic outlook. The additional challenge was tax loss selling pressure which is likely to continue until 30 June. This impacted microcap names to a greater extent given their illiquid nature.
Updating our analysis from last month of the 900 companies in our Industrial Small Cap Universe shows that so far this calendar year, companies which started with a market cap of less than $500m (the cap for our Microcap investable universe) were down 24.2% whereas Industrials above $500m were only down 16.1% (median). This move, without reference to individual fundamentals, creates great investment opportunities.
In this vein, we were pleased to see the start of the M&A cycle with a takeover bid for Alliance Aviation, which is held in the Trust. We also witnessed takeovers of companies we don’t hold but which are in the Information Technology sector where we have the largest overweight. This overweight reflects the high prospect of takeover activity but also the appeal of the more defensive earnings stream for the sector. The portfolio-average PE ratio of 10.9x remains at a sizeable discount to the index which is 14.0x for FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188011573.pdfApril, 2022
For the month of April, the Trust was down 5.5%, underperforming the Index which was down 1.5%. The market remains very risk adverse with size the dominant factor, not the fundamentals of the company. Our analysis of the 900 companies in our Industrial Small Cap Universe shows that so far this calendar year, companies which had a market cap of less than $500m (the cap for our Microcap investable universe) were down 15.4% whereas Industrials above $500m were only down 8.5% (median).
The sharp move lower in recent months, in many cases despite improving company fundamentals, creates compelling value in our opinion. We have long been cautious on the prospect of higher interest rates - as a result, 79% of the portfolio has net cash on their balance sheets and our only consumer exposures are at the premium end (e.g. Maggie Beer and Lark Whisky) which have been less economically sensitive in the past.
Given the mood of the market at present, we suspect it will be corporate M&A activity that stimulates interest in the sector so we will be monitoring that closely. The portfolio-average PE ratio of 12.0x remains at a sizeable discount to the index which is 15.2x for FY24
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187078614.pdfMarch, 2022
For the month of March, the Trust was up 3.2%, underperforming the Index which was up 5.3%. The market recovery from the weak start to the year was driven by Small Resources (+12.7%) with a more modest increase in Small Industrials (+3.0%).
Our exposure to the Microcap Resources Trust was helpful (as well as a direct holding in Jindalle Resources (+26.5%) and we look for any softness in coming months as a chance to further close the underweight in the resource sector via the Resources Trust.
Low risk appetite and perceived liquidity risk continued to impact most of the portfolio but there was a partial recovery in larger names such as Lark and Superloop. M&A is likely to be an increased feature as shown by the bid for Uniti Group (held in the Small Cap fund) with many of our holdings also looking like attractive takeover candidates. Quarterly reporting in April will be important in testing our thesis on those names we see as moving towards cashflow positive (which have, to date, been the biggest drag on the fund). The portfolio-average PE ratio of 13x remains at a sizeable discount to the index which is 18x for FY24.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/186224578-1.pdfJanuary, 2022
For the month of January, the Trust was down 8.0%, outperforming the Index which was down 9.0%. The market focused on commentary from the Federal Reserve (and other central banks) that rate rises may be needed earlier to deal with high levels of observed inflation. This impacted longer term rates and thus the valuation for companies where forecasts for substantial cashflow are long dated and thus more sensitive to higher discount rates (simplistically growth stocks) compared to companies with near term cashflow (simplistically value stocks).
Growth stocks in the US responded appropriately selling off more than value stocks. In Australia, the small caps market was less discerning (and micro caps even less so) with a wide spread sell-off. This creates an exciting set up for returns over CY22 as we seek out value stocks ignored by the market and those stocks labelled as growth where we actually see stronger and positive cashflow nearterm. The portfolio-average PE ratio of 11.8x remains at a sizeable discount to the index which is 16.8x for FY23
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183911494-1.pdfDecember, 2021
For the month of December, the Trust was flat compared to the Index which was up 1.4%. Performance for the calendar year was +6.6% vs the Index which was +16.9%. We explore the reasons for the under performance relative to the Index in the body of the commentary and point to areas where we believe performance should recover over CY22.
Portfolio performance was weak earlier in the month as the withdrawal of liquidity from the sector (as discussed in the prior month) seemed to peak. Pleasingly, this selling pressure began to abate from Mid-December allowing share prices to recover, something we expect to continue as quarterlies are delivered in January and then full profit results are announced in February – allowing investors to focus on the fundamentals. Genetic Signatures (up 36.1%) was the best performer (given higher testing volumes) followed by Doctor Care Anywhere which began to recover.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/182655431.pdfNovember, 2021
For the month of November, the Trust was down 1.7% compared to the Index which was down 0.3%. Fundamental newsflow in the portfolio was positive in the majority of cases, however there were clear signs of liquidity leaving the Microcap space which put pressure on some share prices, particularly those trying to raise capital.
Maggie Beer (up 26.2%) announced a strong trading update of 24.8% revenue growth on a pro-forma basis. The growth was in both the existing Maggie Beer business and also the recently acquired Hampers and Gifts Australia (HGA) business which is still growing despite very strong trading this time last year. Both Maggie Beer and HGA are well positioned for the key Christmas trading period. Pleasingly, the investment in the Microcap Resources Trust was a positive contributor, up 5.3% (despite the weaker market) driven by holdings in Green Technology Metals and GenusPlus.
The portfolio-average PE ratio of 13.1x remains at a sizeable discount to the index which is 18.4x for FY23.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/181790925-1.pdfOctober, 2021
The Trust was down 1.1% compared to the Index which was up 0.9%. The bulk of the portfolio performed strongly, however this was more than offset by the sharp drop in Spire (down 54.7% in USD) as more of the IPO stock became tradeable on the NYSE at a time of limited newsflow. The first quarterly update is due in November which should focus investors back on the fundamentals.
On the positive side there was a takeover offer for Class Limited (up 69.8%) and a well priced asset sale for Superloop (up 32.3%). In addition, Revasum (up 60.0%) recovered strongly with evidence of a turnaround in earnings and cashflow under new management. AGM season starting in October was largely positive, albeit we are conscious that good news travels fast, so a full read of the earnings health of the market is unlikely until AGMs finish in November. The portfolio-average PE ratio of 15.2x remains at a sizeable discount to the index which is 19.1x for FY23.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180945073.pdfSeptember, 2021
The Trust was down 0.8% for the month outperforming the Index which was down 2.1%. There was significant stock and sector divergence during the month. The weakest sector was Resources led lower by Gold and some profit taking in Lithium names.
We have reassessed the best way to access the resource market going forward and thus have started to invest in the sector via a newly created Micro Resources Trust (at no additional fees and still managed by Sam Berridge). We believe this will allow a broader spread of our exposures rather than concentrating on a select few resource names as we do currently. We will use the current sector weakness to grow our holding in this Trust over time, which at month end was a 3.1% exposure (this can be tracked in the exposure chart on this page going forward).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179878152.pdfJuly, 2021
The Trust was up 1.5% for the month of July, ahead of the Small Cap Index which was up 0.7%.
During the June quarter, we had been adding to names that had been significantly impacted by the June tax loss selling. Many of these names began to rebound in July, including Revasum (up 53.8%) and Envirosuite (up 44.4%).
We have been positioning the portfolio towards mining services so it was pleasing to see some of these names perform well with Austin Engineering up 17.9% for the month, SRG Global up 15.8% and Emeco up 13.3%.
Quarterly reporting of cashflow means reporting season often starts early for microcaps with positive updates during July from 4D Medical which was up 25.7%, MedAdvisor, up 16.7%, and Frontier Digital, up 12.3%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/175731157.pdfJune, 2021
For the month of June, the Small Cap Index rose 3.1% while the Trust was down 0.6%. We continued to see liquidity withdrawn from the Microcap space which was exacerbated this month by tax loss selling. Pleasingly, this has already begun to turn around in early July and we look forward to company earnings announcements over the next two months which should demonstrate the strong fundamentals of our investments. Numbers for the financial year were strong in absolute terms with the Trust up 31.4% (net of fees) just behind the Index which was up 33.2%.
In terms of portfolio positioning, we think it is unlikely that the drivers of last year’s returns will be the source of performance in the coming years, and therefore we have locked in profits in many names. This has created a large realised gain which will be paid out to unit holders via a year end distribution of 25.9 cents per unit. This, and the interim distribution of 6.9c, should be factored into the unit price when assessing the total return for the year.
To drive future returns, we have rotated the portfolio to laggards offering compelling value such as Superloop, Pivotal Systems, MedAdvisor and Emeco. The portfolio-average PE ratio of 10.9x remains at a sizeable discount to the Index which is 17.8x for FY23.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174257940.pdfApril, 2021
The Small Cap Index was up strongly again in April, climbing by 5.0% with the Trust also up 2.8%, net of all fees. Unlike previous months, both growth and value performed well at the Index level with dovish central bank commentary and strong economic data (a rare combination).
Earnings commentary and domestic economic signals were positive with the feared ‘fiscal cliff’ from the end of JobKeeper yet to materialize. We continue to be positive on the domestic economic recovery and continue to add to cyclical names – albeit with an increasing aversion to business models which are set up poorly should inflation begin to pick up (a growing medium-term risk). Our health care exposures were the main drag on performance relative to the benchmark with Genetic Signatures down 11.5% and Atomo Diagnostics down 10.4%.
In both cases, we made our investments pre-COVID and while we acknowledge the short-term COVID benefit is now fading, those extra cashflows are now on the balance sheet to fund the organic growth initiatives that previously attracted us to both names.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/171285415.pdfDecember, 2020
For the month of December, the Trust was up 3.8%, outperforming the market by 1.0%. Resources and cyclicals continued to lead the recovery with the Trust benefitting from its Mining Services exposures in particular. For the calendar year, performance was particularly strong up 36.1% net of all fees compared to 9.2% for the Index.
Company specific positive news during the month enabled some of our more defensive growth names to still perform despite the pro cyclical backdrop. Marley Spoon (+32.4%) recovered post encouraging guidance and Genetic Signatures (+12.6%) won their first US customer. Also assisting performance was Immutep (+53.7%), a new biotech we added to the portfolio. It was also pleasing to see the transition of two pre-IPO positions to successful IPO’s during the month with Booktopia and Doctor Care Anywhere both closing above issue price.
The Trust remains positioned in stocks providing a mix of strong earnings growth but with an average valuation at a discount to the market. The portfolio average PE ratio of 13.0x remains at a sizeable discount to the Index which is 18.8x for FY22.
File:ticker: WPC3982AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://perennial.net.au/our-trusts/microcap-opportunities/
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:
Perennial Value Microcap Opportunities aims to grow the value of your investment over the long term by investing in a portfolio of Australian companies, that are either listed or unlisted companies found outside the S&P/ASX Top 100 Index, and to provide a total return (after fees1) that exceeds the S&P/ASX Small Ordinaries Accumulation Index measured on a rolling three-year basis.
- The Trust invests in a range of listed and unlisted companies predominantly comprised of small and microcap stocks which Perennial Value, the investment manager, believes have sustainable operations and robust business models or plans.
- The cornerstone of this approach is a strong emphasis on company research.
- The aim is to develop a detailed understanding of each company before committing investors’ funds.
- The portfolio will hold in the range of 30 to 70 stocks. Typically, the portfolio holds, on average, approximately 45 stocks.