SUMMARY
The Fund rose 2.1% in June, outperforming the Small Industrials by 0.6% and outperforming the Small Ordinaries by 3.5%. For the 12 months to June, the Fund was up a strong 16.5%, outperforming the Small Industrials and Small Ordinaries Indices by 4.1% and 7.1%, respectively.
COMMENTARY
Global markets were mixed over June, with the tech heavy US market (S&P 500 Index) up 3.6% however European indices were generally lower. The US market continues to be buoyed by strong investor appetite for artificial intelligence stocks with the bellwether NVIDIA up 37% over the June quarter and in the process becoming the world’s largest public company. The US market is also being supported by the bigger picture view from the US Federal Reserve that inflation is moderating and an easing in interest rates is likely this year.
The Australian market (ASX200 Acc Index) rose 1.0% over June. Locally on the economic front markets remain volatile around key data prints. May CPI increased to 4% year on year (from 3.6% in April) and first quarter GDP fell to just 0.1%. Stage 3 tax cuts have now come into effect which some economic commentators suggest is the equivalent of a full 1% RBA interest rate cut in stimulation to the economy. This stimulus however has the potential to be quite inflationary and this is at a time when Australia, more than most, has struggled to gain control over inflation.
July is traditionally a quieter period in the lead up to the August reporting season however the market will remain focussed on profit updates as the company’s Directors gather to sign off their yearly accounts. Looking forward we continue to see fertile ground for identifying mispriced small cap industrial stocks.
Our positive contributors in June included:
Jumbo Interactive (+6.7%) benefited from large Powerball Lotto jackpots which tends to grow their customer base. Pro Medicus (+19.2%) rose after announcing key hospital contracts for their imaging software. AUB Group (+7.2%) continued to rebound after underperforming early in the year. Generational Development Group (+18.7%) rallied after announcing the strategically sensible purchase of the remaining balance of financial services company Lonsec. The acquisition was funded through an equity raising which we participated in. Propel Funerals (+5.7%) performed well in a soft market, again highlighting the resilience of their business model in terms of both organic and acquisitive growth.
Our negative contributors in June included:
Seven Group (-3.9%) due to feared delays with infrastructure projects at Coates hire and Boral. We expect outperformance at Westrac will more than offset these short term influences. Charter Hall Group (-5.9%) fell in response to rising bond yields. The broader property trust sector was also very weak over the quarter. Coast Entertainment (-8.0%) drifted as consumers reduce discretionary spending. Megaport (-17.2%) fell after strong gains as the market now awaits further evidence of success with its new sales team.