SUMMARY
The Fund rose 0.8% in June, underperforming the Small Industrials by 3.1% and outperforming the Small Ordinaries by 2.8%. For the 12 months to June, the Fund was down 7.1%, underperforming the Small Industrials by 6.2% and the Small Ordinaries by 15.2%.
In a year of significant swings in investor sentiment, driven by the war in the Middle East and momentum in the AI build-out, share price volatility has been particularly acute. The Fund’s long history of performance has shown that market-driven volatility of this nature has proven to be fertile ground to buy mispriced small-cap industrial stocks. Small-cap mining stocks are not in our investible universe.
COMMENTARY
Global markets were mixed in June, with the US Dow Jones Index up 2.5%, buoyed by the interim agreement between the US and Iran to end the conflict in the Middle East and reopen the Strait of Hormuz. However, the Nasdaq was down 2.8% as tech stocks came under renewed scrutiny amid concerns regarding their debt-funded AI capex and full valuations.
The broader Australian market rose 0.7% in June, which lifted the total return for FY26 to 6.1%. Incredibly, the ASX200 Resources Index rose 50% over the year, compared to a 4.5% fall in the ASX200 Industrials Index. Over June, resource stocks were mostly lower, with Iron ore down 6% and the gold price falling 12%. Oil and gas stocks declined around 10% as the Brent oil price fell 20%.
The RBA has retained a tightening bias as core May CPI came in slightly above consensus at 3.6%. With the inflationary pressures of unemployment falling to 4.4% and many award wages rising by 5% the bond markets are pricing in one more rate hike this year. That said, the market is gaining confidence that interest rates could fall in 2027 as an already weak property market is likely to soften further after the tax changes announced in the May budget.
July is traditionally a quieter period in the lead-up to the important August reporting season. In the meantime, our fund remains focused on companies with stable cash flows, proven management, and where valuations are supportive. Opportunities for disciplined stock pickers with medium-term investment horizons continue to remain strong.
Our positive contributors in June included:
ZIP Co (+40.9%) continued to benefit from the company’s very strong March quarterly update and an announcement from the company that it was expanding its partnership with Stripe. Charter Hall Group (+13.4%) rose strongly after 2026 profit guidance was upgraded. Breville Group (+11.5%) responded to improved retail conditions in the US, this being Breville’s largest market, generating around 55% of revenue. Beacon Lighting (+11.5%) rallied after recent share price weakness reversed. Beacon is ideally positioned for the inevitable rebound in residential construction. Symal Group (+7.4%) performed well after announcing the acquisition of defence contractor Shamrock Civil. The company also recently hosted an investor day that showcased the company’s positive attributes.
Our negative contributors in June included:
Worley (-14.5%) due to profits being downgraded on the back of Middle East project delays and currency headwinds. In the longer term, Worley is a likely beneficiary of the infrastructure rebuild required for the region. Hub24 (-12.5%) fell as investors took profits after a prolonged period of outperformance and some mild shorter-term concerns around FUM growth after the tax changes announced in the May budget. Generation Development Group (-12.2%) fell for similar reasons to Hub24, with no new announcements from the company. Catapult (-8.9%) fell as the sell-off in software stocks continued, with investors preferring the “wait-and-see” approach to whether new AI-developed tools can unseat entrenched software companies. As the incumbent sports analytics company, Catapult has contracted access to unique data and algorithms that new competitors do not.