SUMMARY
The Fund fell 2.0% in December, outperforming the Small Industrials by 1.4% and outperforming the Small Ordinaries by 1.8%. For the 12 months to December, the Fund was down 21.4%, outperforming the Small Industrials Index by 0.4% and underperforming the Small Ordinaries Index by 3.0%.
COMMENTARY
Global markets were weak in December, with the US index falling 5.9% and NASDAQ down 8.7% after a very strong rally in October and November. The optimism surrounding China’s reopening seemed to reverse as the reality of a spreading virus created uncertainty about how smoothly the economy might recover as workers are isolated with illness. Bond markets fell implying less optimism about the outlook for interest rates as short-term inflation data remains fluid.
The Australian market fell 3.2% with resources stocks outperforming and bond-sensitive sectors, such as technology and property, underperforming.
Our key positive contributors in December were:
EBOS (+8%) was particularly strong with no obvious catalyst in December, allowing us some profit taking. NIB Holdings (+6%) also bucked the overall market given its highly resilient earnings streams, and marginal exposure to a recovery in tourism via its travel insurance subsidiary. ALS Ltd (+1%) benefited from a 10% rally in the gold price over the past two months. G8 Education (+13%) provided an earnings update showing mild improvements in occupancy and price rises to recover cost inflation. Kelsian (+5%) rallied after winning a Sydney bus contract during the month.
Our key detractors in December were:
Charter Hall (-13%) and MA Financial (-8%) both underperformed due to their earnings exposure to asset markets, which came under pressure during the month. Carsales (-9%) fell in line with global tech stocks. Genex (-21%) retraced following the withdrawal of the conditional takeover offer by a consortium of private investors. City Chic (-40%), which is a very small position in the Fund, was further hit by sales weakness in the northern hemisphere.