October Report

The Fund fell 7.9% percent in October but has recovered 7% month to date in November (as of the 16th).

Last month the “higher for longer” interest rate narrative along with concerns over war in the Middle East leading to rising oil prices, inflation, and government spending caused bond yields to rise, which pressured share markets. A reversal of these trends is happening in November.

The Fund was also negatively impacted by some stock-specific issues last month and positively this month.

Top Holdings (alphabetically)

Clarity Pharmaceuticals Ltd

Australia

Health Care

Clarity Pharmaceuticals Limited operates as a radio-pharmaceutical company. The Company focuses on the developing targeted therapies for the treatment of cancer and other serious diseases. Clarity Pharmaceuticals serves customers worldwide.

Eckert & Ziegler Strahlen- und

Germany

Health Care

Eckert & Ziegler AG manufactures equipment for the pharmaceutical industry. The Company produces low-level radiation sources used to treat cancer, heart and other diseases, and in equipment used to calibrate gamma cameras and positron emission computer tomographs. Eckert & Ziegler also develops cancer drugs. The Company markets its products worldwide.

Immutep Ltd

United States

Health Care

Immutep Limited operates as a biotechnology company. The Company focuses on developing novel immunotherapy treatments for cancer and autoimmune disease. Immutep offers its services worldwide.

IperionX Ltd

United States

Materials

IperionX Limited focuses on sustainable mineral and material supply chains. The Company develops low carbon titanium for advanced industries including space, aerospace, electric vehicles, and 3D printing. IperionX serves customers worldwide.

Telix Pharmaceuticals Ltd

Australia

Health Care

Telix Pharmaceuticals Limited operates as a biotechnology company. The Company develops and commercializes molecularly-targeted radiation therapy for the treatment of prostate, renal, and brain cancer. Telix Pharmaceuticals serves patients worldwide.

The Fund’s largest holding, US titanium technology company IperionX, delivered the good news in the form of a development partnership with GKN, one of the world’s largest aerospace suppliers with strong relationships with the US Defense Department, as well as an $11.5mln loan from the US ExIm Bank to help finance equipment purchases at its new plant in Virginia. The stock fell 17% as the market fretted over the company’s finances. However, on the 1st of November, the US Department of Defense announced a $12.7mln grant and the company completed a $16.7mln capital raising in which the Fund participated. The shares have since recovered their losses in November. We see the company as extremely well positioned now they are funded to build the first 125 tonnes of capacity. Further funding is required for the next $50mln capacity expansion (1000 tonnes) however we feel many funding opportunities will be available in the future. The company forecasts USD$100mln of EBITDA within the next three years, which compares favorably to the current market value of USD230mln.

Australian radiation therapy company Telix fell 22% after reporting slightly weaker than expected revenue for its lead product, prostate cancer diagnostic Illucix, however pleasingly it continues to take share from competitor Lantheus and the overall market is still growing. More disappointing though was early data from the Prostact Select clinical trial, which is studying Telix’s lead therapeutic drug to treat prostate cancer TLX591. Although the safety of the product was better than expected, declines in PSA scores, sometimes used as a predictor of longer-term survival, were less impressive than other competitors such as Clarity Pharmaceutical (another portfolio holding). Telix argues that PSA scores are not a reliable indicator of efficacy and that their drug is based on an antibody, not a small molecule, which stays in the cancerous cells for much longer (weeks rather than days) than small molecules. Telix did report excellent survival data in an early phase 2 study so it’s too early to write the product off, but the data is certainly a source of controversy. Given Clarity has a market value of $300mln compared to $3 billion at Telix, albeit with a much more diversified business model generating free cash flow, we feel the risk-reward is more in favour of Clarity, and we continue to own both stocks.

US hospital operator Tenet Healthcare fell 16% partly pressured by rising bond yields but also after giving guidance for 2024 that highlighted headwinds, particularly around labour costs and lack of benefits received in 2023, such as insurance payouts and covid subsidies. We believe the stock is still attractive due to its strong free cash flow generation and structural growth in its daycare surgical centres, which are far cheaper than hospitals.

European solar panel producer Meyer Burger fell 33% due to weak global solar panel prices driven by a glut of 100GW of Chinese solar panels sitting in European warehouses. We expect European governments to announce support packages for the domestic industry over the coming months following the US lead in protecting this important supply chain, however, these packages have taken longer than expected to materialize.

On the positive side German medical isotope manufacturer Eckert and Zeigler rose 17% after reporting strong quarterly results and the separation of its loss-making drug development business. Currently, Telix, discussed above, is the largest customer of the company for its gallium generators used to produce prostate cancer diagnostic Illucix. In the future, drugs based on isotopes of Lutetium and Actinium, are expected to become the mainstay of the business. The company is supplying isotopes into many clinical programs, which should start to become commercial drivers in 2025 and beyond including Lantheus, which is expecting imminent Phase 3 data on a prostate cancer therapeutic.  We believe this is likely to be a catalyst for the shares.

Spotify (+8.6%) reported strong results demonstrating better-than-expected new user numbers, total subscribers, and EBIT. Profitability arrived 1Q earlier than expected and is now likely to continue each quarter as cost-cutting combined with price rises are durable. Importantly, the ability to increase prices and grow subscribers has reassured the market. Growing podcasting profitability will provide another leg to growth. The launch of Audiobooks may help with unbundling family plans and therefore higher medium-term ARPU, albeit in the short term it is not clear if this product is earnings additive. Overall, the market reacted positively to this result.