SUMMARY
The Fund rose 2.5% in February, underperforming the Small Industrials by 1.4% and outperforming the Small Ordinaries by 0.8%. For the 12 months to February, the Fund was up 11.5%, underperforming the Small Industrials Index by 1.4% and outperforming the Small Ordinaries Index by 3.6%.
We recently recorded an interview between Business Development Associate Lana Ward and Portfolio Manager Ed Prendergast, where they discuss the Fund’s strategic insight and resilience amid 2023’s market dynamics.
COMMENTARY
The US market rose 5.2% in February, rounding out a very strong four month bounce from the lows in October 2023 when bond markets collapsed. From the lows, the US market is now up 24%. The Australian market rose 1.0% in February, with industrials outperforming resources stocks. From the lows in October the Australian market has bounced 14% – the primary difference between the Australian and US market is a lack of largecap tech stocks (which have been very strong in the US), and a higher weight to resources, which have only bounced 2.8%. Domestic smallcap stocks saw strong industrials performance and a 4.6% fall in resources stocks due to weaker nickel, lithium and copper prices.
Takeover activity in domestic smallcaps continues with bids in February for Adbri, Ansarada, Altium, APM Human Services, and CSR Ltd (plus Genex in early March).
We were busy with results season, and were happy with most of the outcomes with some exceptions.
Our positive contributors in February included:
Audinate (+40%) posted accelerating revenue and EBITDA growth (up 48% and 137% respectively), which was above expectations. Gentrack (+22%) did not post a specific earnings result (September year end), however continued to find favour given its impressive growth profile. Aussie Broadband (+19%) released profit growth of 13% with consumer broadband growth rates improving following some interruption during FY23. Propel Funeral (+9%) released revenue growth of 23% and profit growth of 19% with acquisitions and price increases offsetting a mild softening in case volumes. Jumbo Interactive (+17%) showed revenues up 18% and profits up 16%, and an improved outlook based on improved penetration of online lotto tickets, and a more favourable jackpot profile.
Our negative contributors in February included:
Lifestyle Communities (-14%) fell due to a softening in settlement volumes and a capital raising which surprised the market in the short term. Kelsian Group (-16%) released EBITDA growth of 64% which was in line with expectations, however the market was slightly surprised by higher depreciation and interest expense. NIB Holdings (-10%) posted 23% profit growth however the underlying operating trends were slightly disappointing compared to market forecasts. ALS Group (-6%) drifted due to lower volumes of capital raising from smaller mining companies which creates a funding shortfall for exploration spend. We would anticipate a rebound given the recent gold price rally to all time highs.