SUMMARY
The Fund rose 2.3% in July, outperforming the Small Industrials by 3.2% and outperforming the Small Ordinaries by 1.6%. For the 12 months to July, the Fund was up 49.3%, outperforming the Small Industrials Index by 17.4% and outperforming the Small Ordinaries Index by 17.0%.
COMMENTARY
The US market rose 2.4% in July driven by a strong reporting season, in stark contrast to the 14% fall in Chinese equities which suffered from fears of regulatory impacts from recent government announcements.
The Australian market rose 1.1% with mining stocks the key sector, rising 8.1% in line with base metals and lithium prices. The smallcap sector was mixed with mining stocks rising, and industrials drifting lower.
Takeover activity has featured within recent times with bids announced for Afterpay, Hansen Technologies, Huon Aquaculture, IRESS Technologies, Spark Infrastructure, and Sydney Airport. This is likely to continue given the favourable funding environment (record low-interest rates and a buoyant stock market).
Reporting season will keep us busy over August and September, and we look forward to direct contact with management teams from a wide range of industries and companies.
Our best performers in July included:
Johns Lyng (+12%) continues to rally after its profit upgrade in July. Mainfreight (+9%) saw further gains after posting very strong first-quarter trends continuing the outstanding growth posted through FY21. Lifestyle Communities (+9%) and Uniti Group (+5%) continued to find strength given their strong growth opportunities with limited economic sensitivity. Australian Clinical Labs (+14%) was floated in May to a muted response, which reversed in July given the realisation that elevated covid testing is likely to boost earnings into the medium term. Adore Beauty (+22%) had also been unfairly marked down earlier this year on the belief that its growth was solely due to covid, with this reversing rapidly in July.
Our worst contributors during July included:
HUB24 (-16%) and Netwealth (-9%) both drifted in July, partially giving up the very strong gains over the prior three months. Freelancer (-22%) was marked down following its interim result, which showed the core business growth was slightly below expectations. Propel Funerals (-5%) had risen over 20% in the prior three months, hence some retracement is not surprising, especially given the mild short-term impact on revenues from covid restrictions in NSW. City Chic (-3%) drifted following a 38% rally in the prior three months.