The Aberdeen Australian Equities Fund is a high conviction actively managed Australian equity portfolio managed using a bottom-up approach with little reference to a benchmark.
The underperformance was driven by negative allocation effects, whereas stock selection was slightly positive.
The overweight to healthcare, in particular, was a key detractor during a period in which the sector was the worst performer. Among our holdings, CSL sold off on a rebasing of consensus expectations after a miscommunication from the new CFO regarding gross margins. We view the downgrade to consensus as more of a result of a mismatch of expectations over a faster gross margin recovery to pre-COVID levels rather than of a deterioration of company or industry fundamentals. Another of our holdings, Pro Medicus (PME), performed well with consensus factoring in meaningful contract wins over the coming years. We regard PME as a high-quality name with a dominant global market in diagnostic imaging and a lack of competitors that can match its edge.
Elsewhere, our consumer-related stocks were also weak. The consumer discretionary space is a difficult space at the moment because of the downside risk to consensus earnings as a result of weakening consumer spending. Across our holdings, we sold off our position in IDP Education Ltd, which was a significant detractor from returns over the period, as its share price fell on concerns over the impact of new Canadian foreign student testing requirements on the visibility of the business over the coming years. In consumer staples, a key laggard was drinks and hospitality company Endeavour Group, on expectations that a more challenged consumer backdrop will curtail discretionary spending, as Australians are likely to eat out less. Regarding the hotels segment, there was also regulatory risk following the Victorian government’s announcement of new reforms on electronic gaming machines.
On a more positive note, we saw strong contributions from our IT and energy holdings. Xero stood out, as the positive investment thesis continued to play out, with the company continuing to make gains on cost savings and its planned price increases reinforcing its pricing power in core markets. We are positive about the company’s long-term growth story and the competitiveness of its product, and we believe that Xero is well positioned to gain market share as the transition to cloud accounting software picks up. In the energy sector, we saw several holdings perform well on the back of continued commodity price strength over the period, including Woodside Energy Group, Pilbara Minerals and Beach Energy. Operationally, all of these names have been performing in line with our expectations, as reflected in their earnings and production numbers through the review period. Elsewhere, mining company Northern Star Resources detracted over the period after its strong performance from the previous quarter, thanks to promising merger and acquisition news in the sector.
In terms of activity, we introduced a new stock in AUB, an insurance broker operating in Australia and New Zealand. A key pillar of AUB’s strategy is to acquire small and mediumsized insurance brokers. A change in management has led to AUB executing better than its peers in a supportive rising rate backdrop, and we see good visibility on earnings with plenty of growth levers for management to pull internally. In addition, we increased our overweight to cement manufacturer James Hardie and global gaming company Aristocrat Leisure. We added to both these positions on expectations that the respective dynamics
What is Aberdeen Std Australian Eqs Fd Aberdeen Std Australian Eqs Fd is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Cap Passive Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Aberdeen Std Australian Eqs Fd has Assets Under Management of 45.13 M with a management fee of 0.77%, a performance fee of 0.00% and a buy/sell spread fee of 0.4%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Aberdeen Std Australian Eqs Fd has returned -5.41% in the last month. The previous three years have returned 3.52% annualised and 12.95% each year since inception, which is when the Aberdeen Std Australian Eqs Fd first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Aberdeen Std Australian Eqs Fd first started, the Sharpe ratio is 0.33 with an annualised volatility of 12.95%. The maximum drawdown of the investment product in the last 12 months is -19.88% and -40.34% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Aberdeen Std Australian Eqs Fd has a 12-month excess return when compared to the Domestic Equity - Large Cap Passive Index of -4.92% and -0.16% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Aberdeen Std Australian Eqs Fd has produced Alpha over the Domestic Equity - Large Cap Passive Index of -0.33% in the last 12 months and 0.01% since inception.
What are similar investment products? For a full list of investment products in the Domestic Equity - Large Cap Passive Index category, you can click here for the Peer Investment Report.
What level of diversification will Aberdeen Std Australian Eqs Fd provide? Aberdeen Std Australian Eqs Fd has a correlation coefficient of 0.97 and a beta of 1.1 when compared to the Domestic Equity - Large Cap Passive Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on Aberdeen Std Australian Eqs Fd and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Aberdeen Std Australian Eqs Fd with the ASX Index 200 Index? For a full quantitative report on Aberdeen Std Australian Eqs Fd compared to the ASX Index 200 Index, you can click here.
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How can I invest in Aberdeen Std Australian Eqs Fd? If you or your self managed super fund would like to invest in the Aberdeen Std Australian Eqs Fd please contact Level 10, 255 George Street, Sydney, NSW, 2000 via phone +61 02 9950 2888 or via email client.service.aust@aberdeenstandard.com.
How do I get in contact with the Aberdeen Std Australian Eqs Fd? If you would like to get in contact with the Aberdeen Std Australian Eqs Fd manager, please call +61 02 9950 2888.
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Performance Commentary - February 28, 2023 To outperform the benchmark, the S&P/ASX 300 Accumulation Index excluding S&P/ASX 20 Leaders
Index, after fees, over rolling three year periods.
Performance Commentary - January 31, 2023 The Fund delivered a total return of 5.6% for the January month after all fees and expenses. The S&P/ASX 300 Accumulation Index returned 6.3% over the same period.
The Fund utilises abrdn’s Sustainable and Responsible Investment process to invest primarily in a concentrated portfolio of around 20-35 companies that are listed or proceeding to listing on the Australian Securities Exchange (ASX) and have the potential for capital growth and increased earning potential.
Performance Commentary - December 31, 2022 The Fund returned -2.31% (gross of fees) and -2.37% (net of fees) in December. This was ahead of its performance target, which returned -3.21%.
Contributing to performance was our overweight in Spark New Zealand. The company announced that its TowerCo business Connexa will acquire 2degrees’ tower assets, as well as close Spark Sport. Both announcements, while small in isolation, are incrementally positive, as the former suggests co-location benefits and thus valuation upside to Connexa, while the latter results in cost savings to the business. OZ Minerals continued its strong performance, thanks to its pending takeover by BHP. This supported the OZ Minerals’ share price, despite the broader market falling due to growing concerns of a recession in the year ahead. Auckland International Airport also outperformed the broader market, buoyed by news regarding the relaxation of China’s ‘zero-Covid’ policy, which should further boost a recovery in international passenger volumes.
On the other hand, our lack of exposure to benchmark heavyweight BHP detracted from performance. BHP’s outperformance was driven by the China reopening theme, with Chinese policymakers seeking to relax Covid-19 restrictions and support the property sector, which flowed through to higher iron ore prices. Having performed well over recent months, Pilbara Minerals underperformed, with recent market commentary and spot pricing suggesting that the lithium price may have passed its peak, which negatively affected the company’s share price. Elsewhere, Charter Hall Group weighed on returns, despite no fundamental news. Its share price fell in line with the rest of the real estate investment trust sector as US 10-year bond yields crept back up on concerns that rates are likely to stay elevated for longer in the year ahead.
Performance Commentary - November 30, 2022 The Fund returned 2.97% (gross of fees) and 2.90% (net of fees) in November. This was behind its performance target, which returned 6.58%.
Detracting from performance was our overweight to Mercury New Zealand. The company was affected by the Reserve Bank of New Zealand raising its official cash rate by 75 basis points to 4.25%, though there was no stock-specific news. Also weighing on performance was our overweight to Elders, which underperformed during the month after announcing the departure of long-serving CEO Mark Allison. The stock was also affected by extreme wet weather in New South Wales that weighed heavily on the expected winter crop yield. Our lack of exposure to BHP hurt returns, as the business had a solid month driven by positive news flow from China, with Chinese policymakers releasing measures to relax Covid-19 controls and support the property sector. This resulted in a stronger iron ore price in November, which is beneficial to the business.
On the other hand, OZ Minerals outperformed, as the company received a revised $28.25/share takeover offer from BHP. This was a 13% increase on the original $25/share offer, which OZ Minerals had previously rejected. Elsewhere, our lack of exposure to Westpac contributed positively to returns. The stock underperformed after strong performance in October, as investors digested the potential risks of deposit margins unwinding and costs increasing in financial year 2023. The bank may also face potential credit risks in 2023 and 2024 if the macroeconomic environment deteriorates alongside borrowers making significantly higher repayments. Not holding James Hardie also contributed positively to returns. The stock was affected by its second-quarter profit result, which missed consensus expectations. James Hardie issued a significant downgrade to its financial year 2023 profit guidance. It now expects profits of USD 650 – 710 million, compared to its prior guidance of USD 730 – 780 million. In addition, readthroughs from contractor surveys and competitors reinforce the perception of ongoing downside risk to earnings.
Performance Commentary - October 31, 2022 The Fund returned 4.52% (gross of fees) and 4.45% (net of fees) in October. This was behind its performance target, which returned 6.04%.
Detracting from performance was our overweight to Medibank. The company is battling a very public and ongoing data breach that resulted in the theft of customer information by cybercriminals. While investigations will take time to finalise, it remains difficult to ascertain the longerterm impact on the brand and customer churn, while there will also be remediation, legal and other costs. Investors tend to assume the worse, and the share price has been accordingly affected. After a period of strong outperformance, OZ Minerals detracted in October. The company remains in the crosshairs of mining behemoth BHP, which had earlier proposed to acquire the business. While BHP’s initial offer was swiftly knocked back by the OZ Minerals board on valuation grounds, public comments made by BHP suggest that it will be disciplined around increasing its offer price, which resulted in a softening share price for OZ Minerals during the month. OZ Mineral’s high-quality copper assets remain very strategic to BHP and are increasingly crucial for the upcoming clean energy transition. Elsewhere, Megaport weighed on returns after a disappointing quarterly update. The new channel sales strategy is yet to produce results, and the company surprised investors with higher costs and capital expenditure, which have cast some doubt on Megaport’s ability to self-fund itself to break even.
On the other hand, our overweight to IDP Education contributed to returns. While there was not any company-specific news, investors looked favourably on international student visa statistics that showed a marked improvement in the volumes of visas being granted to students from IDP’s key source countries, such as India. It was also pleasing to note that higher education visas granted in the quarter to September exceeded the same quarter pre-COVID-19 in 2019. National Australia Bank also added to returns, with investors responding favourably to stronger nearterm net interest margins driven by positive deposit spreads, which will positively affect bank earnings in the short term. In the medium term, increasing competition, a weakening macroeconomic outlook and rising cost inflation are likely to offset some of these tailwinds. Finally, Shopping Centres Australasia staged a strong rebound in October. The real estate investment trust’s key tenants are non-discretionary retailers, including the major supermarket chains, which are likely to provide strong rental income despite a weakening economic outlook. Furthermore, RBA’s dovish tilt also provided further optimism that we are approaching terminal interest rates.
Performance Commentary - September 30, 2022 The Fund returned -5.35% (gross of fees) in September. This was ahead of its performance target, which returned -6.17%.
Contributing to performance again was our stock selection in the materials sector, with both Oz Minerals and Pilbara Minerals continuing to perform strongly. Pilbara Minerals continues to benefit from an elevated pricing environment which has been exacerbated by structural supply shortages, with realised pricing at its September auction 10% higher than the early August equivalent. Strong electric vehicle growth in the US and China, and sales rebounding in the European market, have also contributed to a buoyant lithium pricing environment. Oz Minerals continued its strong performance on reports that BHP Group was considering raising its standing offer, with BHP looking to boost its exposure to metals central to the green energy transition. The company also approved the development of its West Musgrave project. Elsewhere, Resmed outperformed as its key competitor (Philips) suffered yet another minor setback, this time concerning its sleep apnea mask products.
On the other hand, Xero was caught up in a sector-wide selloff, with growth stocks out of favour for investors as global rates expectations rose after a strong August inflation print in the US. No stock-specific issues were identified. Similarly, there was no fundamental news flow to explain Goodman Group’s underperformance. However, the stock heavily sold off, alongside the rest of the REITs sector, as US policymakers forecasted significantly more aggressive use of interest rates in an attempt to bring inflation under control. Finally, Pinnacle Investment Management weighed on performance, given its key underlying earnings driver (funds under management) is heavily linked to market movements.
Performance Commentary - August 31, 2022 The Fund returned +1.21% (gross of fees) and +1.14% (net of fees) in August. This was in line with its performance target, which returned +1.18%.
Contributing to performance was our stock selection in the materials sector, with both Oz Minerals and Pilbara Minerals performing strongly. Oz Minerals rose strongly after it received a non-binding indicative proposal by BHP to acquire the company at $25.00 a share. The board swiftly rejected the offer, citing that it undervalued the business. Our view is that the proximity of the assets means that BHP is in a unique position to extract valuable synergies. Therefore, we believe the initial offer may not necessarily be the last. Meanwhile, the tight lithium market continued to support elevated pricing for Pilbara Minerals amid news of Chinese power outages further affecting domestic production. We continue to view the business as a high-quality operator within the space, although am equally mindful that current elevated prices would continue to induce new supply to come online over the medium term. Elsewhere, our holding in Medibank boosted returns, with the company reporting good results thanks to solid policyholder growth and subdued claims inflation. Our view is that health insurers like Medibank will continue to benefit from the benign claims environment as the healthcare industry continues to grapple with labour shortages.
On the other hand, our lack of exposure to BHP hurt returns as the diversified mining conglomerate reported in-line results, supported by very strong free cash flows. That said, its share price fell towards the end of the month as the stock went exdividend. In addition, our overweight to the information technology sector weighed on returns, as the technology sector as a whole gave back some of the gains witnessed in the prior month’s rally after Jerome’s Powell speech at Jackson Hole, where he reiterated the Fed’s commitment to containing inflation. Our overweight to Megaport was consequently a notable detractor. Finally, ASX was a laggard as the company provided yet another disappointing update regarding its CHESS replacement project, which has been pushed out to late 2024 (a soft target), while an independent review will be conducted. We suspect this could lead to further cost blowouts, though note that no revenue upside is being assumed by the market on this project; however, the core business remains well run.
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