Eley Griffiths Group Emerging Companies aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over a rolling 5 year period.
The Eley Griffiths Group Emerging Companies Fund (Fund) decreased -2.9% in August, outperforming the Small Ordinaries Accumulation Index which finished -4.0% lower. Since its inception in March 2017, the Fund has delivered a return of +13.1% per annum after fees for its unitholders.
In the month financial markets grappled with a shift in sentiment. Triggered primarily by the US Federal Reserve’s (Fed) announcement of a more hawkish (tightening) monetary policy stance, investors shifted from the optimism of a smooth economic “soft landing” scenario, reverting to the “higher for longer” narrative, the prospect of a prolonged period of elevated interest rates. Escalating oil prices added to heightening anxieties about persistent inflation. Moreover, the looming threat of a US government shutdown due to a funding dispute added another layer of uncertainty.
The gold price experienced a decline in response to the more hawkish stance taken by the Fed. Typically, demand for gold softens as higher rates make interest-bearing assets more attractive in comparison to non-interest-bearing safe-haven asset like gold. Detracting from returns in the month were gold names Genesis Minerals (-13%) and Capricorn Metals (-10%). Leo Lithium’s (-55%) performance suffered due to rising concerns about regulatory risks in its Mali operations.
Leading contributors to returns in the month was oil and gas explorer and producer Karoon Energy (+10%) and uranium holding Paladin Energy (+30%). Oil prices surged as U.S. crude inventories dropped significantly, surpassing expectations. Combined with OPEC’s production cuts, this raised concerns about reduced supply, prompting a rally across the oil complex. Production downgrades announced by a major uranium producer triggered a notable rally in uranium prices.
Finally, Tuas Ltd (+11%) moved higher after reporting a 50% year-onyear increase in revenue. TUA, which owns and operates a mobile network in Singapore, has been making substantial investments in its network infrastructure to achieve the goal of surpassing 60% outdoor 5G coverage by year end.
What is Eley Griffiths Group Emerging Companies Eley Griffiths Group Emerging Companies is an Managed Funds investment product that is benchmarked against ASX Index Small Ordinaries Index and sits inside the Domestic Equity - Small Cap 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 Eley Griffiths Group Emerging Companies has Assets Under Management of 175.01 M with a management fee of 1.25%, a performance fee of 0.25% and a buy/sell spread fee of 0.48%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Eley Griffiths Group Emerging Companies has returned 5.69% in the last month. The previous three years have returned 4.22% annualised and 19.18% each year since inception, which is when the Eley Griffiths Group Emerging Companies 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 Eley Griffiths Group Emerging Companies first started, the Sharpe ratio is 0.72 with an annualised volatility of 19.18%. The maximum drawdown of the investment product in the last 12 months is -7.22% and -30.42% 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 Eley Griffiths Group Emerging Companies has a 12-month excess return when compared to the Domestic Equity - Small Cap Index of 4.42% and 5.35% 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. Eley Griffiths Group Emerging Companies has produced Alpha over the Domestic Equity - Small Cap Index of 0.34% in the last 12 months and 0.39% since inception.
What are similar investment products? For a full list of investment products in the Domestic Equity - Small Cap Index category, you can click here for the Peer Investment Report.
What level of diversification will Eley Griffiths Group Emerging Companies provide? Eley Griffiths Group Emerging Companies has a correlation coefficient of 0.95 and a beta of 1.06 when compared to the Domestic Equity - Small Cap 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 Eley Griffiths Group Emerging Companies and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Eley Griffiths Group Emerging Companies with the ASX Index Small Ordinaries Index? For a full quantitative report on Eley Griffiths Group Emerging Companies compared to the ASX Index Small Ordinaries Index, you can click here.
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Performance Commentary - August 31, 2023 The Eley Griffiths Group Emerging Companies Fund (Fund) increased +1.9% in August, outperforming the Small Ordinaries Accumulation Index which finished -1.3% lower. Since its inception in March 2017, the Fund has delivered a return of +13.8% per annum after fees for its unitholders.
In August, observers of the global macroeconomic landscape witnessed a potential peak in interest rates alongside further evidence of a decline in inflation. Despite Federal Reserve Chair Powell’s cautious stance on inflation at the Jackson Hole summit, market analyst conceded a low likelihood of further rate hikes, and an eventual shift to potential rate cuts. International markets experienced weakness, primarily driven by concerns about China’s economic slowdown and a fragile property market, with obvious repercussions for resource stocks.
Domestically, investors were trained on the reporting season. Shortterm volatility persisted, and the reporting season yielded mixed results, with a greater number of companies surpassing expectations. However, there was a prevalence of FY24 profit downgrades outweighing upgrades. Consumer strength emerged as a significant topic of discussion, as certain consumer-oriented companies surpassed modest expectations, amid mounting headwinds in the retail sector. Meanwhile, cost management proved disappointing, primarily attributed to elevated interest and labour costs, both having a discernible impact on sector profitability.
Detracting from the Fund’s performance was international money services provider OFX Group (OFX), finishing -18% lower following a robust rally in the previous quarter. Investor sentiment soured post the AGM trading update despite management reiterating its earnings guidance and providing commentary that short term trading conditions had stabilised.
This reporting season, investor support favoured early-stage companies with improved cash management and those nearing profitability. Notable examples, and key contributors to performance included Audinate (AD8) and Siteminder (SDR), with returns of +48% and +16% respectively. Media networking solutions provider AR8 reported a 40% revenue increase and achieved its firstever profit. Hotel software company SDR nearly doubled its global hotel customer base in a year. The company’s focus on customer growth and cost reduction positions it for profitability in FY24.
Performance Commentary - July 31, 2023 The Eley Griffiths Group Emerging Companies Fund (Fund) increased +4.0% in July, outperforming the Small Ordinaries Accumulation Index which finished up +3.5%. Since its inception in March 2017, the Fund has delivered a return of +13.7% per annum after fees for its unitholders.
International equity markets posted another strong month. Falling inflation and a predicted +25bps hike by the US Federal Reserve extended the Nasdaq’s (+4%) bull market.
The Australian market participated in the global rally, the Small Ords Index outperforming the ASX 100 in the upswing.
Local sentiment improved on a Reserve Bank of Australia (RBA) pause and the June Quarter CPI print coming in below expectations, marking the second consecutive quarter of lower annual inflation, also known as ‘disinflation’*.
Contributors to performance in July included SiteMinder (SDR, +44%), Megaport Ltd. (MP1, +41%) and Genesis Minerals (+13%).
Network-as-a-service company MP1 upgraded profit guidance. A pricing increase, cost control efforts and organic growth in recurring revenue (+40% YOY) driving the result.
Similarly, hotel booking platform SDR announced a positive trading update, the firm nearly doubling its global customer base over the past year. The normalisation of hotel booking activity had compelled hoteliers to increasingly employ SDR’s solutions.
On no specific news PSC Insurance (-15%), Tourism Holdings (-8%) and Silex Systems (-8%) drifted lower detracting from performance.
The focus has shifted from the macro to the micro as August corporate earnings session ramps up. The lead from the US 2Q reporting season has been better-than-expected. Stock fundamentals will reassert themselves again and valuations likely to be called into question. *
Performance Commentary - June 30, 2023 In May, the Eley Griffiths Group Emerging Companies Fund finished -1.0% lower outperforming its benchmark, the Small Ordinaries Accumulation Index decline of -3.3%. Since inception (March 2017) the Fund has delivered a return of +12.7% p.a after fees.
As throughout the year, investors have faced challenges such as high inflation and rising interest rates in the month. The resolution of the US debt ceiling issue in the final hour also added to the macroeconomic complexity. Negative trading updates from the retail sector, indicating a potential slowdown in consumer activity had an impact on market sentiment. A profit warning from Universal Store (UNI; -40%) triggered selling across the entire Consumer Discretionary sector (-6.4%).
Simultaneously, US chip-stock NVIDIA exceeded market expectations driven by surging demand for AI-related graphics processing units. This led to a significant rotation of investment from under pressure consumer/cyclical sectors into Information Technology (+6.9%). Tech companies with exposure to AI attracted investors’ interest, as an example, new portfolio holding Appen surged +70% from its capital raise price.
Weighing on portfolio performance was weakness in Small Resources (-7.1%). However, there were more positive signs for the Lithium market, with indications of restocking across the battery supply chain and increased electric vehicle sales in China. Portfolio holdings Leo Lithium (+70%) and Delta Lithium (+43%) performing strongly.
Notable contributor to performance during the month was OFX Group (+28%). The company rebounded following the announcement of an above-consensus earnings guidance, share buyback and an acquisition.
Trading volumes decreased when interest rates began tightening in 2022, leading to decreased liquidity and sentiment, particularly in small/micro industrials. However, recent weeks have seen a rebound in trading volumes, approaching the long-run average. The economic cycle is not to be confused with the market cycle. The latter will move well ahead of time, discounting poor news and looking forward to consumer and business revival.
Performance Commentary - May 31, 2023 In May, the Eley Griffiths Group Emerging Companies Fund finished -1.0% lower outperforming its benchmark, the Small Ordinaries Accumulation Index decline of -3.3%. Since inception (March 2017) the Fund has delivered a return of +12.7% p.a after fees. As throughout the year, investors have faced challenges such as high inflation and rising interest rates in the month.
The resolution of the US debt ceiling issue in the final hour also added to the macroeconomic complexity. Negative trading updates from the retail sector, indicating a potential slowdown in consumer activity had an impact on market sentiment. A profit warning from Universal Store (UNI; -40%) triggered selling across the entire Consumer Discretionary sector (-6.4%). Simultaneously, US chip-stock NVIDIA exceeded market expectations driven by surging demand for AI-related graphics processing units. This led to a significant rotation of investment from under pressure consumer/cyclical sectors into Information Technology (+6.9%). Tech companies with exposure to AI attracted investors’ interest, as an example, new portfolio holding Appen surged +70% from its capital raise price. Weighing on portfolio performance was weakness in Small Resources (-7.1%).
However, there were more positive signs for the Lithium market, with indications of restocking across the battery supply chain and increased electric vehicle sales in China. Portfolio holdings Leo Lithium (+70%) and Delta Lithium (+43%) performing strongly. Notable contributor to performance during the month was OFX Group (+28%). The company rebounded following the announcement of an above-consensus earnings guidance, share buyback and an acquisition.
Trading volumes decreased when interest rates began tightening in 2022, leading to decreased liquidity and sentiment, particularly in small/micro industrials. However, recent weeks have seen a rebound in trading volumes, approaching the long-run average. The economic cycle is not to be confused with the market cycle. The latter will move well ahead of time, discounting poor news and looking forward to consumer and business revival.
Performance Commentary - April 30, 2023 The Eley Griffiths Group Emerging Companies Fund (Fund) increased 1.3% in April, compared to the Small Ordinaries Accumulation Index return of 2.8%. The Small Ords outperformed large caps in the month, turning a corner following a period of underperformance. Since inception (March 2017) the Fund has returned 13.1% p.a. after fees for unitholders. Market volatility subsided and sentiment improved in April. US regional bank failures were ringfenced when the US Federal Reserve established a lending program to help meet bank customer withdrawals, avoiding the need for banks to sell treasury bonds at a loss.
US company earnings results season kicked off on a positive note with better than feared results. Management track record, strategy and alignment are cornerstones of our qualitative assessment process. An example of highly regarded leadership is Raleigh Finlayson, MD of gold miner Genesis Minerals (GMD; +22%) who announced the proposed acquisition of St Barbara’s Leonora assets. Finlayson built his track record by creating value for shareholders at Saracen (now part of Northern Star Resources). Recently it was revealed that GMD may face competition for the assets, which will play out in the coming months.
Performance Commentary - February 28, 2023 After increasing +6.6% in January, the Small Ordinaries Accumulation Index retraced -3.7% in the month. The Eley Griffiths Group Emerging Companies Fund finished -6.9% lower and since inception (March 2017) the Fund has returned +13.6% p.a. after fees for unitholders. A collection of strong US economic data coming in ahead of expectations triggered moves across all asset classes. The data hit sentiment as it supported the view that the US Federal Reserve will be forced to stay on its interest rate tightening path.
Against this backdrop defensive names outperformed, the opposite to January which saw Growth stocks rally as investors speculated peak inflation had been reached. Gold names fell and detracted from performance as the US 10yr Treasury Yields rose by >40bps. Overall, the first half year reporting season showed top line revenue numbers remain robust. Higher costs are hitting corporate margins, especially wage inflation which is now the focus rather than labour availability. Management outlooks were generally conservative acknowledging that the economic backdrop is likely to soften.
Portfolio holdings which beat earnings expectation and contributed to returns in the month were Audinate Group (+9.8%), Tyro Payments (+11.1%) and HUB24 (+11.3%). The Chinese re-opening trade stalled, prompting Small Resources (-9.2%) underperformance of Small Industrials (-2.0%) with weakness across several commodity benchmarks and contracting companies citing cost inflation as prompting delays in capex intentions.
Looking ahead, despite the surprisingly strong US jobs data in the month, Chair of the US Federal Reserve, Jerome Powell said that the disinflationary process “had begun” and that the US was in the “early stages of disinflation” (7 February 2023, Economic Club of Washington speech). The expected gradual downward trend of inflationary data points is likely to lend support to equity markets.
Performance Commentary - December 31, 2022 Equity markets could not maintain the strength of the previous two months and drifted lower in December. The Small Ordinaries Accumulation Index returned -3.7%, the Eley Griffiths Group Emerging Companies Fund finished -4.0% lower and since inception (March 2017) the Fund has returned +14.5% p.a. after feesfor unitholders. Despite the US November consumer price index (CPI) print coming in below expectations and the lowest in a year, US Federal Reserve chairman Jerome Powell’s signalled that interest rate increases will continue, albeit at a slower pace. Powell dampened hopes of a Fed ‘pivot’ suggesting rates may stay higher for longer to achieve price stability, implying a return to 2% inflation overtime. (Powell’s Press Conference December 14) Lithium names retreated In December amid concerns around the sustainability of electric vehicle (EV) demand and weaker battery supply chain destocking.
A rotation away from Lithium contributed to Gold’s strength as did the Bank of Japan’s unexpected reversal on its YCC policy (Yield Curve Control) which sent the USD lower triggering commodities priced in USD to trade higher. Contributing to returns in the month were portfolio Gold holdings Capricorn Metals (+9.5%) and OreCorp (+25.7%). Silex Systems (SLX; +12.2%) is commercialising its laser technology to enrich uranium and silicon. In the month SLX announced the achievement of several key project milestones. Beacon Lighting Group (BLX; +10.4%) traded higher as investors anticipate its strategy to develop its Trade (and International) business will offset and outweigh the risk of a cyclical downturn triggered by the rapid cash rate increases over the past 6 months. Detracting from returns in the month was property settlements platform company PEXA Group (PXA; -17.9%). To pay down borrowings, Link Group (LNK) sold 10% of its existing 43% stake in PXA, its remaining shares to be transferred to LNK shareholders via an in-specie distribution. As we move past peak inflation prints central banks will balance guiding inflation lower without bringing economic growth to a grinding halt. As the pace of central banks rate hikes decline, governing company earnings and market direction will shift from monetary policy to bottom-up company fundamentals.
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