The Fairview Equity Partners Emerging Companies Fund invests in an actively managed portfolio of mainly small cap equities listed, or expected to be listed, on the Australian share market. The Fund aims to earn a return (after fees) which exceeds the S&P/ASX Small Ordinaries Total Return Index (Benchmark) over rolling five-year period.
Our fund had a tougher month in September, with net returns of -4.01%. As background, US stocks also trended downward, with each of the three key equity indices finishing the month down. The S&P closed the month -4.9% lower, the Dow Jones fell -3.5% and the tech-heavy NASDAQ lost -5.8%. Gold fell -4.7% in September to US$1,848.63/oz. In contrast, crude oil finished the month substantially higher than it began. The key US WTI crude closed the month +8.6%. The rise in oil prices over the month came as Saudi Arabia and Russia extended their current cuts through to the year-end. The S&P/ASX Small Ordinaries fell -4.04% during the month. All sectors except for Energy ended the month lower, with Real Estate and Consumer discretionary stocks the biggest laggards. The Energy sector tracked oil higher to end the month up 15%.
The bond market currently dominates
Normally equity market participants quickly glance at daily bond prices upon arriving at work in the morning, say ‘that’ nice, and go on to their far more exciting jobs. However, in volatile times, bond markets dictate the direction of equity markets. To suggest US bond markets have had a tough three years is an understatement. The ultimate, super liquid, safe haven asset; US 10-year treasury bonds, have lost 25% of their value in this period.
Forces driving bond yields
The bond market now has a laser focus on the consequences of Covid-induced increased government spending. How quickly inflation can be tamed is key. Higher energy prices point to continued upside risk for inflation. The crude supply demand equation may have also changed in the Middle East over the weekend. There are fears over the size of US debt; the US Treasury is issuing massive quantities of debt to fund government programs whilst at the same time the Federal Reserve is reducing its own holdings. President Biden’s seizure of Russian assets last year has resulted in foreign accounts having less appetite for holding US treasuries. Hence, the pool of bond buyers has shrunk. The case for lower yields rests on two main forces: i) a disinflationary recession in the US would force yields lower and ii) perhaps US treasuries now offer a relatively attractive valuation vs other asset classes. A third swing factor is the actions of the very large pool of savers who have been used to earning almost no interest on their deposits. This demographic is much older and might be one of the reasons economic activity is holding up as well as it is.
What is Fairview Equity Partners Emerging Co Fairview Equity Partners Emerging Co is an Managed Funds investment product that is benchmarked against ASX Index MidCap 50 Index and sits inside the Domestic Equity - Mid 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 Fairview Equity Partners Emerging Co has Assets Under Management of 422.80 M with a management fee of 1.2%, a performance fee of 0.00% and a buy/sell spread fee of 0.5%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Fairview Equity Partners Emerging Co has returned 5.47% in the last month. The previous three years have returned 4.3% annualised and 18.25% each year since inception, which is when the Fairview Equity Partners Emerging Co 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 Fairview Equity Partners Emerging Co first started, the Sharpe ratio is 0.53 with an annualised volatility of 18.25%. The maximum drawdown of the investment product in the last 12 months is -9.8% and -30.11% 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 Fairview Equity Partners Emerging Co has a 12-month excess return when compared to the Domestic Equity - Mid Cap Index of 4.65% and -0.62% 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. Fairview Equity Partners Emerging Co has produced Alpha over the Domestic Equity - Mid Cap Index of 0.4% in the last 12 months and -0.04% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Mid Cap Index category, you can click here for the Peer Investment Report.
What level of diversification will Fairview Equity Partners Emerging Co provide?
Fairview Equity Partners Emerging Co has a correlation coefficient of 0.96 and a beta of 0.98 when compared to the Domestic Equity - Mid 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 Fairview Equity Partners Emerging Co and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Fairview Equity Partners Emerging Co with the ASX Index MidCap 50 Index?
For a full quantitative report on Fairview Equity Partners Emerging Co compared to the ASX Index MidCap 50 Index, you can click here.
Can I sort and compare the Fairview Equity Partners Emerging Co to do my own analysis?
To sort and compare the Fairview Equity Partners Emerging Co financial metrics, please refer to the table above.
Has the Fairview Equity Partners Emerging Co been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Fairview Equity Partners Emerging Co?
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Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Fairview Equity Partners Emerging Co. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023
Performance Commentary - July 31, 2023 The Fairview Emerging Companies Fund recorded a 3.39% gain during July, finishing flat with the ASX Small Ordinaries Accumulation Index.
Inflation coming down but market volatility went up July continued its historical record as being a strong month for the small cap index to deliver the 2nd best July performance in the last seven years. However, it was a tale of two halves with the first half of the month delivering all of the month’s return. Volatility was elevated, with July seeing as many +/- >1% trading days for the small cap index as the previous three months. Macroeconomic data and central bank interest rate decision making was the cause for the upturn in volatility. Conflicting US employment data saw the US Treasury 10-year bond yield finish flat (after dropping 40bps intra month), whereas domestically the Reserve Bank of Australia (RBA) left interest rates unchanged for the second time since April (at the time of writing the market is currently pricing a 0% chance for a September rate rise, while it’s a 17% chance for the US). While inflation remains elevated compared to pre-COVID levels, since Australia’s annual CPI peaked in December 2022 at 7.8% it’s continued to trend downwards. This saw a rotation from defensive stocks into ‘risk on’ lossmaking, as well as cyclical, companies.
Everyone’s asking . . . what’s next for China?
This downward inflation trend has been consistent in many countries but not China, which claims no inflation. The Chinese post-COVID economic recovery hasn’t met expectations, with barely any growth in the last three months. Following their July Politburo meeting, expectation is rising that the Chinese Government will take action to stimulate the economy. Interestingly, despite the ASX Small Resources surging to be up over 6% midmonth, it finished flat and underperformed the industrials peer by nearly 5%.
Smalls outperform big caps
More broadly Aussie small caps outperformed their ASX100 peers, while in offshore markets the NASDAQ continued its recent strength (+4%) to be 17.5% higher over the last three months, with the US small cap index (Russell 2000) delivering two strong consecutive months (+14% over that period) as investors regain more confidence in the stability of the US regional banking system (as an aside they carry 70% of the US commercial real estate debt).
Resources struggled
Starting on the negative side of the ledger, the ten worst performing stocks in the small cap index were resource companies. The fund held no exposure to these companies. Half of the companies (Deep Yellow, Talga Group, Lake Resources, Sayona Mining, Ioneer) were pre revenue, while half were exposed to lithium. The worst performing lithium company was Core Lithium, who reduced FY24 production guidance by 20% and FY25 guidance by 50%, due to materially lower recoveries than outlined in the feasibility study. Another lithium company, Patriot Battery Metals (PMT), received the first ‘short report’ in the small cap space for quite some time. As a reminder a short report is essentially a ‘research report’ published by a hedge fund that has sold shares in the company in the hope their published document will create further downward pressure on the target company’s share price, thus magnifying the hedge fund’s profits. PMT’s share price fell 13% over the month but after month’s end, the company countered the report with a solid maiden resource estimate and attracted strategic interest (via US giant Albemarle) for its Quebec-based hard rock lithium deposit. Resource quarterly updates were also a feature of the month with overall gold sector production guidance shrinking and costs rising. We were pleased with the operational execution of the fund’s gold companies and their relative share price performances.
Performance Commentary - June 30, 2023 The ASX Small Ordinaries Accumulation Index finished flat in June, while the Fairview Emerging Companies fund exceeded the benchmark by 1.48%. Over the 2023 financial year, the fund recorded a 14.90% gain and outperformed the index by 6.45%.
A positive return for Small Caps FY23 was a welcome return to the positive for small caps after a tricky FY22. Looking into the history books, FY23 was an average year for the ASX Small Ordinaries Accumulation Index, delivering a return bang on the 33 ½ year financial year average of 8.4% (but above the median of 7.7%).
The ASX Small Industrials Accumulation Index recorded a 9.5% gain during the 12-month period versus the Resources Index at 6%; this was in part a reversal of the Industrials’ FY22 performance. Notably, since the COVID low (23 March 2020), the ASX Small Resources Accumulation Index has greatly outperformed the Industrials equivalent, due to the strong price gains from old and new energy-based commodities; lithium spodumene (+10x), oil (+2x) coal (+140%) and nickel (+80%).
On a sectoral basis over the last year, Healthcare and Industrials were the best performers. Interestingly, the outperformance of profitable vs loss making technology companies has been stark over FY23 with the S&P ASX100 Technology sector up 40% (Wisetech +110%) vs the small cap tech sector’s 5% gain. Regardless, the fund generated solid unitholder returns from the sector during the 12 month period.
Featuring amongst the top 10 best share price performers over the year were Biotech (Neuren Pharmaceuticals, Telix Pharmaceuticals), Lithium (Liontown Resources, Leo Lithium), as well as two gold names and a few technology companies. In contrast, the laggards included an eclectic array of sector exposures ranging from baby wear retailing to resource developers and casinos.
Overall, the fund’s strike rate was pleasing, with several of the top 10 best performers held in the fund and none of the key laggards.
Performance Commentary - May 31, 2023 The ASX Small Ordinaries Accumulation index unwound its April gain to fall 3.3% in May. It was the tenth worst May performance in the index’s 33-year history. While the Fairview Emerging Companies Fund exceeded the benchmark by 2.3%, it wasn’t enough to deliver a positive absolute return for unitholders. Over the last 3 months the fund has outperformed the index by 6.1%.
The big nations wobble
Macro concerns influenced markets with high inflation and rising interest rates a factor. China’s post-COVID economic revival is spluttering in a global backlog of consumer inventory (excluding cars) with Chinese youth (age 16-24 year olds) unemployment tracking at 20%, four times the national rate. The US Government bumped up against their debt limit for the 19th time since 2003 and the prospect of a default added weight to a risk off sentiment. It’s a little odd given the track record of a default is low, and they’ve raised the ceiling over fourfold to $31 trillion in 20 years.
Technology shines
All this amounted to a capital rotation away from cyclical to defensive sectors and Technology. The small cap tech sector was the best performer rising 5.7% while the NASDAQ was equally strong, extending its lead to be up nearly 25% so far in 2023. NASDAQ-listed Nvidia, a 95% market share leader in chips for machine learning, shone another light (after ChatGPT) on the emergence of AI (Artificial Intelligence) when it reported “surging demand” and gained more than the total ASX Small Ordinaries market cap in a day. Undoubtedly, AI is following in the path of other technological developments (eg. digitisation, cloud computing, SaaS), and while there are few obvious first order small cap ASX beneficiaries, there certainly will be companies that benefit, if for no other reason, than to enhance labour productivity in a world where certain economies are struggling with labour availability. Technology is currently an overweight position in the fund.
Resources challenged
The ASX Small Resources index underperformed its industrial peer by 5.3% in May. Commodity prices were generally weak. Having posted a 130% gain in CY22, the Newcastle thermal coal price is among the worst performers so far this year (down 60%). Both lithium and uranium have seen recent pricing improvements while the gold price was unable to hold early month gains once the US debt ceiling was raised and certainty was restored. Further gold supply will be constrained as junior explorers’ ability to raise capital for drilling is currently restricted.
Performance Commentary - April 30, 2023 Pleasingly our unitholders outperformed the market, with the fund’s absolute return above 4% for the month. The S&P ASX 200 increased 1.8%, driven up both by tech stocks and, of all sectors, the down and out REIT sector. Looking at the critical US market, earnings outperformance lifted the S&P500 Index +1.5% in April. This is despite the banking turmoil and concerns over a US recession. Gold rose across the month, up +1% as central bank demand supported price levels. Copper was the big disappointment on the London Metals Exchange, falling 5% in the month. Among the best performers inside the ASX S&P Small Ordinaries Index were Telix Pharmaceuticals (up 54% on stunning quarterly Illuccix sales) and Codan (up 36% due to its relative cheap valuation being finally noticed). Syrah (collapsed -37%, primarily from graphite production problems) and Novonix (-22%) were the worst laggards.
Performance Commentary - March 31, 2023 The Fairview Emerging Companies Fund rose 1.63% during March exceeding the ASX Small Ordinaries Accumulation index by 2.35%.
The benchmark was down more than 5% intra month but recovered well in the last 2 weeks to finish 0.7% lower. While the small cap index recorded an electric start to the March quarter, with January up over 6%, it lost momentum in February and March to finish the period 1.9% higher. This compares to the ASX100 Accumulation index which rose 3.5% over the three months.
The financial system wobbles… Causing elevated asset class volatility around the world was the demise of several financial institutions (Credit Suisse, Silicon Valley Bank, Signature Bank and First Republic Bank) for a variety of reasons, but certainly higher funding costs didn’t help them. Concern of a tightening in global financial liquidity was eased when the US and Swiss Governments took preventative measures. But it was enough of a wobble for investors to believe peak interest rates were nearing. Bond yields dropped sharply with the 10 year yield for Australian and US treasuries dropping ~50bps.
Gold shines… Falling bond yields, the prospect for a falling US dollar in a peaking rate backdrop, and financial market instability was a healthy trifecta for the US$ gold price to record its best monthly gain (+8%) in 2 years, towards all-time highs of $US2,000oz. While the portfolio provides investors with exposure to gold, it’s not an active position. Overall, the 16 small cap gold companies comprise 8% of the index.
Performance Commentary - February 28, 2023 The focus of the February 2023 reporting season was on management comments regarding calendar 2023 year to date trading. Downwards EPS revisions far outweighed upgrades in the month. The Small Ordinaries Accumulation index was down -3.7% in February, underperforming the S&P/ASX100 by -1.3%. Small Industrials were off a relatively benign -1.7%, alas Small Resources were slammed down a dismal -9.1%. Fairview’s portfolio weight in resources weighed on performance, resulting in a month of underperformance vs the index.
Forgiving market for some
Due to the highly uncertain domestic economic outlook, trading updates for the first weeks of calendar year 2023 were more important than usual. GUD was up +28% for the month, despite slightly missing consensus estimates. Management spun a positive 2H23 outlook statement, propelling GUD’s share price rally. Auto sector stocks, especially fund holding APE Eagers, outperformed as buoyant car sales and strong margins with few discounts were rewarded by investors. Travel stocks were also generally higher with European leisure a standout recovery market. Our key fund travel sector holding, Webjet, reports out of cycle but hopefully reinforces this message when it reports in May as it is significantly exposed to the European travel thematic.
but not for the retail sector
The worst performer in the month was Temple and Webster (-38% vs index). This online retailer reported a soft 1H23 result, but more importantly a decline in year-to-date trading. This slide in the share price occurred despite reaffirmation of full-year EBITDA margin guidance by a well-respected management team. Citi Chic (- 26%) was once again among the under-performers. The apparel retailer fell after also reporting an uneven start to 2023 trade and residual inventory concerns. Housing and real estate listing exposed stocks also had a tough reporting season: GWA, Pexa, Domain, Beacon Lighting, Wagners, Fletcher Building and Adelaide Brighton all underperformed.
Resources key detractor
Generally, in February there is not as much attention on resource stocks, industrial stocks steal the limelight. However, last month gold and lithium stocks had a very choppy ride. Sentiment in the sector has turned cautious. This is due to both gold and lithium market prices softening, as well as development projects facing higher capital estimates. Production cost inflation remains stubbornly high.
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