The Fund returned negative 2.89% (after fees) for the month ending 30 September 2023, underperforming the ASX 200 Accumulation Index by 0.05%.
For the quarter ending 30 September 2023 the Fund returned negative 1.31%, underperforming the ASX 200 Accumulation Index by 0.55%.
CONTRIBUTORS TO RETURNS
Positive contributors included Incitec Pivot, Santos and QBE Insurance. Negative contributors included CSL, BHP (underweight), and Alumina. We discuss each further in our commentary below.
POSITIVE CONTRIBUTORS
Incitec Pivot
Incitec Pivot shares outperformed in September on the back of a strong ammonia price. The ammonia price rallied ~50% in September, driven by higher European gas prices. Incitec Pivot upgraded FY2023 production guidance for its Explosives division, but downgraded guidance for the Fertilisers division. The company also confirmed that it remains in discussions to sell its Fertiliser business.
Santos
Santos shares outperformed during the month as the oil price rallied more than 10%. Santos also hosted an investor tour to its Pikka project in Alaska, which was attended by one of our portfolio managers. The Pikka project is progressing well. In our view, it has strong potential to be extended in the future at high returns.
QBE Insurance
QBE Insurance shares outperformed as global bond yields increased by 30-50 basis points. September is the peak of the US hurricane season and Hurricane Idalia and Hurricane Lee have been the most notable events so far. However, losses appear to be within normal allowances for the insurance industry.
NEGATIVE CONTRIBUTORS
CSL
CSL shares underperformed alongside most other healthcare names in September. There was no company specific news.
BHP (underweight)
BHP outperformed in September on the release of improved Chinese economic data and the implementation of further policy easing measures by Chinese regulators. The iron ore price remained relatively flat at ~$120 per tonne over the month.
Alumina
Alumina shares underperformed during the month due to continued concerns on cash flow and gearing. We continue to believe Alumina will be permitted to mine higher grade bauxite areas post the conclusion of an EPA review in WA, which will alleviate cash flow and balance sheet pressure.
What is Firetrail Australian High Conviction Firetrail Australian High Conviction is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Cap Neutral 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 Firetrail Australian High Conviction has Assets Under Management of 234.65 M with a management fee of 0.95%, a performance fee of 15.00% and a buy/sell spread fee of 0.25%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Firetrail Australian High Conviction has returned 5.98% in the last month. The previous three years have returned 6.78% annualised and 17.19% each year since inception, which is when the Firetrail Australian High Conviction 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 Firetrail Australian High Conviction first started, the Sharpe ratio is 0.33 with an annualised volatility of 17.19%. The maximum drawdown of the investment product in the last 12 months is -9.83% and -29.56% 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 Firetrail Australian High Conviction has a 12-month excess return when compared to the Domestic Equity - Large Cap Neutral Index of -5.98% and -2.24% 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. Firetrail Australian High Conviction has produced Alpha over the Domestic Equity - Large Cap Neutral Index of -0.45% in the last 12 months and -0.22% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Large Cap Neutral Index category, you can click here for the Peer Investment Report.
What level of diversification will Firetrail Australian High Conviction provide?
Firetrail Australian High Conviction has a correlation coefficient of 0.96 and a beta of 0.95 when compared to the Domestic Equity - Large Cap Neutral 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 Firetrail Australian High Conviction and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Firetrail Australian High Conviction with the ASX Index 200 Index?
For a full quantitative report on Firetrail Australian High Conviction compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Firetrail Australian High Conviction to do my own analysis?
To sort and compare the Firetrail Australian High Conviction financial metrics, please refer to the table above.
Has the Firetrail Australian High Conviction 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 Firetrail Australian High Conviction?
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Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Firetrail Australian High Conviction. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 The Fund returned negative 2.37% (after fees) for the month ending 31 August 2023, underperforming the ASX 200 Accumulation Index by 1.64%.
Positive contributors included Domino’s Pizza Enterprises, Ampol and Medibank Private. Negative contributors included ResMed, Alumina, and SEEK. We discuss each further in our commentary below.
POSITIVE CONTRIBUTORS
Domino’s Pizza Enterprises
Domino’s reported an FY2023 result which was in line with the market update it provided in June. The stock outperformed after Domino’s revealed it has seen same store sales growth of ~7% in Australia and Europe since 30 June 2023. The positive start to FY2024 indicates that the worst of the impacts from inflation and reduced customer counts may now be behind it.
Ampol
Ampol shares outperformed after its 1H 2023 result showed strong performance across all divisions. The recently acquired Z Energy business continues to go from strength to strength. Interestingly, in the six months to 30 June 2023, premium fuel made up the highest percentage of total retail fuel sales than in any other time in history.
Medibank Private
Medibank shares outperformed following an FY2023 result that was modestly above expectations. Almost one year on from the cyber-attack in 2022, Medibank is growing policyholder numbers again and is targeting market share gains in FY2024.
NEGATIVE CONTRIBUTORS
ResMed
ResMed’s 4Q 2023 result disappointed the market as gross margin did not rise as expected. While this contributed to the share price fall, the larger factor was the rising risk associated with obesity drugs. One of the major obesity drugs, Wegovy, cited a 20% reduction in cardiovascular events in a study. While a sustained reduction in obesity levels across a large proportion of the population would have some negative impacts on ResMed’s business, we believe there are several complexities that are underappreciated. We believe the recent share price fall has been significantly overdone.
Alumina
Alumina shares underperformed after the company flagged higher costs as a result of mining in a low-grade area. We expect the business to be cashflow breakeven at current settings and the balance sheet net debt of $268 million is manageable. A key catalyst will be a return to mining high-grade bauxite areas in Western Australia post an Environmental Protection Authority review.
SEEK
SEEK shares underperformed after guidance for FY2024 earnings disappointed the market. While a reduction of new job listings was expected, SEEK flagged continued cost investment in the business through this period of cyclical softness. We are supportive of SEEK’s longer term approach to creating shareholder value.
Performance Commentary - July 31, 2023 The Fund returned 4.09% (after fees) for the month ending 31 July 2023, outperforming the ASX 200 Accumulation Index by 1.21%.
POSITIVE CONTRIBUTORS
Virgin Money UK
Virgin Money UK shares outperformed in July. The company announced it had comfortably passed the annual Bank of England stress test. Following the stress test results, Virgin Money UK confirmed that it intends to resume its share buyback programme before the end of FY2023 (30 September). Virgin aims to return to a target capital range of 13.0-13.5% versus its current 14.7%. We expect meaningful capital returns over the next 18 months for Virgin Money UK.
Incitec Pivot
Incitec Pivot shares outperformed as the company confirmed it had received a number of approaches for the potential acquisition of its fertilisers business. The Board will evaluate any offers alongside the proposed demerger of the business. In addition, ammonia prices appear to have found a floor after falling ~75% since September last year.
AGL
AGL shares continued to outperform strongly following its June update on FY2024 earnings guidance and long-term capex intentions. Of the $20 billion of investment that AGL has earmarked to be spent on the energy transition, roughly half will be on AGL’s balance sheet, with only $4 billion to be spent between now and 2030. This capex profile enables AGL to pay out 50-75% of profits as dividends, providing a strong, sustainable yield for investors.
NEGATIVE CONTRIBUTORS
CSL
CSL shares underperformed ahead of a key trial for a product that competes with CSL’s Immunoglobulin (IG) franchise. Positive results from the trial mean that the product, manufactured by Argenx, will now compete with CSL across ~25% of the IG market. Our view is that CSL’s IG revenue growth outlook is only slightly impacted due to growth opportunities across the rest of the portfolio.
Commonwealth Bank of Australia (no holding)
CBA shares outperformed along with the other major banks as softer Australian CPI data reinforced the view that the RBA’s hiking cycle may be over. While higher base rates are generally positive for bank net interest margins, the market is now more concerned about the negative impact higher rates could have on asset quality across bank loan portfolios.
Woodside Energy Group (no holding)
Energy stocks outperformed during July on the back of a 13% rally in the oil price. While our underweight position in Woodside detracted from performance, this was offset by our overweight position in Santos.
Performance Commentary - June 30, 2023 The Fund returned negative 0.09% (after fees) for the month ending 30 June 2023, underperforming the ASX 200 Accumulation Index by 1.84%. The Fund returned 2.08% (after fees) for the quarter ending 30 June 2023, outperforming the ASX 200 Accumulation Index by 1.06%.
POSITIVE CONTRIBUTORS
AGL
AGL outperformed in June after providing FY2024 earnings guidance ~15% above consensus forecasts and clarifying future capital expenditure intentions. Of the $20 billion that AGL has earmarked for investment on the energy transition, roughly half will be on AGL’s balance sheet, and only $4 billion will be spent between now and 2030. This capex profile enables AGL to pay out 50-75% of profits as dividends, providing a strong, sustainable yield for investors.
QBE Insurance
QBE Insurance outperformed during the month. Positive sentiment was influenced by a rise in global bond yields. The most relevant bond yields for QBE’s investment portfolio are 2-year bond yields, which rose 50 basis points in the US and Australia, and nearly 100 basis points in the UK.
NEGATIVE CONTRIBUTORS
BHP (underweight)
BHP outperformed on continued speculation of further China stimulus targeted at the property sector. We are observing developments in China closely. However, we continue to believe stimulus measures will be aimed at achieving stabilisation rather than spurring a material lift in activity.
CSL
CSL shares underperformed after the company released an update on FY2023 and FY2024 earnings expectations. FY2023 guidance was moved to the top end of the previous range. However, expected profit growth of 13-18% in FY2024 fell short of market expectations. We are seeing very strong improvements in the cost of inputs for CSL’s plasma business. However, we expect this to take 9-12 months to flow through to improved margins in the P&L.
Performance Commentary - May 31, 2023 The Fund returned negative 0.73% (after fees) for the month ending 31 May 2023, outperforming the ASX 200 Accumulation Index by 1.80%.
POSITIVE CONTRIBUTORS
Santos
Santos shares outperformed over the month on no notable company news. The upcoming OPEC+ June meeting will be one of the group’s most anticipated meetings, given conflicting messages around production cuts from Russia’s Deputy Prime Minister and Saudi Arabia’s Energy Minister during May.
James Hardie Industries
James Hardie outperformed in May after reporting an in-line FY 2023 result and initiating 1Q 2024 profit guidance 10-15% ahead of consensus expectations. Management did not explicitly guide to full-year earnings, but outlined a number of scenarios for North America margins if volumes weaken. The market took comfort from the fact that James Hardie expects to maintain margins above 25% even if volumes fall by 20%.
NEGATIVE CONTRIBUTORS
Newcrest Mining
Newcrest shares underperformed in May. The US 10-year bond yield rose 20 basis points and the US dollar strengthened 3%, both negative for the gold price. On 15th May, Newcrest entered a binding scheme implementation deed with Newmont on previously agreed terms. The shareholder vote will be held in September or October, with scheme completion expected before the end of 2023.
Incitec Pivot
Incitec Pivot reported a 1H 2023 result below market expectations, mainly due to lower earnings from its Phosphate Hill fertiliser plant. An unexpected outage at Phosphate Hill led to lower volumes and consequently higher cost per tonne. Despite the operational miss, we remain encouraged by positive operating trends emerging in the Explosives business.
Performance Commentary - April 30, 2023 The Fund returned 2.92% (after fees) for the month ending 30 April 2023, outperforming the ASX 200 Accumulation Index by 1.07%.
Performance Commentary - March 31, 2023 The Fund returned negative 0.56% (after fees) for the month ending 31 March 2023, underperforming the ASX 200 Accumulation Index by 0.40%.
For the quarter ending 31 March 2023, the Fund returned 3.71%, outperforming the ASX 200 Accumulation Index Benchmark by 0.25%.
Performance Commentary - February 28, 2023 The Fund returned negative 0.59% (after fees) for the month ending 28 February 2023, outperforming the ASX 200 Accumulation Index by 1.86%.
CONTRIBUTORS TO RETURNS
Positive contributors included QBE Insurance, Origin Energy and The Lottery Corporation. Negative contributors included Domino’s Pizza Enterprises, Lendlease and Lynas Rare Earths. We discuss each further in our commentary below.
POSITIVE CONTRIBUTORS
QBE Insurance
QBE Insurance outperformed in February after reporting a FY22 result that was slightly better than revised guidance provided in November. While the outlook provided for FY23 was broadly in line with consensus estimates, the stock outperformed as the market gained more confidence in QBE’s ability to continue delivering on its targets.
Origin Energy
Origin Energy outperformed during the month. After a number of delays to the due diligence process and a government cap on the gas price, the market had begun to heavily discount the chance that the $9.00 per share non-binding takeover bid from EIG and Brookfield would proceed. However, the EIG/Brookfield consortium returned in late February with only a modestly revised proposal of $8.90 per share, driving significant outperformance in the Origin share price.
NEGATIVE CONTRIBUTORS
Domino’s Pizza Enterprises
Domino’s Pizza Enterprises underperformed during February after reporting a weak 1H23 result and providing very subdued comments on the outlook. The pricing changes Domino’s has made to offset higher costs appear to have had a greater negative impact on volumes than expected, particularly for delivery customers. The withdrawal of FY23 guidance less than three months after reaffirming it with a capital raising also drew management credibility into question.
Lendlease
Lendlease reported a 1H23 result that was below market expectations but importantly reaffirmed FY23 and FY24 guidance. The stock underperformed due to increased gearing levels, with debt-to-equity now sitting above the mid-point of Lendlease’s 10-20% target range.
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