K2 Australian Absolute Return (KAM0101AU) Report & Performance

What is the K2 Australian Absolute Return fund?

K2 Australian Absolute Return aims to deliver capital growth over the long term by seeking out opportunities in undervalued companies in all market cycles. The Fund also aims to deliver superior risk adjusted returns through the investment cycle.

  • Target return is 10+% p.a. over the long term.
  • The strategy invests in listed equities in Australia and New Zealand, typically holding up to 80 different stocks in a range of sectors, but may also hold up to 100% cash depending on market conditions to help protect clients’ invested capital.

Growth of $1000 Investment Over Time

Performance Report

Peer Comparison Report

Peer Comparison Report

Latest News & Updates For K2 Australian Absolute Return

K2 Australian Absolute Return Fund Commentary September 30, 2023

The K2 Australian Fund returned -1.35% for the month.

During the month the Australian Government released Its White Paper on Jobs and Opportunities. The goal is to create more employment prospects for more people in more places. However, to our mind, the more immediate challenge is addressing the erosion in productivity. Over the past year, unit labour cost growth has accelerated whereas the growth in earnings per hour worked has slowed. As a result, the measure of labour productivity has declined by 4% over the year and is now back levels last seen in 2015. So how does Australia pivot to producing more whilst using less? Rebalancing the labour market would surely help. In recent times, a number of bottlenecks have caused labour demand to outstrip supply. However, there are some signs that labour demand is starting to taper. The most recent SEEK Employment report showed that the volume of job advertisements were 20% lower than last year. In addition, the last ABS release revealed that the number of job vacancies were 15% below a year ago. There are also signs that labour supply is rising. The number of underemployed Australians has grown by 14% over the past year. It seems to us that the labour market rebalance is well under way and hence we would expect to see less interest rate hysteria in the future.

Towards the end of the month, the Fund established a position in Resmed (RMD). RMD produces Continuous Positive Airway Pressure (CPAP) devices for the treatment of Obstructive Sleep Apnea (OSA) and other respiratory conditions. Typically these respiratory conditions can be with obesity, gender or cranial facial problems. Hence, when Eli Lilly and Novo Nordisk announced that their Type 2 Diabetes (GLP-1) drugs were contributing to weight loss as well as reducing the risk of heart attacks, RMD’s share price subsequently fell by 40% in just weeks. Clearly the market is concerned about the impact that these drugs will have on the demand for CPAP products. However, the cost of these GLP-1 drugs currently range from US$900-$1500/mth. As a result. a standard RMD CPAP device is competitive at an outright price of less than US$1.000. In addition, these GLP-1 drugs have exhibited side effects such as nausea, diarrhea, vomiting, constipation and abdominal pain. The global market of OSA is thought to be close to a billion people. so if the type 2 Diabetes drugs impact the market by 10-15%, there is still an enormous opportunity for RMD. A ten PE point de-rating in MD looks like an over-reaction to us.


Product Snapshot

  • Product Overview
  • Performance Review
  • Peer Comparison
  • Product Details

Product Overview

Fund Name APIR Code
? A Product Code is unique a identifier code issued by a group or governing body, to reference products in a large group. For an example, APIR codes are commonly used for Funds and Ticker codes are commonly used for Securities such as ETFs and Stocks.
Asset Class
? An Asset Class breakdown provides the percentages of core asset classes found within a mutual fund, exchange-traded fund, or another portfolio. Asset classes (in microeconomics and beyond) generally refer to broad categories such as equities, fixed income, and commodities.
Asset Category
? An Asset Category is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset categories (or a sub-asset class) are made up of instruments which often behave similarly to one another in the marketplace, looking down to the Asset Category level is important if looking to build a diversified portfolio.
Peer Benchmark Name
? A Peer Index (benchmark) refers to a peer group of investment managers who have the same investment style or category. It is used to compare the performance of one manager to their peer group, which makes it simpler for investors to choose between the vast number of investment managers.
Broad Market Index
? A Market Index (benchmark) refers to a hypothetical portfolio of investments that represents a segment, asset or category of an investable market. Market Indices are used to benchmark managers performance, to assist their style reliability and ability to provide excess returns.
? Funds/Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.
Management Fee
? A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting finanical products and managing the portfolio.
Performance Fee
? A performance fee is a payment made to an investment manager for generating positive returns. This is as opposed to a management fee, which is charged without regard to returns. A performance fee can be calculated many ways. Most common is as a percentage of investment profits, often both realized and unrealized. It is largely a feature of the hedge fund industry, where performance fees have made many hedge fund managers among the wealthiest people in the world.
? A spread can have several meanings in finance. Basically, however, they all refer to the difference between two prices, rates or yields. In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.
K2 Australian Absolute ReturnKAM0101AUManaged FundsDomestic EquityAustralian Long ShortDomestic Equity - Long Short IndexASX Index 200 Index20.81 M1.31%0.94%0.5%

Performance Review

Fund Name Last Month
? Returns after fees in the most recent (last) month).
3 Months Return
? Returns after fees in the most recent 3 months.
1 Year Return
? Trailing 12 month returns.
3 Years Average Return
? Average Annual returns from the last 3 years.
Since Inc. Average Return
? Average (annualised) returns since inception
1 Year Std. Dev. (Annual)
? The standard deviation (or annual volatility) of the last 12 months.
3 Years Std. Dev. (Annual)
? The average standard deviation (or annual volatility) from the last 3 years.
Since Inc. Std. Dev. (Annual)
? The average standard deviation (or annual volatility) since the fund inception.
1 Year Max Drawdown
? The maximum drawdown in the last 12 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
3 Year Max Drawdown
? The maximum drawdown in the last 36 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Since Inc. Max Drawdown
? The maximum drawdown since inception - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
K2 Australian Absolute Return-3.95%-3.25%3.44%4.95%8.28%11.67%14.54%13.27%-5.25%-17.63%-33.15%

Peer Comparison

Fund Name Peer Index Name
? A group of individuals who share similar characteristics and interests are called peer groups. Peer group analysis is an essential part of assessing a price for a particular stock in investment research. The emphasis here is on making a comparison, meaning that the peer group constituents should be more or less identical to the company being examined, especially in terms of their main business and market capitalization areas.
12 Months Excess Return
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
Excess Return Annualised Since Inception
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
12 Months Alpha
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over 12 months. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
Alpha Annualised Since Inception
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market annualized since inception. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
12 Months Beta
? Rolling 12Month Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
Beta Annualised Since Inception
? Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
12 Months Tracking Error
? 12Month Tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark over the last 12 months. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
Tracking Error Since Inception
? Since Inception tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark since inception. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
12 Months Correlation
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Correlation Since Inception
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
K2 Australian Absolute ReturnDomestic Equity - Long Short Index2.91%-2.13%0.24%-0.1%-0.1%0.973.78%6.11%0.950.89

Product Details

Fund Name Verifed by SMSF Mates Manager Address Phone Website Email
K2 Australian Absolute ReturnYes-https://www.k2am.com.au/-

Product Due Diligence

What is K2 Australian Absolute Return

K2 Australian Absolute Return is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Long Short 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 K2 Australian Absolute Return has Assets Under Management of 20.81 M with a management fee of 1.31%, a performance fee of 0.94% 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 K2 Australian Absolute Return has returned -3.95% in the last month. The previous three years have returned 4.95% annualised and 13.27% each year since inception, which is when the K2 Australian Absolute Return 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 K2 Australian Absolute Return first started, the Sharpe ratio is 0.4 with an annualised volatility of 13.27%. The maximum drawdown of the investment product in the last 12 months is -5.25% and -33.15% 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 K2 Australian Absolute Return has a 12-month excess return when compared to the Domestic Equity - Long Short Index of 2.91% and -2.13% 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. K2 Australian Absolute Return has produced Alpha over the Domestic Equity - Long Short Index of 0.24% in the last 12 months and -0.1% since inception.

What are similar investment products?

For a full list of investment products in the Domestic Equity - Long Short Index category, you can click here for the Peer Investment Report.

What level of diversification will K2 Australian Absolute Return provide?

K2 Australian Absolute Return has a correlation coefficient of 0.89 and a beta of 0.97 when compared to the Domestic Equity - Long Short 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 K2 Australian Absolute Return and its peer investments, you can click here for the Peer Investment Report.

How do I compare the K2 Australian Absolute Return with the ASX Index 200 Index?

For a full quantitative report on K2 Australian Absolute Return compared to the ASX Index 200 Index, you can click here.

Can I sort and compare the K2 Australian Absolute Return to do my own analysis?

To sort and compare the K2 Australian Absolute Return financial metrics, please refer to the table above.

Has the K2 Australian Absolute Return 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 K2 Australian Absolute Return?

If you or your self managed super fund would like to invest in the K2 Australian Absolute Return please contact via phone or via email .

How do I get in contact with the K2 Australian Absolute Return?

If you would like to get in contact with the K2 Australian Absolute Return manager, please call .

Comments from SMSF Mates

SMSF Mate does not receive commissions or kickbacks from the K2 Australian Absolute Return. All data and commentary for this fund is provided free of charge for our readers general information.

Historical Performance Commentary

Performance Commentary - August 31, 2023

The K2 Australian Fund returned 2.11% for the month.

In Australia, we are noticing that there is a growing divergence in management behaviour. One is actively investing for the future; management are taking an owner-like approach to operating the business and the customer is elevated above all else. The other is extracting from the future. Here, management act like short-term professional officers and the customer is an afterthought. Simply put, owner-like behaviour embraces a philosophy that compounds customer trust whereas the professional officer approach is to maximise short-term profits at the expense of the customer. Market share will cede from extractors-from-the-future to the investors-for-the-future. However, these Imarket dynamics do take time to gain momentum. Meanwhile, short-termism is causing Australia’s inflation pulse to beat too fast. The price of bread, dairy and other food related products have, on average, risen more than 10% over the past year. Gas and electricity prices are, on average, 15% higher than a year ago, and insurance and travel prices have also been rising rapidly. The companies that have set these unchallenged prices have enjoyed inflated margins, but, the threat of competition is looming. Our investment process favours management teams that act like founders and are investing for the future. SVW Group Holdings (SVW) is a company that continually walks our talk.

SVW is your classic founder-led company. Back in 2010, the Stokes family enabled SVW to form. The WesTrac Group was merged with Seven Network to create SVW. At the conclusion of the merger, the Stokes family ended up owning 207 million shares of SVW or 68% of the company. On the first day of trading SVW was capitalised at $2.2 billion. Today SVW is a $10 billion company and, since the merger, has delivered shareholders a total return of 17% pa. The Stokes family continues to own 207 million shares but capital raising activities by SVW has seen their level of ownership dilute to 57%. Are SVW’s best days behind it? We think not. We believe that SVW’s model for capital allocation will be enduring and significant long-term shareholder value continues to be unrealised. SVW has empowered its decision makers to allocate capital as if it was their own and hence there is a healthy respect what equity capital can facilitate. As this ownership mentally S permeates through the company, the resultant flywheel of growth should gain sustainable momentum.

Performance Commentary - July 31, 2023

The K2 Australian Fund returned 3.82% for the month.

During      the      month      the      Treasurer      appointed      Michele      Bullock      as      the     9th Governor    of    the    Reserve    Bank    of    Australia    (RBA).    She    will    commence   in mid-September        and        will        oversee        the        implementation        of        the       recently announced    Review    of    the    RBA.    The    Treasurer    has    insisted   that   Australia should         have         the        world’s        best        and        most        effective        central        bank.        He acknowledged      that      Australia      is      facing      a      complex      and      changing     macro environment     and     monetary     policy     must    be    sufficiently    equipped    to    make the      right      calls      in      the      interests      of      the     Australian     people.     So     what     could change?      It     seems     unlikely     that     the     RBA     will     suddenly     embrace     a     more hawkish     perspective.     In     fact,     in     a     recent     speech,    Bullock    stated    that    the RBA       had       been       more       willing       to       accept       a       more       gradual       return      to      the inflation        target        than        peer        developed        central       banks.       This       would       help explain        why       Australia’s       cash       rate       is       more       than       1%       lower       than       peer nations      despite      having      an      inflation      pulse      that      is      more      than      2%     faster. Furthermore,    Australian    mortgage    holders    are    significantly   more   exposed to         variable         interest         rates         than         developed         peer        nations.        Fixed        rate mortgages        accounted        for        more        than        30%        of        Australia’s       outstanding mortgages     in     2022     and    the    RBA    estimates    that    by    2024    more    than    20% of      these      will      have      rolled      into      variable      rates.      This      is      one     of     the     known knowns.    An    unknow    known    is,    as    disposable    income    squeezes,    what   will households determine to be non-negotiable expenses?

One    non-negotiable    expense    that    Australian    households    have   historically prioritised      is      the      servicing      their      mortgage.      And,      as      was      highlighted     by Helia    Group    (HLI)    during    the    month,    this    continues    to    be    the    case.    HLI   is Australia’s    leading    provider    of   lenders   mortgage   insurance   (LMI).   HLI   is   at risk      if      a      mortgage      that     has     a     LMI     policy     moves     into     the     default     phase. Problems    occur    when    the    outstanding    loan    is    higher   than   the   value   of   the property        secured        by        the       mortgage.       Despite       high       mortgage       servicing requirements,      elevated      living      costs,      and      declining      property      prices,      HLI continues    to    register    a    low    level    of    claims    and    delinquencies.    In    fact,    HLI is      reducing      the      value      of      it      prior      liability      claim      reserves.      This     backdrop should     be     supportive     for     the     forthcoming     June     half     year    earnings    of    the Funds      holdings      in      Commonwealth      Bank      (CBA),      Bendigo     and     Adelaide Bank        (BEN)        and       to       a       lesser       degree       Kina       Securities       (KSL).       We       are underweight            banks            but            believe            that            CBA,            BEN            and           KSL           are demonstrating that the lending business is sustainable.

Performance Commentary - June 30, 2023

The K2 Australian Fund returned -0.37% for the month.

During the month there were a number of important data releases in Australia. Firstly, the CPI for May was 0.4% lower than April or 5.6% higher than a year ago; this was better than expected. Secondly, the number of Australian underemployed workers in May were 12% more than this time last year. Finally, the number of job vacancies in May were 10% lower than last year. Furthermore, we are mindful that a number of Australian companies are over-earning and are, therefore, enabling a new source of competitive threats. A number of younger companies have been able to utilise the latest iterations of technology and now have the potential to compete with scale. It therefore seems likely that tradable and non-tradable inflationary pressures are peaking. All up, these outcomes should provide the Reserve Bank of Australia (RBA) with some flexibility towards tightening monetary policy. Eventually, the RBA will be comfortable moving to the sidelines, and this should signal that Australia’s economic activity is broadening. This would be very favourable for Seven Holdings (SVW).

SVW is one of Australia’s leading industrial companies with operations spanning industrial services, energy and media. Over the past few years SVW has also demonstrated a disciplined approach to allocating capital. Between 2013 and 2016, SVW conducted an on-market buyback where it acquired 27 million shares at an average price of $5.82. Then in 2017, SVW issued $375 million of equity at $11.20 to acquire 53% of Coates Hire. Again in 2021. SVW placed $500 million of equity to institutions at $22.50 following its initial acquisition of 23% of Boral. This activity has enabled SVW to build exposure to a number of Australia’s strategic growth avenues such as the infrastructure rollout, mining production and transitional energy.

The Fund is well positioned for a cyclical improvement in economic activity. There are some green shoots sprouting within the residential property market, housing prices are stabilising, auction clearance rates are improving and population growth has resumed. Dwelling construction activity is still subdued but a less volatile phase of monetary policy would surely cause some uplift in approvals for dwelling activity. The best lows performing holdings for the Fund this month were BHP Group (BHP) SVW and Macquarie Group (MOG), Detractors to performance were MAAS Group (MGH) and Peopleln (PPE).

Performance Commentary - May 31, 2023

The K2 Australian Fund returned -1.94% for the month. There       are       a       few       indicators      that      are      sending      mixed      signals      about      the prospects         for        Australia.        Firstly,        global        commodity        prices        have        been edging     lower.     Secondly,     China’s     economic     activity     appears     to     be    losing momentum.     Thirdly,     Australia’s     inflation     pulse     is     not    receding    as    quickly as      peers      nations.      And      finally,      Australia’s      key     political     figures     have     lost sight    of    the    need    to    drive   productivity   and   are   instead   tilting   their   narrative and      actions      towards      growth      in      real      wages.      Higher      real      wages     without productivity     gains     would     no     doubt     cause     the     Reserve     Bank     of    Australia (RBA)      to      become      more      hawkish     at     the     worst     possible     time.     More     than 800,000      Australian      mortgages      are     in     the     process     of     swinging     from     low fixed      interest      rates      to     substantially     higher     variable     rates.     The     RBA     has already      tightened      monetary      policy      twelve      times      this      cycle.      Any      further upward           movements          will          obviously          have          a          bearing          on          household spending.    

We    are    also    beginning    to    see    some    signs    that    businesses    are becoming     less     courageous     with     hiring     intentions    and    it    seems    inevitable that    Australia’s    unemployment    rate    will    rise   into   2024.   The   key   question   is whether         the         softening         in         consumer         spending        will        coincide        with        an eventual     rebalancing     of     the     labour     market    and    allow    the    RBA    to    stay    on the sidelines. During    the    month    a    number    of    US    listed    companies    indicated    that    strong demand      for      generative      artificial      intelligence      and      language      models     was underpinning     future     revenue     prospects. 

   As     a     result,     share     prices     of     the 100     largest     Nasdaq     listed     companies    rose    8%    for    the    month.    Australia’s Technology    sector    was    also    strong    rising   4%   for   the   month.   It   is   important to     note     that     the     largest     100     Nasdaq     listed    companies    trade    on    25x    next years’    expected    earnings.   

The    Australian    Technology    sector    on    the   other hand      trades      on      more     than     40x     earnings     yet     delivers     less     than     half     the ROE of the US peers. The        best       performing       holdings       for       the       Fund       this       month       were       Ryman Healthcare          (RYM),          MAAS          Group          (MGH)         and         News         Corp         (NWS). Detractors      to      performance      were      Macquarie      Group     (MQG),     BHP     Group (BHP)    and    Nick    Scali    (NCK).    During    the    month    the    Fund    acquired    a    new position    in    Lynas    Rare    Earths    (LYC).   The   median   holding   of   the   Fund   has a    market    capitalisation    of    $7.3    billion    and,    using    expectations   for   the   year ahead,      has      a      PE      of      13.4x,      an      ROE      of      15.4%      and     a     dividend     yield     of 3.8%.

Performance Commentary - April 30, 2023

The K2 Australian Fund returned 1.38% for the month.

The          Australian         economy         is         expected         to         deliver         meagre         economic advancement         over         the         coming        year;        consensus        estimates        are        that Australia’s       GDP       growth       will       be       just       1.7%.       It       is       also      likely      that      these estimates    will    continue    to    fade.    The    last    time   economists   were   so   bearish about      Australia’s      economic      fortunes,      excluding      the     COVID     phase,     was during       the       Global       Financial       Crisis.       It       is       also       worth       noting       that      today Australia’s      2     year     bond     yield     is     3.16%     whereas     the     official     cash     rate     is 3.85%.       

 The         last         time         the         inversion        was        so        extreme        was        back        in September     2012.     Inflation     expectations     back     in     2012    were    moderate    so unsurprisingly,        the        Reserve        Bank        of        Australia        (RBA)        started       easing monetary     policy.     Unfortunately,     today     we     are     not     so     lucky.    The    inflation rate        for        the        year        ahead        is        expected        to        be        4.7%.        Hence,       although economic      conditions      are      sanguine,      the     RBA     is     unlikely     to     aggressively reduce    interest    rates.    That    said,    we    also    believe    that    the    RBA    will    not    be in     a     rush     to     tighten     monetary     policy     much     further.   

  The     labour    market    is finally          showing          some          early         signs         of         rebalancing;         the         number         job advertisements    are    now    well    below    last    years’    level    and    this    is   typically   a precursor     to     a    lift    in    the    unemployment    rate.    It    would    appear    to    us    that    a soft landing is still probable in Australia. We    are    also    starting    to    see    some    contraction    in    the    PE    dispersion   for   the ASX     200.     The     PE     of     the    cheapest    top    quartile    company    is    currently    26x whereas      during      the     COVID     phase     it     averaged     30x     and     pre     COVID     the average        was       17x.       The       PE       of       the       cheapest       top       quartile       company       is currently        15        points        higher        than        the        most        expensive       bottom       quartile company.      During      COVID,      this      dispersion      averaged      17      points      whereas pre-COVID     the     average     had     been    10    points.    There    is    finally    competition for       growth       so       the       dispersion       in       valuation       metrics       should       continue       to contract.

Performance Commentary - February 28, 2023

The K2 Australian Fund returned -2.66% for the month. During    the    month,    the    Governor    of    the    Reserve    Bank    of    Australia    (RBA), Philip           Lowe,           had           to           make           two          appearances          before          government committees.       

There         was         active         debate        around        the        merits        of        RBA’s meaningfully            tighter            stance            of            monetary            policy.           Governor           Lowe continually     reiterated     the     dangers     of     inflation     becoming     ingrained     in     the public’s    psyche.    Lowe    also    reinforced    that    the    RBA    was    highly   attuned   to the    fact    that    880,000    fixed    rate    loan    facilities,    with    an    average    balance   of $400,000,     would     mature     this     year.     Offsetting    this    to    some    degree    would be     the    additional    $300    billion    that    households    had    saved    since    the    onset of       the       pandemic.       However,       the       RBA       is       concerned      that      demand      side factors    continue    to    play    a    role    in    the    elevated    level    of    inflation   and   tighter monetary policy could assist in the rebalancing of the economy. Australia’s       December       half       reporting       season      was      a      little      disappointing.

Nearly     half    of    the    companies    in    the    ASX    200    saw    downward    revisions    to next    years’    EPS    projections.    However,    the    magnitude    of    the    downgrades were        minor;        the        median        revision        was        just       -0.5%.       Some       of       the       key takeaways    from    the    reporting    season    were    the    intense   competition   within the       mortgage      lending      industry,      the      margin      protection      strategies      of      the grocers        and        petrol        retailers,        and        the       costs       escalation       for       the       major resource     companies.     Despite     a    few    headwinds,    the    valuation    metrics    for the     ASX     200     are     still     relatively     attractive;     on     next     years’     projections    the PE         is         14.4x         and         the         dividend         yield        is        4.5%.        The        major        resource companies    continue    to    trade    on    10x    forward    earnings    whereas    the    PE   of the larger industrials is closer to 17x next years’ earnings.

Performance Commentary - January 31, 2023

The K2 Australian Fund returned 6.95% for the month. For      the      past      75      years      Australia      has      measured      inflation     on     a     quarterly basis.      Last      year      the      Australian      Bureau      of      Statistics      finally     moved     to     a monthly         CPI         measure.         Unfortunately,         the         monthly         CPI         reading        for December      was      8.4%      stronger      than      a      year      ago.      The     Reserve     Bank     of Australia      (RBA)      has      been      highlighting      that     Australian     business     leaders have      indicated      that      costs     of     doing     business     have     risen     and     that     prices would     need     to     follow.    

As     a     result,     it     would     appear     that     some     industries are      now     aggressively     focussed     on     margin     accretion     to     the     detriment     of their     customers.    Airlines,    grocers    and    petrol    retailers    look    to    be    the    main culprits       and       their       actions      are      having      a      meaningful      impact      on      inflation gauges.     We     would     prefer     that    business    leaders    counter    short    term    input cost     increases     with     long     term     productivity    solutions.    Supply    chains    have decongested,    ”just    in    case”    inventories    are    no   longer   needed,   and   worker mobility         is         recommencing.         Accordingly,         a         number        of        industries        will increasingly     be     exposed     to    an    improved    level    of    competition    and    market share          will          ultimately          cede          from          the          complacent         to         the         focussed.

Macquarie Group (MQG) is a company that typifies this opportunity. MQG        is       a       specialist       provider       of       financial       services;       two       thirds       of       the activities     have     an     annuity     bias     and     a     third     are     more    market    facing.    The annuity      style      activities      are      mainly     asset     management     and     banking     and have      both      displayed      strong      growth     attributes     in     recent     years.     Over     the past    decade    MQG    has    more    than    doubled    its    assets    under    management to     nearly    $800b.    Despite    this,    MQG    is    still    a    relatively    small    player    in    the US$100t+       industry.     

MQG’s      banking      activities      are      also      relatively      small; MQG’s      Australian      mortgage      book      has      been      growing      by     20%pa     and     is now     over     $100b     but     is     still     less     4%    of    the    market.    MQG’s    market    facing operations    employ    around    4,000    staff    whereas   global   peers   like   Goldman Sachs         and        JP        Morgan        have        48,000        and        290,000        have        employees respectively.     Hence,     we     envisage     that     MQG,     despite     is    recent    success, can       continue       to       grow       quicker       than       its      largest      competitors      and      do      so without disturbing the balance of the market. The         best         performance         contributors         for         the         Fund         this         month         were Macquarie     Group     (MQG),     BHP     Group     (BHP)     and     Seven     Group     (SVW). During     the    month    the    Fund    acquired    a    position    in    Westpac    Bank    (WBC). Dexus     (DXS)     was     sold.     The     median     holding     for     the     Fund     has    a    market capitalisation of $12.1 billion.

Kind words from Aussies managing
their own self funded futures

  • SMSF Mate is a unique website because it has ideas about how to approach SMSFs, insurance and other financial topics that come straight from first hand experience. It's much more useful than what you find on all the other financial websites that just offer generic info that you could easily get on the ATO's website. It's also nice to know there's no financial incentive behind the information, it's legitimately there to help people understand self-managed super funds and how to get the most out of them, not to get an affiliate commission from a broker or other financial services provider. The investment product information is also incredibly useful, I've never seen this kind of functionality on any other website that let's you look at such a wide range of products, sort by what info is most interesting or important to you, and subscribe to updates for different funds and financial products all in one place. Definitely worth checking out if you own or are considering an SMSF!

    David G, Self-Employed, SMSF Owner
  • SMSF Mate provides a unique insight into superannuation and financial topics in a way that is easier to understand than conventional websites. The colloquial nature of the site makes it easy to understand and they often speak about complicated topics in lamens terms so I can wrap my head around them. The investment product information is a great way to research funds that I am interested in investing in with my SMSF and there is a lot of helpful information on the site for better structuring my investment portfolio. In comparison to other websites which offer similar information, SMSF Mate excels as the information is free to access whereas many other sites charge a subscription fee for the same thing. Overall, I think SMSF Mate is a great resource for SMSF trustees and is worth looking at for a variety of super-related topics. Thanks.

    Tim B, Business Owner, SMSF Trustee