Perennial Value Smaller Companies Trust invests in a range of smaller listed companies predominantly outside the ASX top 100 Index which Perennial Value believes have sustainable operations and whose share price offers good value. The cornerstone of this approach is a strong emphasis on company research. Aims to provide a total return (after fees) that exceeds the S&P/ASX Small Ordinaries Accumulation Index measured on a rolling three-year basis.
The Trust was down 4.1% inline with the Index which was down 4.0%. Financials markets were clearly in a risk-off mode again with long term bond rates moving higher and pockets of stubborn inflation around the world.
Gold names, which were strong in the prior month, reversed their gains and stock performance outside this was mixed.
Given results were released in August, there was very little in the way of stock news. It was, however, the first chance for directors to trade post results as well as companies to commence buy-backs once the market had digested result announcements.
For our portfolio the signaling here was positive:
– 16 directors buying (2 selling)
– 8 active buybacks across the portfolio
Given the weak macro backdrop, such positive signaling from those closest to the fundamentals of the company was encouraging. We used the month to further engage with our portfolio companies on corporate strategy and governance and continued to build further conviction in the fundamentals.
The portfolio-average PE ratio of 11.2x remains at a sizeable discount to the index which is 17.0x for FY24.
What is Perennial Value Smaller Companies Trust Perennial Value Smaller Companies Trust 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 Perennial Value Smaller Companies Trust has Assets Under Management of 175.06 M with a management fee of 1.2%, a performance fee of 0.00% and a buy/sell spread fee of 0.6%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Perennial Value Smaller Companies Trust has returned 8.98% in the last month. The previous three years have returned -5.95% annualised and 17.89% each year since inception, which is when the Perennial Value Smaller Companies Trust 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 Perennial Value Smaller Companies Trust first started, the Sharpe ratio is 0.35 with an annualised volatility of 17.89%. The maximum drawdown of the investment product in the last 12 months is -18.95% and -47.89% 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 Perennial Value Smaller Companies Trust has a 12-month excess return when compared to the Domestic Equity - Mid Cap Index of -10.47% and -3.64% 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. Perennial Value Smaller Companies Trust has produced Alpha over the Domestic Equity - Mid Cap Index of -0.99% in the last 12 months and -0.31% 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 Perennial Value Smaller Companies Trust provide? Perennial Value Smaller Companies Trust has a correlation coefficient of 0.95 and a beta of 1.21 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 Perennial Value Smaller Companies Trust and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Perennial Value Smaller Companies Trust with the ASX Index MidCap 50 Index? For a full quantitative report on Perennial Value Smaller Companies Trust compared to the ASX Index MidCap 50 Index, you can click here.
Can I sort and compare the Perennial Value Smaller Companies Trust to do my own analysis? To sort and compare the Perennial Value Smaller Companies Trust financial metrics, please refer to the table above.
Has the Perennial Value Smaller Companies Trust 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.
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Performance Commentary - August 31, 2023 The Trust was down 2.2% compared to the Index which was down 1.3%. Reporting season meant significant volatility against the backdrop of weaker global markets. Our holdings in Gold names performed well in such markets with Bellevue Gold and Genesis up 16.6% and 8.8% respectively.
Given recent guidance in July from many of our holdings, the only genuine surprises were from the likes of GUD Holdings (up 21.8%) and Premier Investments (up 16.1%) contrasted by negative news from smaller positions such as Aeris Resources (down 36.8%) and Genetic Signatures (down 28.7%).
In some cases, the macro concerns were enough to distract investors from situations at companies where genuine progress was announced but is yet to be rewarded by investors. As examples, Lark (up 4.4%) with a renewed debt facility and an export deal in Malaysia, Envirosuite (down 15.2%) despite gross margins lifting from 47.9% to 51.6% and Enero (down 12.8%) despite moves to unlock shareholder value by selling their stake in OBMedia – all appear to have positive catalysts in the short-term so we expect investors to soon take note. Two new stocks made a positive impact to the Trust with News Corp (up 14.9%) and DUG Technology (up 12.9%).
The portfolio-average PE ratio of 11.8x remains at a sizeable discount to the index which is 18.1x for FY24.
Performance Commentary - July 31, 2023 The Trust was up strongly in July +4.7% (net of all fees) outperforming the Index which was up 3.5%.
As mentioned in recent newsletters, there are tentative signs of renewed interest in the sub $500m market cap space, where the Trust has a large exposure. It was pleasing to see the beginning of a broad recovery in this space during the month (as an example 8 stocks in this market cap range, and held by the Trust, were up 10% for the month).
Most encouraging however was the improved earnings updates from several companies in the portfolio. Earnings guidance from Alliance Aviation, RPM Global, Flight Centre and Navigator all led to a lift in broker forecasts.
While there was no company specific news, investors also responded to stronger sector trends with EV volumes for novated leasing pushing up Smart Group and global travel trends helping Webjet.
Most of remainder of the portfolio will provide earnings updates during the upcoming August reporting season.
The portfolio-average PE ratio of 10.8x remains at a sizeable discount to the index which is 17.6x for FY24.
Performance Commentary - June 30, 2023 For the month of June, the Trust was up 0.8% (net of all fees), outperforming a flat Index. We continue to expect two themes to come to the fore over the balance of the calendar year, namely:
– Corporate activity/strategic interest in undervalued names; and
– Renewed investor interest in stocks below $500m market cap
Pleasingly there were signs of both in June.
As evidence of the first point the major shareholder in Navigator agreed to a placement at a significant premium to bring forward previously announced (but highly structured) acquisitions. The premium paid and now simplified structure grabbed investor interest pushing the stock up 34.3%.
Smaller stocks below $500m such as Qoria (+40.0%) and Envirosuite (+11.1%) began to appear on the broader investment radar given they offer defensive and growing revenue streams – a hard combination to find in this market. Others in this group continued to be impacted by tax loss selling. Logically this ended on 30th June, as a result we have seen a strong bounce in many names post. The portfolio-average PE ratio of 10.0x remains at a sizeable discount to the index which is 16.2x for FY24.
Performance Commentary - May 31, 2023 For the month of May, the Trust was down 3.6% (net of all fees), compared to the Index which was down 3.3%.
Markets were dominated by weaker China data and concerns over negotiations in the US to lift the debt ceiling. Share prices were also impacted by pockets of ‘tax loss’ selling further separating share prices of some stocks from fundamentals – with many stocks down >10% on no news flow.
This sidelined (for now) early signs of positive momentum returning to the smaller end of the market. Encouragingly, there has been more commentators noting the large underperformance and contrarian opportunity within Small and Microcap stocks. This combined with the natural end to tax loss selling by the end of June sets up the potential for a strong recovery in the sector in FY24.
Earnings updates were mixed with OFX providing guidance ahead of consensus for FY24 (stock up 28.4%) offset by one of our few consumer exposures, Universal Stores, falling significantly after highlighting weakening sales (but importantly it has a strong balance sheet).
The portfolio-average PE ratio of 10.3x remains at a sizeable discount to the index which is 16.4x for FY24.
Performance Commentary - April 30, 2023 For the month of April, the Trust was up 1.3% (net of all fees), compared to the Index which was up 2.8%.
Fundamental news flow was more limited in April and trading volumes were down given the holiday period.
One of our largest positions, Alliance Aviation, fell 10.4% after the ACCC knocked back the takeover from Qantas. We hold Alliance for the strong fundamental growth we see over the next 2-3yrs, its strategic positioning and good valuation. With the noise of the takeover removed we expect investors will begin to focus on these strong growth prospects and investor interest should return.
There was some offset from the turnaround in share prices for Fleetwood, Superloop and Lark – all have begun to recover from oversold levels. Cooper Energy also improved with positive refinements to the federal government gas policy and an impressive new CEO in place.
The portfolio-average PE ratio of 10.4x remains at a sizeable discount to the index, which is 16.6x for FY24.
Performance Commentary - March 31, 2023 For the month of March, the Trust was down 4.1% (net of all fees), compared to the index which was down 0.7%.
Relative performance was impacted by not holding takeover targets Liontown Resources (+89.7%, we had avoided given likely cost blowouts at the project) and United Malt (+33.0%, we avoided given very high debt levels).
We expect takeover activity to continue to be a feature this calendar year and believe several of our holdings are more logical targets given reliable and growing earnings streams as well as low debt (or in most cases, no debt).
Sentiment remains poor amongst stocks below $500m market cap. By contrast, this is where we have higher levels of conviction in earnings compared to a trickier outlook at the index level.
Our conviction in the portfolio increased further during March as we did follow up meetings with our key holdings. We expect other investors and corporates will also notice these improving fundamentals in coming months.
The portfolio-average PE ratio of 9.7x remains at a sizeable discount to the index, which is 13.3x for FY24.
Performance Commentary - February 28, 2023 For the month of February, the Trust was down 4.9% (net of all fees), compared to the Index which was down 3.7%.
The market returned to a pessimistic and “glass half empty” approach in February, which in the context of continuing rate rises makes sense at an Index level but less so for those companies reporting strong fundamental improvements – such as those in our portfolio.
There were plenty of earnings updates in the February reporting season with JPMorgan reporting an average drop in earnings per share expectations for Small Cap Industrials of -1.7%. Against this, the average adjustment in consensus earnings for our portfolio was +1.0% and encouragingly +4.6% for sales.
While this was not rewarded in the short-term, we are confident this fundamental improvement cannot be ignored for long by other investors and corporates. As Warren Buffet’s mentor Benjamin Graham was reported as saying, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Pleasingly, post results there has been director buying in 8 of our names and 2 share buybacks recommenced. The portfolio-average PE ratio of 9.7x remains at a sizeable discount to the index which is 14.1x for FY24.
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