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Antares High Growth Shares Fund - May 2017

The Antares High Growth Shares Fund delivered a return of -2.0% (net of fees) for the month of May, outperforming its benchmark by 0.8%.

The Australian share market underperformed global markets in May, with the S&P/ASX 200 Accumulation Index falling 2.8%. The market was dragged down by weakness in the bank sector (-9.8%), along with healthcare (-2.1%) and REITs (-1.1%). Resource stocks outperformed (+1.2%) despite a 17.1% fall in the iron ore price in response to concerns about Chinese growth. Industrials (+4.7%) were the strongest sector, led by strength in Qantas Airways (+18.2%). Telecoms (+3.4%) and energy (+2.0%) also outperformed the broader market.

An overweight position in Caltex Australia (CTX) contributed positively to the Fund’s relative performance. CTX announced that it would assist employees of its franchises that have been underpaid by establishing a $20m fund. CTX will seek to recover the cost from offending franchisees. CTX also announced a higher refiner margin of US$15.32/bbl in April compared to $US11.65/bbl in March. The Fund also benefited from an overweight position in Aristocrat Leisure that delivered a stronger than expected 1H17 earnings result. Sales rose 22% and net profit (after tax and amortisation) rose 49%. The main driver of the positive earnings surprise was the company’s successful expansion in the US. FY17 guidance remained unchanged at 20-30% growth in net profit.

The Fund’s overweight position in Vocus Group (VOC) performed poorly as management downgraded FY17 earnings guidance by around 15% and also lowered the expected revenue and net profit targets. This mainly reflected higher than forecast expenses, higher headcount, accounting changes and lower than expected revenues. An overweight position in ANZ Banking Group (ANZ) also detracted from the Fund’s relative performance as the bank sector was negatively impacted by the bank levy that was announced in the Federal Budget and concerns that the domestic housing market may be on the verge of weakening.

The Australian share market is facing some headwinds, with investors increasingly nervous about a sharp slowing in the domestic property market. This is negatively impacting the banks and also consumer facing stocks as investors fear a slowdown in consumption if the property market comes under pressure. The potential entry of Amazon into the Australian market is also contributing to the de-rating of retail stocks. The resource sector is vulnerable to slowing growth in China and weakness in commodity prices, particularly iron ore. From a valuation perspective, the overall market is still quite fully valued but Goldman Sachs data suggests the 10% fall in bank stocks during May has the sector trading at a 33% discount to industrial stocks which is quite extreme in an historical context.

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