Fund Commentary
During July our fund rose by 4.0%1, underperforming the Small Ordinaries Index by 0.9% and underperforming the Small Industrials Index by 0.1%. Over the twelve months to July, the Fund is up 18.4%1, which is 10.3% above the Small Ordinaries and 7.8% above the Small Industrials.
Global markets were mixed in July, with very strong Asian markets offset by weakness in Europe and the US. Volatility in the US market has fallen dramatically over the past 18 months, indicating a somewhat complacent attitude to the rally. This reversed slightly in July driven by unrest in the Ukraine and Gaza.
The domestic market rose 4.4% driven by a stronger mining sector, with “safer” stocks (eg healthcare and utilities) lagging the gains. Small cap stocks rose 4.9%, with mining stocks again outperforming industrials in the shorter term.
Results season dominates the coming month, providing us an opportunity to meet with management of the stocks which we hold and also trawl for new ideas. It will be particularly busy given the recent spate of IPOs where we have the opportunity to meet again, and firm up our view.
Profit warnings in May/June, especially in retail prove that consumer confidence is still fragile in Australia. We therefore remain averse to retail stocks, preferring the housing and financial services sector for cyclical exposure.
We recently added to the financial services sector buying HFA Holdings following a capital raising at 95c which facilitated a highly accretive restructure of the share register. The company operates a stable hedge fund in the US with over $8.5bn in funds under management. The stock rose 32% in July and we still see good value in the story. Offsetting this, we trimmed our position in SFG Group following a strong share price reaction to the takeover by IOOF Group.
