The Spheria Opportunities Fund returned -2.4% (after fees) for the month of December, outperforming the S&P/ASX Mid-Small Accumulation Index by 1.1%.
Performance
1 Spheria Opportunities Fund. Returns of the Fund are net of applicable fees, costs and taxes.
2 Benchmark is the S&P/ASX Mid-Small Accumulation Index.
3 Inception date of the current investment strategy is 11th July 2016. The Fund was established in June 2010. Past performance is not a reliable indicator of future performance. All p.a. returns are annualised.
Overall Commentary
Top 5 Holdings
Market Cap Bands
Source: Spheria Asset Management
Active Sector Exposure
Source: Spheria Asset Management
Markets
After a strong year equity markets finished lower in December. The mid-small index finished the year up 10.5%, whilst large caps outperformed, rising 11.7%. With the mid-small index weighed down by smaller companies which have underperformed large caps for the last three years brought on by a period of record inflation and a sharp rise in interest rates. The timing of a reversion in small-caps feels more imminent with interest rates in most developed economies now on the decline, with Australia expected to follow suit over the coming months. Falling rates, as witnessed in prior cycles, has tended to bode well for smaller companies outperforming large caps. From a fund perspective stock selection across financials, information technology and consumer staples drove the relative outperformance over the month.
Major Contributors to Performance
Over the month the largest contributors were an overweight position in Insignia Financial (IFL.ASX, +13%), an overweight position in Bega Cheese (BGA.ASX, +9%), and an overweight position in Technology One (TNE.ASX, +4%).
Insignia Financial (IFL.ASX) returned +13% during the month after the company received a non-binding takeover from Bain Capital. The offer price of $4 represented a ~30% premium to the undisturbed price of $3.06 but given the non-binding nature of the bid the share price during the month traded below this price. IFL has been digesting the acquisitions of the ANZ wealth platform and MLC over the past 3 years. Following a prolonged period of integration costs and cash outflows related to product and advice remediation, IFL is approaching a time when it should start producing significant free cashflows. This has not been lost on private equity who are keen to acquire one of the leading wealth platforms in the country on sub 10x EBIT. Post month end the business received another bid from CC Capital Partners at a price of $4.30 suggesting there may be more suitors to come.
Major Detractors from Performance
The largest detractors from performance included an overweight position in CAR Group (CAR.ASX, -13%), an overweight position in Fletcher Building (FBU.ASX, -10%), and not owning Mesoblast (MSB.ASX, +75%).
Fletcher Building (FBU.ASX) returned -10% during the month with the NZ economy remaining in recession and housing construction extremely weak. In November, the company announced that its subsidiary, Iplex Pipeline Australia together with the WA Government had reached an agreement surrounding the plumbing issues caused by Iplex Pro-Fit pipes. Iplex AU (100% owned by FBU) is expected to record a pre-tax provision of A$155m in its FY25 statements in relation to these issues. If BGC, who was the homebuilder responsible for 65% of the installation, agrees to participate in the Industry Response then Iplex’s direct costs will be proportionately lower. The announcement provides clarity around total costs for the business after over a year of deliberation and negotiations with the WA government and associated parties. The group recently de-levered via an equity raise and the sale of Tradelink, the macro appears to be close to bottoming and any cyclical rebound will support growth in the business which is trading on around 5-6x through the cycle EV/EBITA.
Outlook & Strategy
The past year marked another year where momentum largely triumphed over logic. The small cap market was marked by a significant uplift in the stocks with earnings growth with scant regard to valuations. Correspondingly, businesses with earnings cyclicality and downgrades plumbed new lows. With apparently fewer investors looking to fundamentals – just ask an ETF or index fund what multiple their underlying investments are trading on – it shouldn’t be surprising that things have somewhat disconnected from the economic laws of gravity. Just as a law is a law and not an opinion, however, our view on the weighing ability of the stock market longer term remains intact. Whilst momentum has been the friend of some this year, we have seen the momentum engine slow and reverse previously and have a strong sense of déjà vu. The more things change the more they stay the same.
Despite the bifurcation of the small and mid-cap market this year the Opportunities Fund has outperformed both this year and over most timeframes since inception. With our continued focus on cashflow generating businesses and valuations we steadfastly hold that these tenets are likely to continue lead to long-term outperformance.
Platform Availability List
If a fund is not available on your preferred platform, please contact us.
Please check with your platform for minimum investment requirements and fees.
HUB24 (IDPS only)
Macquarie Wrap
mFund
Netwealth
Praemium
| Spheria Opportunities Fund | value |
|---|---|
| Benchmark | S&P/ASX Mid-Small Accumulation Index |
| Investment Objective | Outperform the S&P/ASX Mid-Small Accumulation Index over the medium to long term |
| Suggested Minimum Investment Timeframe | 5 years or more |
| Investing Universe | Primarily listed companies outside the top ASX 50 listed companies by market capitalisation and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation |
| Suitable Investor Profile | This product is intended for use as a minor or satellite allocation for a consumer who is seeking capital growth and has a very high risk and return profile for that portion of their investment portfolio. It is likely to be consistent with the financial situation and needs of a consumer with a 5-year investment timeframe and who is unlikely to need to withdraw their money on less than one week’s notice. |
| Risk | Vey high |
| Holdings | Generally 20-65 stocks |
| Distributions | Half-Yearly |
| Fees | 0.99% p.a. Management fee & 15% performance fee of the Fund’s excess return versus its benchmark, net of management fee. |
| Portfolio Allocation1 |
80-100% Australian and New Zealand equities 0-20% cash and cash equivalents |
| Expected Turnover | 30% - 40% |
| Style | Long only, risk aware |
| APIR | WHT0025AU |
| Minimum Initial Investment | $25,000 |
Fund Ratings
Further Information
For more information, please contact Pinnacle Investment Management Limited
on 1300 010 311 or email distribution@pinnacleinvestment.com
Disclaimer
This communication is prepared by Spheria Asset Management Pty Limited (‘Spheria’) (ABN 42 611 081 326, Corporate Authorised Representative No. 1240979) as the investment manager of the Spheria Opportunities Fund (ARSN 144 032 431) (the ‘Fund’). Pinnacle Fund Services Limited (‘PFSL’) (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Funds. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.
Link to the Product Disclosure Statement
Link to the Target Market Determination
For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com
This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance. Unless otherwise specified, all amounts are in Australian Dollars (AUD).
Whilst Spheria, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Spheria, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.
Any opinions and forecasts reflect the judgment and assumptions of Spheria and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Spheria. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.
This may contain the trade names or trademarks of various third parties, and if so, any such use is solely for illustrative purposes only. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with, endorsement by, or association of any kind between them and Spheria.
Zenith Disclaimer: The Zenith Investment Partners (‘Zenith’) (ABN 27 103 132 672, AFSL 226872) rating (assigned Spheria Opportunities Fund – February 2024) referred to in this piece is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual, including target markets of financial products, where applicable, and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at Fund Research Regulatory Guidelines.
Lonsec Disclaimer: The Lonsec rating (Spheria Opportunities Fund issued October 2024) presented in this document is published by Lonsec Research Pty Ltd (‘Lonsec’) (ABN 11 151 658 561, AFSL 421445). The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial products. Past performance information is for illustrative purposes only and is not indicative of future performance. They are not a recommendation to purchase, sell or hold Affiliate Name products, and you should seek independent financial advice before investing in these products. The Ratings are subject to change without notice and Lonsec assumes no obligation to update the relevant documents following publication. Lonsec receives a fee from the Fund Manager for researching the products using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to our website at: https://www.lonsec.com.au/investment-product-ratings/.
