The Fund returned 5.4% (after fees) for the month of March, outperforming the S&P-ASX Mid-Small Accumulation Index by 1.3%.
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
The “everything” rally continued in March with the micro and small cap indices outperforming the mid and larger cap indices for the first time in a long time. Generally, these markets do not suit us as valuation discipline is far outweighed by fever-pitched speculation. However, this time was different, and the fund managed to significantly outpace its benchmark. This is a great result considering the two best performers for the benchmark in the month were Mesoblast (MSB) and Life360 (360) which rallied 88% and 60%, respectively – two companies which we are unlikely to ever own given the former is a serial cash burner and the latter has a significant market capitalisation (nearly $3bn) despite it never being profitable. Also, the gold sector was strong as gold prices continued to surge to new highs. We have no direct gold exposure, so this was another headwind for performance. AWC – one of the larger holdings – rallied 35% over the month which helped fuel the outperformance. The rise precipitated by improving Aluminum and Alumina pricing from a cyclical low.
Major Contributors to Performance
Over the month the largest contributors to performance were from overweight positions in Alumina (AWC.ASX, +35%), Vista Group International (VGL.ASX, +20%), and Charter Hall Group (CHC.ASX, +10%).
Vista Group International (VGL.ASX) share price rose 20% in March post the company announcing their full year result at the end of February. Recurring revenue and SaaS revenue grew 10% and 20%, respectively, whilst EBITDA grew 25% although the company continues to capitalise an elevated level of R&D in respect of its cloud transformation. The cloud rollout continues to gather momentum with its first multi-territory client live and several new signings representing ~350 sites out of the group’s approximate 7,800 sites. The business also reaffirmed medium term aspirations of Annualised Recurring Revenue (ARR) of $175m and an EBITDA margin of 15%+ by the end of CY25, and to be free cash flow positive in Q424. We have been a long-term shareholder of Vista attracted to its strong market share (>50% ex-China) and transition from on-premise to cloud revenue which will increase their share of wallet and therefore drive significant growth in revenue and earnings.
Major Detractors from Performance
The largest detractors from performance included not owning both Virgin Money UK (VUK.ASX, +35%) and Evolution Mining (EVN.ASX, +21%) and an overweight position in Adbri (ABC.ASX, +0%)
Adbri (ABC.ASX) share price was flat over the month but underperformed the market which rallied strongly. The business received a takeover offer in December and the share price has been range bound since. CRH and the Barro Group agreed to acquire ABC for $3.20 which represented a 41% premium to the last closing price. ABC has been a long-term holding in the fund, but its share price has come under pressure in the last few years due to several factors including an irrational industry pricing environment, a material loss of lime volumes in respect of long-term supply agreement and balance sheet pressure from higher-than-expected capital expenditure on their Kwinana project upgrade. With these issues now largely resolved the group was looking forward to significantly improved returns for shareholders which has likely prompted the CRH/Barro consortium to pounce on the balance of the company at this point in time.
Outlook & Strategy Going Forward
Investor confidence is high, and equity is cheap whilst debt is relatively expensive but available and the outlook for interest rate settings is down. We think this sets the market up for further M&A as organic growth is increasingly difficult to come by. Historically, we have been a disproportionate beneficiary of such activity as our companies are highly cash generative, have strong market positions and are generally cheaper given our valuation discipline, thus making them targets for bigger listed players, foreign companies and private equity.
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 (IDPS Only)
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 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 September 2023) 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/.
