Ausbil MicroCap predominantly invests in a portfolio of listed small and microcap Australian equities which are primarily chosen from outside the S&P/ASX 200 Index constituents. The Fund is designed for investors who wish to benefit from the long-term capital gains available from share investments and who are comfortable with fluctuations in capital value in the short to medium term. It aims to achieve returns (before fees and taxes) in excess of the benchmark over the medium to long term. There is no guarantee that this objective will be achieved.
Fund performance for the quarter ending September 2023 was +2.18% (net of fees) versus the benchmark return of -5.26%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of -1.94% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Markets continued to adjust to the emerging regime of ‘higher for longer’ following the surge in US 10-year Treasury yields. Micro-cap3 returns of -5.26% underperformed both small caps4 of -1.94% and large caps5 of -0.71%. The Fund extended its positive performance over reporting season, outperforming by +2.78% (net of fees) for the month and +7.44% (net of fees) for the quarter.
Escalating bond yields have prompted intensified scrutiny on the cost of capital for our holdings and prospective ideas to ensure that they have the right capital and funding structures to generate returns on investment that align with the demands of a higher rate environment. This ensures the Fund is well structured to weather periods of volatility relative to the risk associated in the more unprofitable and speculative components of the Emerging Companies (XEC) benchmark. While this resulted in a rampaging XEC index over the past few years, fuelled by cheap, almost freely available capital and regardless of profitability, it appears that the tide is finally going out for those companies that are unprofitable or without sustainable business models.
Rising prices across the energy complex saw strong returns from Fund holdings Karoon Energy (oil) and Boss Energy (uranium) in September. Yield sensitive technology positions were softer, notably Objective Corporation and Macquarie Technology. TPG Singapore’s spin-off, Tuas, surpassed expectations at its full-year results with a strong mobile subscriber number ahead of expectations.
This quarter, the largest positive contributors to performance were Boss Energy and Johns Lyng Group. Negative contributors included Objective Corp and Imdex.
Key Contributors
Boss Energy (BOE) rose 48.1% as a prolonged uranium bear market begins to thaw, with prices reaching over $70 per pound in September. Factors such as the sourcing of ex-Russian supply, growing global momentum in the adoption of nuclear energy and the emergence of financial speculators (such as the Sprott Physical Uranium Trust) have significantly tightened the spot market. BOE is well positioned to capitalise with its Honeymoon project anticipated to commence inaugural production this quarter.
Key Detractors
Objective Corp (OCL) fell 21.5% over the quarter. OCL provides a suite of software and workflow solutions to customers in highly regulated markets. 2023 was a transitional year as the company made a purposeful decision to end perpetual upfront licence sales and refocused product development to reduce deployment cost. The Fund has been patiently and selectively building its position as several new products are anticipated to reinvigorate revenue growth in the future from its historical and lower-growth Enterprise Content Management (ECM) roots.
What is Ausbil MicroCap Ausbil MicroCap 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 Ausbil MicroCap has Assets Under Management of 317.30 M with a management fee of 1.2%, a performance fee of 0.00% and a buy/sell spread fee of 0.7%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Ausbil MicroCap has returned 4.64% in the last month. The previous three years have returned 5.14% annualised and 20.7% each year since inception, which is when the Ausbil MicroCap 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 Ausbil MicroCap first started, the Sharpe ratio is NA with an annualised volatility of 20.7%. The maximum drawdown of the investment product in the last 12 months is -4.31% and -39.11% 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 Ausbil MicroCap has a 12-month excess return when compared to the Domestic Equity - Mid Cap Index of 14.91% and 8.44% 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. Ausbil MicroCap has produced Alpha over the Domestic Equity - Mid Cap Index of NA% in the last 12 months and NA% 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 Ausbil MicroCap provide? Ausbil MicroCap has a correlation coefficient of 0.93 and a beta of 0.86 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 Ausbil MicroCap and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Ausbil MicroCap with the ASX Index MidCap 50 Index? For a full quantitative report on Ausbil MicroCap compared to the ASX Index MidCap 50 Index, you can click here.
Can I sort and compare the Ausbil MicroCap to do my own analysis? To sort and compare the Ausbil MicroCap financial metrics, please refer to the table above.
Has the Ausbil MicroCap 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.
How can I invest in Ausbil MicroCap? If you or your self managed super fund would like to invest in the Ausbil MicroCap please contact Grosvenor Place, Level 27, 225 George Street,Sydney NSW 2000 via phone +61 02 9259 0200 or via email contactus@ausbil.com.au.
How do I get in contact with the Ausbil MicroCap? If you would like to get in contact with the Ausbil MicroCap manager, please call +61 02 9259 0200.
Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the Ausbil MicroCap. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 Fund performance for the month of August 2023 was +3.75% (net of fees) versus the benchmark return of -4.17%, as measured by the S&P/ASX Emerging Companies Accumulation Index, and the reference index return of -1.31%, as measured by the S&P/ASX Small Ordinaries Accumulation Index.
The absence of any major macro news flow throughout the month of August allowed the market to unequivocally focus on company results. Reporting season is always a key test for the Fund holdings given Ausbil’s focus on earnings and earnings revisions. The Fund outperformed the Emerging Companies Index by 7.92% (net of fees), reflecting a consistent quality focus against the volatility of the more speculative components within the micro-cap benchmark. Performance throughout the month of August vindicates our preference for high quality, liquid and profitable business which are in upgrade cycles.
Quality growth emerged as the prevailing theme this reporting season as investors sought shelter in companies demonstrating robust structural growth characteristics in a slower growth environment. High conviction quality-growth holdings in Johns Lyng Group (+21%) and PSI Insurance (+10%) were rewarded after impressive results backed by positive outlook statements. Technology positions also continued to outperform following earnings upgrades from Life360 (+21%) and a strong result from Hansen Technologies (+6%). Selective positioning in consumer discretionary, such as Temple & Webster (+9%) added to performance.
Key Contributors
Life360 (360) extended a period of strong performance, returning 20.7% in August. The company delivered a strong 2nd quarter result, with core subscription revenue growth of +55% yoy and a full-year EBITDA guidance upgrade of +50% at the midpoint. The result reflects a maturing of 360’s strategy after successfully executing a shift to profitability through subscription price rises and cost out. Growth initiatives, such as subscription conversion through Tiles hardware bundling and a staged international rollout are set to continue the organic momentum.
Johns Lyng Group (JLG) rose 21.4% after a its full-year result (already prereleased) showed fantastic operating cash flow conversion and a robust outlook statement. While full-year guidance was broadly in line with current market expectations, the earnings mix was of higher quality as business-asusual lines continue robust growth driven by ongoing market penetration, the roll-out of strata services and the integration of recent acquisitions.
Key Detractors
Imdex (IMD) fell 17.4% after a full-year earnings result below consensus expectations. Slowing drilling data and a shift in revenue away from higher margin instrument rentals saw a material decline in 2H group operating margins. Positively, the recent acquisition of Devico performed in line with expectations for its 4-month contribution in FY23. Although timing is uncertain, an increase in sensor rentals from June, coupled with indicative signs that drilling activity and junior raising data has troughed, support a recovery.
Global Lithium (GL1) retraced 19.7% in a broadly weaker month for the lithium sector on softer Chinese EV demand and a reversal in Chinese lithium carbonate pricing.
Performance Commentary - July 31, 2023 Fund performance for July 2023 was +0.65% (net of fees) versus the benchmark return of +3.99%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +3.54% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
After an aggressive rate hiking cycle, milder inflation prints permit central banks to fine tune monetary policy and shift into a pausing phase. Policy makers appear to have orchestrated the highly sought after ‘soft-landing’ as economic growth remains below-trend, but positive, excessive demand is tamed, and labour markets remain resilient.
Micro caps3 and small caps4 returns of 3.95% and 3.53% respectively outperformed large cap5 returns of 2.82% over the month on increased confidence in the soft-landing scenario. Peaking rates and moderating inflation should improve the earnings visibility of smaller companies and broaden returns that have been overlooked in the rally. The market has also rewarded smaller companies refocusing on operating profitability, with returns from Megaport and Siteminder (neither held) over the month as they reform to self-sustaining growers.
Performance Commentary - June 30, 2023 Fund performance for the quarter ending June 2023 was -3.29% (net of fees) versus the benchmark return of -2.47%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -0.54% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Equity market returns muddled through the month of June against the backdrop of a resilient labour market and moderating inflation expectations. Technology indices led returns for the quarter, with the NASDAQ and ASX All Technology Index returning 13.1% and 9.3% respectively. The Fund’s technology positions were beneficiaries, notably Macquarie Technology, which completed a successful raising to fund the next leg of growth likely to come from AI induced data centre demand.
Turning to the financial year, the Fund returned 3.8% (net of fees). Contributors to performance came from the Fund’s core industrial positions in PSC Insurance and TUAS, in addition to technology positions in Life360 and Macquarie Technology. Poor performances (operational and share price) from resource positions in 29Metals (copper) and Panoramic Resources (nickel) detracted from returns.
While markets recorded a positive recovery since the lows last year, returns were concentrated in large caps5 , returning 15.1%, relative to small-cap4 and micro-cap3 returns of 8.5% and 7.4% respectively. The valuation disparity that has emerged between micro and large caps offers an enticing opportunity for investors. As rate hikes approach their peak, inflation moderates and earnings visibility for smaller companies improves, there is a strong case for a broadening of the equity market rally into the smaller end of the market. The wide divergence in growth expectations in FY24 and the redrawing of business plans by earlier stage companies to accelerate their path to profitability presents an opportunityrich environment for our investment approach which is focused on earnings and earnings revisions.
This quarter, the largest positive contributors to performance were TUAS and Macquarie Technology. Negative contributors included Johns Lyng Group and Imdex.
Performance Commentary - May 31, 2023 Fund performance for May 2023 was -5.04% (net of fees) versus the benchmark return of -6.32%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -3.26% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
May exhibited a significant divergence in performance within the small and micro-capuniverse. Micro-cap3 returns of -6.32% significantly underperformed both small caps4 of -3.26% and large caps5 of -2.44%. The S&P/ASX All Technology Index return of 3.97% was the standout, taking positive leads from offshore as AI enthusiasm took centre stage. Several trends stood out over the month of May, though most pointed to a softening in general activity. The rapid hiking of interest rates and ongoing cost of living pressures are finally beginning to manifest in a consumer slowdown.
The magnitude of consumer exposed downgrades, and the speed at which sentiment has turned, suggest we could be on the cusp of a significant discretionary retail slowdown, far bigger than we have seen in many years. The Fund’s position Life360 was the largest contributor, which recorded strong subscription growth and cost discipline as it reaches a potential inflection point in earnings. The Fund’s resources positions made up most of the detractors for the month, as softer base metal prices, an uncertain macroeconomic profile and several operating challenges exacerbated share price declines.
Performance Commentary - April 30, 2023 Fund performance for April 2023 was +1.09% (net of fees) versus the benchmark return of +1.52%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +2.78% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
Relative to the March quarter, equity markets exhibited some level of calm in April. The banking crisis triggered by Silicon Valley Bank has remained relatively confined to other regional or under-capitalised banks rather than broader financial contagion at this stage.
The Fund return of 1.09% underperformed both the small cap3 return of 2.8% and large cap4 return of 1.7%, due to a combination of positioning and stock selection. The Fund benefited from its core industrial positions in Johns Lyng Group, which announced it was appointed by the South Australian government for disaster recovery work’s following recent flooding. Macquarie Technology Group also added to performance after the large hyperscale contract announcement by peer NextDC tightens market data centre supply. Select resource positioning detracted following softening demand and individual operational challenges, notably Syrah Resources.
Gold however was the exception, as the USD gold price tested record highs, with a strong performance from the Funds gold position in Genesis Minerals. The Fund continues to progressively deploy capital into several new and existing opportunities given the emerging valuation gap in small and micro caps relative to large caps and earnings upside in select opportunities. This month, positive contributors to performance were Johns Lyng Group and Genesis Minerals. Negative contributors included Syrah Resources and Imdex.
Performance Commentary - March 31, 2023 Fund performance for the quarter ending March 2023 was -2.10% (net of fees) versus the benchmark return of +2.38%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of +1.88% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
The March quarter was marred by volatility with Silicon Valley Bank and then Credit Suisse raising concerns of turmoil in the global banking system. However, equity markets finished the quarter higher as the potential for broader systematic risk was contained, with technology-heavy indices the strongest performers following a 17.0% rise in the NASDAQ and a 11.1% rise in the S&P/ASX All Technology Index5 after a challenging 2022 calendar year -32.5% and -31.9% respectively. The S&P rebalance of the Emerging Companies Index in March resulted in significant share price appreciation of numerous companies before they exited the benchmark. Many of these companies are classified as speculative and more concept in nature according to our investment process. For example, Weebit Nano, a pre-revenue developer of new semiconductor memory technology, returned 132.6% for the quarter to index inclusion, only to then fall 34.1% after exiting the benchmark and therefore not being captured. On the positives, the Fund benefitted from strength in core positions in DGL Group, Data#3 and Johns Lyng Group, in addition to a strong earnings upgrade by TPG spin-off Tuas following its March update. Resources were broadly a detractor over the quarter. Negative contributors included 29Metals and OFX Group.
Performance Commentary - February 28, 2023 Fund performance for February 2023 was -3.73% (net of fees) versus the benchmark return of -4.22%, as measured by the S&P/ASX Emerging Companies Accumulation Index and the reference index return of -3.70% as measured by the S&P/ASX Small Ordinaries Accumulation Index.
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