OC Dynamic Equity Fund aims to provide investors with strong long-term risk adjusted returns through investment in high quality small to mid cap industrial companies with sustainable business models and attractive investment fundamentals.
The OC Dynamic Equity Fund returned +0.6% for the September quarter, underpinned by a strong August reporting season for many of our key portfolio holdings. This was comfortably ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were each down -1.9% for the quarter. Whilst the trajectory of consensus earnings revisions was generally negative across the Australian small-cap market in the August reporting season, we were pleased with the results of the Fund’s holdings overall and remain optimistic about their prospects for the year ahead, notwithstanding the current global macro-economic challenges.
The OC Dynamic Equity Fund continues to comfortably navigate the challenging small-cap market of the past few years, with the Fund up +9.0% per annum over the past three years. This is well ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which have returned just +2.6% and +0.5% per annum, respectively over the same period. The OC Funds’ investment team has a strong track record of delivering meaningful alpha to clients when sentiment in the small-cap market turns positive, and we remain confident and focused on continuing to do so in the future.
Hotel operator technology provider Siteminder (SDR, +58.6%) rallied strongly over the quarter following significant on market director buying in late June. The quarterly cashflow report and earnings guidance, issued in late July, and the August result were delivered in line with market expectations. These positively received results were largely driven by SDR demonstrating lower customer acquisition costs (CAC) and higher customer lifetime value. Increasing customer numbers are also an incremental positive, with the additions weighted toward the end of the year, providing a strong base for the period ahead. Investors are eagerly anticipating the company moving onto a cashflow generative footing, which SDR management continued to guide toward for the second half of the new financial year. Pleasingly the move to positive free cash flow generation is not coming at the expense of product development with the company outlining new product extensions which are likely to lead to incremental revenues. We remain optimistic for our holding in the stock and continue to anticipate ongoing growth to deliver operating leverage over the years ahead.
GUD Holdings (GUD, +35.9%) was a strong performer for the Fund after posting a solid FY23 result in the context of overall low market expectations and the stock trading ‘cheap’ on a relative basis going into the result. Of particular note was the core GUD aftermarket parts business which reduced inventory levels as supply chains normalised. This helped GUD reduce leverage from 2.5x net debt/normalised EBITDA in December 2022 to a more manageable 2.0x as at June 2023. Furthermore, the APG towbar manufacturing business delivered to expectations despite ongoing new vehicle supply constraints. Whilst APG has been affected by supply constraints from automotive OEMs over the period of GUD ownership, supply is gradually improving, and new car demand backlogs are not reducing. Over the medium term, a further recovery in APG volumes will augment ongoing organic growth at GUD, which now has a solid balance sheet and a reasonable valuation. Hence GUD remains a core position for the Fund.
What is OC Dynamic Equity OC Dynamic Equity is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Multi-Manager 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 OC Dynamic Equity has Assets Under Management of 90.41 M with a management fee of 1.72%, a performance fee of 20.50% and a buy/sell spread fee of 0.6%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the OC Dynamic Equity has returned 3.56% in the last month. The previous three years have returned 6.16% annualised and 18.26% each year since inception, which is when the OC Dynamic Equity 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 OC Dynamic Equity first started, the Sharpe ratio is NA with an annualised volatility of 18.26%. The maximum drawdown of the investment product in the last 12 months is -5.84% and -70.21% 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 OC Dynamic Equity has a 12-month excess return when compared to the Domestic Equity - Multi-Manager Index of -1.1% and 3.52% 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. OC Dynamic Equity has produced Alpha over the Domestic Equity - Multi-Manager 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 - Multi-Manager Index category, you can click here for the Peer Investment Report.
What level of diversification will OC Dynamic Equity provide? OC Dynamic Equity has a correlation coefficient of 0.88 and a beta of 1.08 when compared to the Domestic Equity - Multi-Manager 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 OC Dynamic Equity and its peer investments, you can click here for the Peer Investment Report.
How do I compare the OC Dynamic Equity with the ASX Index 200 Index? For a full quantitative report on OC Dynamic Equity compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the OC Dynamic Equity to do my own analysis? To sort and compare the OC Dynamic Equity financial metrics, please refer to the table above.
Has the OC Dynamic Equity 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.
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Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the OC Dynamic Equity. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 The OC Dynamic Equity Fund enjoyed a solid August reporting period returning +1.7% for the month. This was comfortably ahead of the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which returned -1.3% and -1.5%, respectively, during August.
The standout performers during August reporting included: G.U.D. Holdings (GUD, +24.0%) which rallied following a result that exceeded expectations due to strong free cashflow generation, debt reduction and an improvement in the APG towbar business; and Life360 Inc (360, +20.7%) which posted both positive free cash flow and positive EBITDA in Q2 CY23, as well as strong customer acquisition metrics. Digital property exchange PEXA Group Limited (PXA, -12.8%) pulled back despite its Australian property exchange reporting a solid result against the backdrop of a weak property transactions market, with a lack of transparency on progress in the nascent UK market raising questions about delays and cost overruns.
Performance Commentary - July 31, 2023 The OC Dynamic Equity Fund kicked off FY24 in a positive fashion returning a solid +2.0% for the month of July. This was slightly behind the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which returned a robust +3.5% and +4.8% respectively.
Key contributors to the performance included: GQG Partners (GQG, +17.0%) which rallied largely in response to improved investor sentiment, being a strong beneficiary of rising equity markets; SiteMinder (SDR, +44.2%) which traded sharply higher on news that it expects to be EBITDA positive and free cashflow positive in H2 FY24; and Corporate Travel Management (CTD, +16.9%) which issued a trading update that confirmed strong trading in H2 FY23. Detractors for the month were smaller in scale and included APM Holdings (APM -6.1%) and Kelsian Group (KLS, -4.5%), both of which traded down despite no negative news after recent rallies, perhaps reflecting investors moving to riskier (higher beta) positions in the rising market.
The domestic economic outlook appears to be more challenging with conflicting signs as to the strength of the economy. Nevertheless, a near 50-year low unemployment rate of 3.5% and a solid (albeit falling) household savings buffer still leaves consumers in a reasonable position even allowing for near-term inflationary pressures and the lagged impact of the more recent interest rate hikes.
Reporting season has kicked-off, although the Fund is yet to have any companies report. We remain upbeat on the prospects of our core portfolio holdings and will share further thoughts with our investors in early September once we have analysed the numbers and met with the management teams.
Performance Commentary - June 30, 2023 Global equity markets enjoyed a solid quarter, led by a buoyant US market, with the US economy continuing to remain resilient and inflation continuing to moderate in the world’s biggest economy. Investor enthusiasm around artificial intelligence (AI) also provided a sugar hit to the big cap technology sector, with a stunning result from chip maker NVIDIA igniting the ‘animal spirits’ of investors and fuelling a mini boom in AI exposed big-tech stocks, including Microsoft Corporation and Alphabet (Google’s parent company). Local stocks to catch a bid on the back of the thematic included Fund holdings NEXTDC and Macquarie Technology Group, both of whom performed well during the quarter.
Key US indices were up strongly in the June quarter led by the tech heavy Nasdaq (+12.8%), the S&P 500 (+8.3%) and the Dow Jones Index (+3.4%). Other developed world bourses to perform well included the Japanese Nikkei (+18.4%) and the German DAX (+3.3%), whilst Australia’s ASX 200 eked out a positive return of 0.4%.
The Chinese equity market was under pressure on the back of underwhelming economic news with the Chinese Shanghai Composite down 2.2% and the Hong Kong Hang Seng was not immune, falling 7.3% for the quarter.
The domestic small-cap space was mixed during the June quarter with a raft of negative stock specific news-flow from consumer facing companies and weakness in the Materials sector being balanced by more positive news out of the Information Technology and Industrials sectors. The S&P/ASX Small Ordinaries Accumulation Index was down 0.5% for the quarter, materially behind the S&P/ASX Small Industrials Accumulation Index which was up 2.3%. The OC Dynamic Equity Fund significantly outperformed both small-cap indices, finishing the June quarter up 4.8%.
Despite all the doom and gloom in the media, the smallcap space bucked inflationary pressures and rising interest rates to finish the financial year comfortably in positive territory with the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index finishing up 8.4% and 9.5%, respectively, in FY23. Pleasingly, the OC Dynamic Fund posted an excellent return of 23.7% for the financial year, which ought to place us within the top-decile of our small-cap peers in industry performance surveys when they are released later in the month.
Performance Commentary - May 31, 2023 May lived up to its reputation as a difficult month for equity markets as sticky core inflation and rising interest rates began to take a growing toll on leading economic indicators across global markets. Stock markets were also jittery ahead of the US Congress’ latest legislative action to raise the government’s borrowing limits, with the gravity of a potential default further reinforcing a ‘risk-off’ bias across the back end of the month. Key global bourses including the US Dow Jones (-3.5%), the UK FTSE (-5.4%), the Hong Kong Hang Seng (-8.3%) and the Chinese Shanghai Composite (-3.6%) sold off heavily.
The US tech heavy Nasdaq bucked the trend and rallied 5.8%, fuelled by a stunning result from chip maker NVIDIA which lifted sentiment to other big-tech stocks exposed to the artificial intelligence (AI) thematic including Microsoft Corporation and Alphabet (Google’s parent company).
The domestic small-cap equity indices too were choppy throughout May. A raft of profit warnings across the retail space, including from City Chic Collective, Adairs, Best and Less Group Holdings, Dusk Group and Universal Store Holdings spooked investors and liquidity remained below average for much of the month. The S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index were sold down -3.3% and -1.7%, respectively, during the month. The OC Dynamic Equity Fund again held up significantly better than the small-cap indices and finished the month flat (0.0%).
OC Funds Management is pleased to announce the nomination of the OC Dynamic Equity Fund for the prestigious 35th Annual Money Management Fund Manager of the Year Awards in the Australian Small Cap Equity category. This recognition reflects the Fund’s strong performance and dedication to delivering outstanding results to its investors. The Money Management Fund Manager of the Year Awards is a highly regarded industry event that acknowledges excellence in the investment management industry. It is Australia’s longest-standing independent and ‘wholeof-market’ fund awards program. The Small Cap Equity category specifically focuses on funds that demonstrate exceptional expertise in navigating the dynamic and challenging small-cap equity market segment. The Fund’s nomination (alongside two other Funds) follows on from the OC Premium Small Companies Fund’s recent nomination in the Morningstar Fund Manager of the Year awards in the Domestic Equities – Small Caps category. It underscores the team’s consistent track record of success in managing small-cap and micro-cap investments over a long time horizon. It also marks the fourth time since 2018, when OC Funds Management actually won the award, that OC Fund’s has been nominated as a finalist in the Australian Small or Small/Mid Cap Equity Fund of the Year category at the Annual Money Management Fund Manager of the Year Awards.
Performance Commentary - April 30, 2023 Global equity markets rallied in April as fears of a global banking crisis moderated and investors became more comfortable that peak interest rates were approaching in key markets such as the US. Global bourses that rallied in April included the US Dow Jones +2.5% and the S&P 500 +1.5%, the UK FTSE 100 +3.1%, the German DAX +1.9%, the Japanese Nikkei +2.9%, and our own ASX 200 +1.8%.
The US first quarter reporting season is underway, with roughly 45% of S&P 500 companies reporting by the end of April. Results to date have moderately surprised on the upside with earnings numbers generally underpinned by margin resilience. This has engendered some confidence that the economic slowdown that is likely coming in the US will not deteriorate into a steep and protracted recession in the world’s biggest economy.
The domestic small cap market also had a buoyant April with both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index rallying, up 2.8% and 3.6% respectively. Corporate activity was again in focus in the small and micro-cap end of the market with Blackmores (BKL) entering a Scheme Implementation Deed with Kirin Corporation and SILK Laser Australia (SLA) receiving a non-binding, indicative and conditional offer from Wesfarmers’ (WES) subsidiary Australian Pharmaceutical Industries. This is hopefully a sign that some confidence is returning to the space following a difficult period since the beginning of calendar year 2022.
The OC Dynamic Equity Fund enjoyed a positive month, up +2.4%, although it did slightly lag both the smallcap indices. The Fund has preserved investors capital under the difficult equity market conditions of the past 12 months. The OC Dynamic Equity Fund is up +3.7% which is well ahead of both the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which are down -9.4% and -7.6%, respectively, over the same time horizon.
Performance Commentary - March 31, 2023 The March quarter was a volatile period across global markets with the ongoing battle between inflationary forces and central banks continuing to take centre stage. March itself was a particularly turbulent month for equities, with steep falls early in the month brought about by regional bank failures in the US that undermined confidence in the global banking system before US and European regulators and central banks steadied the ship with a series of guarantees and liquidity backstops which restored confidence across financial markets. This led to a sharp recovery late in the month as investor concerns about a full-blown solvency crisis from mark-to-market losses on banks’ portfolios receded.
The domestic small-cap equities indices also seesawed around key macro-economic news flow with the February reporting season providing a welcome respite by giving investors some stock specific insights. Whilst the reporting season across small caps was overall mixed, the Fund’s holdings, on balance, reported stronger results than the overall market which allowed us to outperform our benchmark during the quarter. The OC Dynamic Equity Fund finished the quarter up 6.8% which was well ahead of the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which were up 1.9% and 1.3%, respectively, for the quarter.
The OC Dynamic Equity Fund has navigated the challenging macro-economic environment of the past three years well, posting a return of 23.4% p.a. This is ahead of both the S&P/ASX Small Companies Accumulation Index and the S&P/ASX Small Industrials Accumulation Index which have returned 13.1% p.a. and 9.3% p.a., respectively, over the same time horizon.
Performance Commentary - February 28, 2023 After a strong start to the calendar year, global equity markets retraced in February driven largely by fears that inflation will prove to be stickier and more persistent than had previously been contemplated by many investors. Increasingly hawkish central banks drove up real bond yields and most key global indices ended the month lower including the US DOW (-4.2%) and S&P 500 (-2.6%), the Hong Kong Hang Seng (-9.4%) and the MSCI All Country World Index (-1.9%).
The February reporting period was a mixed bag across the market, with divergent performance across the board from companies, often in the same sector, and few unequivocal macro-call outs. As expected, few management teams and boards were prepared to give numerical forward guidance, and most were guarded in their commentary on the economic outlook. The S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small industrials Accumulation Index were both softer in February, falling by -3.7% and -1.7% respectively. The Fund enjoyed a relatively strong month (+0.8%) with most of our core holdings producing solid results indicating that our investment theses remain intact.
The Fund has weathered the sell-off in small companies well over the past year and has protected investor capital in what has been a challenging investment environment. The OC Dynamic Equity Fund is up 6.6% over the past 12 months versus the S&P/ASX Small Ordinaries Accumulation Index and the S&P/ASX Small industrials Accumulation Index which are down -8.0% and -7.4% respectively over the same time horizon.
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