Spheria Australian Microcap aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over the medium to long term. Focus on quality businesses and active investment management – Spheria is a fundamental based investment manager with a bottom-up focus. The investment team of Spheria has over 40 years’ experience investing in equities. The team believes in the potential for higher growth as microcap companies generally have more potential for growth relative to large companies as they may be in the early stages of development or are providing new services or technologies.
The Fund returned -4.7% (after fees) for the month of September, underperforming the S&P-ASX Small Ordinaries Accumulation Index by 0.6%
What is Spheria Australian Microcap Spheria Australian Microcap is an Managed Funds investment product that is benchmarked against ASX Index Small Ordinaries Index and sits inside the Domestic Equity - Micro 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 Spheria Australian Microcap has Assets Under Management of 55.52 M with a management fee of 1.35%, a performance fee of 20.00% and a buy/sell spread fee of 0.5%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Spheria Australian Microcap has returned 2.16% in the last month. The previous three years have returned 9.21% annualised and 18.73% each year since inception, which is when the Spheria Australian 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 Spheria Australian Microcap first started, the Sharpe ratio is NA with an annualised volatility of 18.73%. The maximum drawdown of the investment product in the last 12 months is -7.45% and -36.77% 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 Spheria Australian Microcap has a 12-month excess return when compared to the Domestic Equity - Micro Cap Index of 0.94% and 2.78% 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. Spheria Australian Microcap has produced Alpha over the Domestic Equity - Micro 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 - Micro Cap Index category, you can click here for the Peer Investment Report.
What level of diversification will Spheria Australian Microcap provide? Spheria Australian Microcap has a correlation coefficient of 0.9 and a beta of 1.22 when compared to the Domestic Equity - Micro 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 Spheria Australian Microcap and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Spheria Australian Microcap with the ASX Index Small Ordinaries Index? For a full quantitative report on Spheria Australian Microcap compared to the ASX Index Small Ordinaries Index, you can click here.
Can I sort and compare the Spheria Australian Microcap to do my own analysis? To sort and compare the Spheria Australian Microcap financial metrics, please refer to the table above.
Has the Spheria Australian 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.
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Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the Spheria Australian Microcap. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 The Spheria Australian Microcap Fund returned 0.8% (after fees) during the month of August, outperforming the S&P/ASX Small Ordinaries Accumulation by 2.2%.
The portfolio performance was influenced by the domestic FY23 reporting season, global equities abroad experienced a decline due to uncertainty regarding additional rate hikes in the US, despite signs of easing inflation and a weakening economic environment.
Positive contributors for the month were positions in Bravura Solutions (BVS.ASX), Praemium (PPS.ASX) and Mader Group (MAD.ASX). Whilst positions in Vista Group (VGL.ASX), Appen (APX.ASX) and Red Bubble (RBL.ASX) were notable detractors.
Performance Commentary - July 31, 2023 The Spheria Australian Microcap Fund returned 7.4% (after fees) during the month of July, outperforming the S&P/ASX Small Ordinaries Accumulation by 3.9%.
Markets rallied in July as fears of further rate rises abated, supported by better-than-expected inflation data. Redbubble (RBL.ASX), Nuix (NXL.ASX) and Alliance Aviation Services (AQZ.ASX) drove the relative outperformance.
Whilst Praemium (PPS.ASX), Supply Network (SNL.ASX) and Pointsbet Holdings (PBH.ASX) were notable detractors.
Performance Commentary - June 30, 2023 The Spheria Australian Microcap Fund returned 0.7% (after fees) for the month of June, outperforming the S&PASX Small Ordinaries Accumulation Index by 0.7%.
Over the month the largest contributors to performance were from overweight positions in VGL.ASX (122bps), PBH.ASX (67bps), SNL.ASX (38bps), and PPS.ASX (34bps).
The largest detractors from performance included overweight positions in APX.ASX (-80bps) following a pull-back after touching a multiyear high earlier in the month, ABY.ASX (-69bps), MCP.ASX (-49bps) and AQZ.ASX (-33bps) as well as underweight positions in PDN.ASX (-22bps) and AUB.ASX (-16bps).
Performance Commentary - May 31, 2023 The Spheria Australian Microcap Fund returned -1.8% (after fees) during the month of May, outperforming the S&P/ASX Small Ordinaries Accumulation by 1.5%.
Concerns over the US debt ceiling and fears of continued economic slowdown drove the overall market lower.
Appen (APX.ASX), Mader Group (MAD.ASX) and Maxiparts (MXI.ASX) were key contributors to outperformance. Whilst consumer names came under pressure due to a slowdown in spending, with Universal Store Holdings (UNI.ASX), NZME (NZM.ASX) and City Chic Collective (CCX) being notable detractors.
Performance Commentary - March 31, 2023 The Spheria Australian Microcap Fund returned 2.7% (after fees) during the month of April, underperforming the S&P/ASX Small Ordinaries Accumulation by 0.1%.
Corporate activity continued in April with Blackmores (BKL) receiving a takeover offer from Japanese beverage company Kirin and Silk Lasers (SLA) a proposal from Wesfarmers (WES) – neither owned by the fund. The top performers for the month were Helloworld (HLO), Mader Group (MAD) and Bravura Solutions (BVS). Vista Group International (VGL) was the most notable detractor.
Performance Commentary - February 28, 2023 Again, the smaller end of the market fell more than the larger end with the S&P/ASX 100 index down only 2.4% in February. This trend began at the beginning of last year with the relative underperformance now having extended to greater than 20%.
The reporting season was particularly “bizarre” with share prices hammered on any glint of negativity in a result. To us it feels like the market is becoming even more short term in nature which presents opportunities for those with a long-term investment horizon.
Major Contributors to Performance
Over the month the largest contributors to performance were Helloworld Travel (HLO.ASX, +25%), A2B Australia (A2B.ASX, +20%) and Horizon Oil (HZN.ASX, +13%).
A2B Australia (A2B.ASX) – share price rose 20% post the release of their first half 2023 result. The business returned to positive operating performance across all metrics versus pcp after being heavily impacted by COVID travel restrictions. Revenue rose 21% and the company reported a $3.7m profit after several years of losses. Fleet numbers and total fares increased substantially, with fares processed returning to 90% of pre-COVID levels for the six months. In the month of December alone fares returned to 99.8% of pre-COVID levels. Revenue is highly correlated to fares processed and fleet growth. Given the right-sized cost base it is possible that A2B’s earnings will revert to levels above that of pre-COVID levels in the next 6 to 12 months. The business also has significant property assets valued at over $100m, pre the sale of one asset which was sold in December for $19m. Post settlement the company will have a net cash balance sheet in excess of $12m. The business is trading on about ~4x normalised EV/EBIT, excluding the value of the remaining surplus property.
Major Detractors from Performance
The largest detractors over the month were City Chic Collective (CCX.ASX, -28%), Reckon (RKN.ASX, -16%) and Regis Healthcare (GWA.ASX, -16%).
Reckon (RKN.ASX) – share price fell over 15% post the release of their full year result which was lackluster but contained no obvious surprises. Group revenue grew 2% (adjusted for currency) and whilst overall earnings increased modestly, substantial growth capex in respect of the Legal group (practice management software for legal firms) weighed on overall free cash flow generation. This dynamic is likely to continue for several years as the company looks to grow the Legal division from $10m of revenue to >$40m. Prospects for the Business group (accounting software) remain modest given a competitive landscape, however, there is prospect of industry consolidation given a tail of sub-scale players outside of Xero and MYOB.
Performance Commentary - January 31, 2023 The Small Ordinaries and the Mid-Small indices rose coincidentally 6.3% over January recouping some of the losses felt in calendar year 2022. Whilst smaller companies were most sold off last year (falling almost 18% over 2022 vs. the ASX 100 which was actually up 2.3%), the bounce in markets has so far been uniformly felt across both large and small company indices.
Last year saw a confluence of negative events – the re-emergence of inflation, rapid interest rate increases and a war in Ukraine/Russia which caused uneven spikes in commodities and energy. We can only hope that calendar year 2023 is a brighter year for markets and the world in general. We are often asked by our clients to take out and polish our crystal balls and to prognosticate on the outlook for 2023 and beyond. I only wish our vision was that clear, but if it were we might be making an alternative living dressed in gypsy clothes! The one thing we feel more certain about however is that even if we had perfect macro foresight – and we certainly do not – that would not correlate highly with investment success! The reason is simple.
The stockmarket is a forecasting machine itself. It consistently updates share prices based on the average investor’s perception of a company’s particular future and so much of what people think will happen (at least in next 12-18 months) is sort of baked into the current price. Our job is to assess whether we think the ‘baked in’ view is more or less likely than the average market participant and to invest accordingly. In other words, if we could predict the macro environment perfectly, we would not be focusing necessarily on the right things as much of the macro may already be factored into share prices. Our fear of a certain thing happening could be well and truly discounted into those share prices already.
The Spheria team spends most of our time looking at business fundamentals and assessing what has been put into share prices and whether we can opportunistically take a different view from the market. Inefficiencies are a small cap investors bread and butter. The other way we “stress test” our portfolio to reduce risks is to start from a conservative base. Our process is built around looking for businesses with cash flow conversion, strong balance sheets (50% of our top 10 holdings are typically net cash balance sheets – meaning they have no debt) and a supportive valuation. We believe this approach is likely to give our investors the best long-term advantage in outperforming the market whilst taking on less risk.
Major Contributors for the month
Over the month the largest contributors to performance were Helloworld (HLO.ASX, +33.6%), Mader Group (MAD.ASX, +19.0%) and City Chic Collective (CCX.ASX, +35.8%).
Major Detractors for the month
The largest detractors over the month were Nitro Software (NTO.ASX, -3.6%), Michael Hill International (MHJ.ASX, -4.5%) and Regis Healthcare (REG.ASX, -7.2%)
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