The Australian Equities High Conviction Portfolio is designed for investors with a long-term investment objective focused on achieving portfolio growth with less focus on generating excess income. Investors in this portfolio are prepared to accept higher volatility in return for higher growth.
DNR Capital Australian Equities High Conviction Fund decreased -3.28% (net of fees) in September, underperforming the S&P/ASX 200 Total Return Index by -0.44%. Over the last 12 months, the Fund increased by 13.15%, underperforming the Index by -0.31% (net of fees). Over the last 3 years, the Fund increased by 16.00% p.a., outperforming the Index by 5.00% p.a. (net of fees).
Contributors
• QBE Insurance Group (QBE): outperformed as rising bond yields supported expectations for return on shareholder funds, and broader insurance industry dynamics.
• Computershare (CPU): outperformed as rising bond yields supported margin income expectations on the group’s rate sensitive cash balances.
• National Australia Bank (NAB): outperformed along with global banking exposures as steeping yield curves supported the outlook for financial stocks.
Detractors
• James Hardie Industries (JHX): underperformed as investors grow increasingly concerned regarding the impact of lower housing starts and increasing construction costs. Additionally, mortgage rates have increased to multi-decade highs, weighing on sector sentiment.
• Scentre (SCG): underperformed during the period, following a strong move higher in bond rates. As a result of REITs’ high correlation with bonds due to their duration and pricing, the entire sector finished lower.
• CSL (CSL): underperformed during the month as the market continued to digest weaker than expected earnings guidance for growth in FY24. The stock has also been softer following the release of trial results for a competitor’s treatment of Chronic Inflammatory Demyelinating Polyneuropathy (CDIP) which could impact demand for CSL’s immunoglobulin (IG) portfolio.
What is DNR Capital Aus Eq High Conviction DNR Capital Aus Eq High Conviction is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Cap Neutral 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 DNR Capital Aus Eq High Conviction has Assets Under Management of 399.18 M with a management fee of 0.9%, a performance fee of 0.00% 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 DNR Capital Aus Eq High Conviction has returned 2.99% in the last month. The previous three years have returned 8.88% annualised and 15.27% each year since inception, which is when the DNR Capital Aus Eq High Conviction 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 DNR Capital Aus Eq High Conviction first started, the Sharpe ratio is NA with an annualised volatility of 15.27%. The maximum drawdown of the investment product in the last 12 months is -4.09% and -31.73% 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 DNR Capital Aus Eq High Conviction has a 12-month excess return when compared to the Domestic Equity - Large Cap Neutral Index of -1.9% and 1.59% 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. DNR Capital Aus Eq High Conviction has produced Alpha over the Domestic Equity - Large Cap Neutral 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 - Large Cap Neutral Index category, you can click here for the Peer Investment Report.
What level of diversification will DNR Capital Aus Eq High Conviction provide? DNR Capital Aus Eq High Conviction has a correlation coefficient of 0.97 and a beta of 1.05 when compared to the Domestic Equity - Large Cap Neutral 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 DNR Capital Aus Eq High Conviction and its peer investments, you can click here for the Peer Investment Report.
How do I compare the DNR Capital Aus Eq High Conviction with the ASX Index 200 Index? For a full quantitative report on DNR Capital Aus Eq High Conviction compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the DNR Capital Aus Eq High Conviction to do my own analysis? To sort and compare the DNR Capital Aus Eq High Conviction financial metrics, please refer to the table above.
Has the DNR Capital Aus Eq High Conviction 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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Performance Commentary - August 31, 2023 DNR Capital Australian Equities High Conviction Fund decreased -0.34% (net of fees) in August, outperforming the S&P/ASX 200 Total Return Index by 0.39%. Over the last 12 months, the Fund increased by 9.49%, underperforming the Index by -0.07% (net of fees).
Contributors
• Carsales.com (CAR): delivered a solid FY23 result and FY24 guidance update. The Australian business delivered against expectations, whilst the Trader Interactive business in the US beat expectations, demonstrating both solid execution and confirmation of potential upside risks (including new customers, new products, pricing power and margin expansion).
• Domino’s Pizza Enterprises (DMP): outperformed following its FY23 result which missed expectations but provided trading updates with positive momentum in key Australian, NZ and European markets. Asian markets remain challengeing but group restructuring, and declining cost of goods sold (COGS) headwinds provides a more constructive outlook.
• James Hardie Industries (JHX): outperformed following 1Q24 earnings, with sales, margins and guidance all beating expectations, driven by stronger volumes and lower freight costs.
Detractors
• IRESS (IRE): underperformed following FY23 results that saw large downgrades to forward earnings expectations. As the group continues to reset the business and sell off non-core assets, we observe years of underinvestment and poor capital allocation needing to be resolved.
• Ramsay Health Care (RHC): was softer after highlighting the impact of higher interest costs flowing into FY24 which saw material downgrades to previous expectations.
• Wesfarmers (WES, underweight): outperformed with the group’s FY23 earnings exceeding expectations and showing resilient earnings in a tougher retail background with Bunnings and Kmart continuing to drive consumers into store through value and range.
Performance Commentary - July 31, 2023 DNR Capital Australian Equities High Conviction Fund increased 3.73% (net of fees) in July, outperforming the S&P/ASX 200 Total Return Index by 0.85%. Over the last 12 months, the Fund increased by 11.06%, underperforming the Index by -0.61% (net of fees).
Contributors
• SEEK (SEK): with softer-than-expected inflation prints in the USA and Australia, investors are more hopeful of a soft landing and this supported the outperformance of cyclicals.
• Woodside Energy Group (WDS): outperformed during the period as global energy prices rose and the company reported a strong quarter of production, beating estimates. Energy prices have recovered from recent lows as recent OPEC+ cuts begin to bite and Russian over-production slows from historic levels.
• Lendlease (LLC): outperformed on no stock specific news. Management continues to make incremental progress towards its stated 2024 return targets with a sharpened focus on executing the existing development backlog of over $100bn.
Detractors
• Commonwealth Bank of Australia (CBA, no holding): banks bounced in July as the outlook for bad debts improved and some signs of easing competition.
• CSL (CSL): underperformed during the month as the market continued to digest weaker than expected earnings guidance for growth in FY24. The stock was also softer following the release of trial results for a competitor’s treatment of Chronic Inflammatory Demyelinating Polyneuropathy (CDIP) which could impact demand for CSL’s immunoglobulin (IG) portfolio.
• ANZ Group Holdings (ANZ, no holding): banks bounced in July as the outlook for bad debts improved and some signs of easing competition.
Performance Commentary - June 30, 2023 DNR Capital Australian Equities High Conviction Fund increased 0.69% (net of fees) in June, underperforming the S&P/ ASX 200 Total Return Index by -1.07%. Over the last 12 months, the Fund increased by 10.32%, underperforming the Index by -4.46% (net of fees).
Contributors
• QBE Insurance Group (QBE): outperformed this month as general insurance margin outlooks should benefit from higher investment yields.
• Xero (XRO): outperformed in June following its strong full year results reported in the previous month, with growing expectations for improved margins through prudent cost control and price increases.
• Rio Tinto (RIO): bounced over the month as spot iron ore prices held up in the face of soft Chinese economic data. Chinese policy makers continue to incrementally ease policy, which should support commodity demand.
Detractors
• CSL (CSL): provided first-time earnings guidance for growth in FY24, which was below expectations primarily driven by a lower margin expectation. The company reiterated that Behring margins are tracking positively and should return to pre-COVID19 levels in the “medium term”, while collection volumes continue to track well.
• SEEK (SEK): underperformed given the uncertainty over the near-term volume outlook following heightened economic risk and interest rate rises. However, recent prices in the high single digits give confidence that this will help offset the volume decline into FY24.
Performance Commentary - May 31, 2023 DNR Capital Australian Equities High Conviction Fund decreased 1.45% (net of fees) in May, outperforming the S&P/ ASX 200 Total Return Index by 1.08%. Over the last 12 months, the Fund increased by 4.27%, outperforming the Index by 1.37% (net of fees).
Contributors
• Xero (XRO): outperformed during the period following its annual earnings result, which highlighted a strong recovery in its UK operations, alongside continued progress with cost-out and restructuring, driving free cash flow growth.
• James Hardie Industries (JHX): reported a result which was better than feared and highlighted their ability to extract good margins in a difficult market.
Detractors
• Ramsay Health Care (RHC): underperformed during the month following a negative trading update for the March quarter. While volumes were strong, the business struggled with staffing, which dragged on margins.
• ALS (ALQ): reported a result which was better than expected but also highlighted some declines in sample volumes, and the stock sold off.
Performance Commentary - April 30, 2023 DNR Capital Australian Equities High Conviction Fund increased 1.80% (net of fees) in April, underperforming the S&P/ASX 200 Total Return Index by 0.05%. Over the last 12 months, the Fund increased by 3.57%, outperforming the Index by 0.74% (net of fees).
Contributors
• Carsales.com (CAR): growth stocks rallied during the month due to expectations of lower bond yields. The business continues to benefit from recent price rises and as inventory normalises from lower levels.
• Fortescue Metals Group (FMG, no holding): underperformed over the month as iron ore prices slipped on concerns that the China reopening was slower than previously expected.
• BHP Group (BHP, underweight): underperformed during the month as a slower than expected pickup in economic activity post reopening in China led to lower iron ore prices.
Detractors
• Rio Tinto (RIO): underperformed during the month as a slower than expected pickup in economic activity post reopening in China led to lower iron ore prices.
• Ramsay Health Care (RHC): underperformed during the month on concerns around continued cost pressures and the potential for higher funding costs going forward.
• ANZ Group Holdings (ANZ, no holding): bounced back following the sell down of banks in March.
Performance Commentary - March 31, 2023 DNR Capital Australian Equities High Conviction Fund decreased 0.97% (net of fees) in March underperforming the S&P/ASX 200 Total Return Index by 0.81%. Over the last 12 months, the Fund increased by 0.74% outperforming the Index by 0.64% (net of fees).
Contributors
• Xero (XRO): outperformed during the month following a restructuring announcement from new CEO Sukhinder Singh Cassidy. Following a review of group operations, redundancies across the firm are being undertaken to improve operational efficiency and drive greater focus on profitability.
• ANZ Group Holdings (ANZ, no holding): banks sold off following the run on US banks and failure of Silicon Valley Bank.
• Commonwealth Bank of Australia (CBA, no holding): banks sold off following the run on US banks and failure of Silicon Valley Bank.
Detractors
• Computershare (CPU): following the failure of Silicon Valley Bank expectations around interest rates declined.
• Scentre (SCG): underperformed during the period due to concerns regarding broader commercial property funding. Following the regional banking stress observed in the United States, spreads on commercial debt have expanded and equities have responded by selling down the REITs, with an emphasis on those with leverage or upcoming liquidity events.
• National Australia Bank: banks sold off following the run on US banks and failure of Silicon Valley Bank.
Performance Commentary - February 28, 2023 DNR Capital Australian Equities High Conviction Fund decreased 1.64% (net of fees) in February, outperforming the S&P/ASX 200 Total Return Index by 0.81%. Over the last 12 months, the Fund increased by 8.92%, outperforming the Index by 1.76% (net of fees).
The S&P/ASX 200 Total Return Index was down 2.45% during the period. Utilities (+2.3%) was the best performing sector, following an improved takeover offer presented to Origin Energy (ORG +9.4%), allaying fears that the deal would fall through. Information Technology also outperformed (+2.2%), with key constituents Computershare (CPU +5.7%) and WiseTech Global (WTC +4.1%) benefitting from higher cash rates and reporting a key customer contract, respectively. Materials (-6.9%) was the worst performing sector, with the majors (BHP Group, BHP -8.5%, Fortescue Metals Group, FMG -0.4%, Rio Tinto, RIO -7.8%) reporting strong cost inflation and a muted demand impulse from a reopening China.
Financials (-3.8%) also underperformed, with the banks reporting a weaker outlook for loan growth as well as increasing signs of stress in their loan books. This month the market was weaker, following a strong bounce in January. Globally, the key issue for the market remains inflation and its impact on interest rates. Reporting season has concluded with mixed results which we will examine in more detail.
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