The Fund aims to outperform the RBA Cash Rate over the medium to long term. The Fund is an absolute return fund which aims to generate positive returns in all market environments. The Fund is typically expected to be market neutral (net market exposure generally between 0% – 10%), which effectively means the Fund is constructed in a way where returns are not dependent on the performance of the underlying share market.
The Fund returned negative 0.79% for the month ending 30 September 2023, underperforming the RBA Cash Rate by 1.12%.
For the quarter ending 30 September 2023 the Fund returned 1.35%, outperforming the RBA Cash Rate by 0.33%.
Positive contributors to monthly returns included long positions in Incitec Pivot, Santos, and NextGen Energy. Detractors included long positions in Star Entertainment Group, CSL, and Tabcorp Holdings. We discuss each further in our commentary below.
POSITIVE CONTRIBUTORS
Incitec Pivot
Incitec Pivot shares outperformed in September on the back of a strong ammonia price. The ammonia price rallied ~50% in September, driven by higher European gas prices. Incitec Pivot upgraded FY2023 production guidance for its Explosives division, but downgraded guidance for the Fertilisers division. The company also confirmed that it remains in discussions to sell its Fertiliser business.
Santos
Santos shares outperformed during the month as the oil price rallied more than 10%. Santos also hosted an investor tour to its Pikka project in Alaska, which was attended by one of our portfolio managers. The Pikka project is progressing well. In our view, it has strong potential to be extended in the future at high returns.
NexGen Energy
Uranium project developer NexGen Energy shares advanced strongly during the month as the uranium price rose +15.5% to ~$70/Ib, levels not seen since February 2011. The strong uranium price was driven by supply disruption and positive sentiment that followed an industry conference in London, along with the re-emergence of financial buyers such as the SPUT ETF. The uranium market remains fundamentally undersupplied and we expect prices need to rise to >U$80/lb to justify building additional mines.
NEGATIVE CONTRIBUTORS
Star Entertainment Group
Star Entertainment Group shares underperformed during the month after undertaking an equity raise at a discount to its share price. The company also announced new $450 million debt facilities as part of a refinancing process. The capital raise and debt facility will together eliminate the casino operators large debt load and help fund the development of Star’s Queen’s Wharf casino in Brisbane.
CSL
CSL shares underperformed alongside most other healthcare names in September. There was no company specific news.
Tabcorp Holdings
Tabcorp Holdings underperformed during the month due to investor concerns around softness in the wagering market. UK peer Entain (owner of Ladbrokes and Neds) announced that its net gaming revenue was softer than anticipated. Despite the short-term softness, we expect the Victoria wagering license announcement later this year to be a positive catalyst for Tabcorp, driving future earnings upgrades.
What is Firetrail Absolute Return Firetrail Absolute Return is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Absolute Return 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 Firetrail Absolute Return has Assets Under Management of 201.70 M with a management fee of 1.5%, a performance fee of 20.00% and a buy/sell spread fee of %.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Firetrail Absolute Return has returned 4.16% in the last month. The previous three years have returned -2.06% annualised and 11.16% each year since inception, which is when the Firetrail Absolute Return 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 Firetrail Absolute Return first started, the Sharpe ratio is NA with an annualised volatility of 11.16%. The maximum drawdown of the investment product in the last 12 months is -9.16% and -23.72% 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 Firetrail Absolute Return has a 12-month excess return when compared to the Domestic Equity - Absolute Return Index of -3.98% and -5.22% 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. Firetrail Absolute Return has produced Alpha over the Domestic Equity - Absolute Return 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 - Absolute Return Index category, you can click here for the Peer Investment Report.
What level of diversification will Firetrail Absolute Return provide?
Firetrail Absolute Return has a correlation coefficient of 0.45 and a beta of 0.65 when compared to the Domestic Equity - Absolute Return 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 Firetrail Absolute Return and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Firetrail Absolute Return with the ASX Index 200 Index?
For a full quantitative report on Firetrail Absolute Return compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Firetrail Absolute Return to do my own analysis?
To sort and compare the Firetrail Absolute Return financial metrics, please refer to the table above.
Has the Firetrail Absolute Return 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 Firetrail Absolute Return?
How do I get in contact with the Firetrail Absolute Return?
Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Firetrail Absolute Return. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 The Fund returned 0.49% for the month ending 31 August 2023, outperforming the RBA Cash Rate by 0.14%. For the six months ending 31 August 2023, the Fund returned +7.15%, outperforming the RBA Cash Rate by 5.21%. While there remains significant work to do to return Fund performance to above our internal objectives, we continue to be encouraged by the turnaround in performance.
It remains a challenging backdrop for overall corporate profits given significant interest rate increases and sticky inflation. Despite this, we are seeing outstanding stock specific opportunities on the long and short side given significant dislocation in valuations across the market. We remain confident in the outlook for the portfolio to deliver meaningful positive returns over the medium term, irrespective of equity market movements.
Positive contributors to monthly returns included long positions in Estia Health, Domino’s Pizza Enterprises, and Azure Minerals. Detractors included long positions in ResMed, Alumina, and SEEK.
POSITIVE CONTRIBUTORS
Estia Health
Estia Health outperformed after final agreements were made for Bain Capital to acquire 100% of Estia’s shares for A$3.20 cash per share. This is an improvement on the A$3.00 cash per share bid Bain Capital made in March 2023 and represents a 59% premium to the 3-month volume-weighted average price prior to the announcement of the bid.
Domino’s Pizza Enterprises
Domino’s reported an FY2023 result which was in line with the market update it provided in June. The stock outperformed after Domino’s revealed it has seen same store sales growth of ~7% in Australia and Europe since 30 June 2023. The positive start to FY2024 indicates that the worst of the impacts from inflation and reduced customer counts may now be behind it.
Azure
Lithium explorer Azure Minerals outperformed after it revealed material exploration success and potential size at its Andover Lithium Project. This was followed by confirmation that Azure had received an indicative offer to acquire the company from its 20% shareholder and global lithium producer SQM.
NEGATIVE CONTRIBUTORS
ResMed
ResMed’s 4Q 2023 result disappointed the market as gross margin did not rise as expected. While this contributed to the share price fall, the larger factor was the rising risk associated with obesity drugs. One of the major obesity drugs, Wegovy, cited a 20% reduction in cardiovascular events in a study. While a sustained reduction in obesity levels across a large proportion of the population would have some negative impacts on ResMed’s business, we believe there are several complexities that are underappreciated. We believe the recent share price fall has been significantly overdone.
Alumina
Alumina shares underperformed after the company flagged higher costs as a result of mining in a low-grade area. We expect the business to be cashflow breakeven at current settings and the balance sheet net debt of $268 million is manageable. A key catalyst will be a return to mining high-grade bauxite areas in Western Australia post an Environmental Protection Authority review.
SEEK
SEEK shares underperformed after guidance for FY2024 earnings disappointed the market. While a reduction of new job listings was expected, SEEK flagged continued cost investment in the business through this period of cyclical softness. We are supportive of SEEK’s longer term approach to creating shareholder value.
Performance Commentary - July 31, 2023 The Fund returned 1.66% for the month ending 31 July 2023, outperforming the RBA Cash Rate by 1.32%.
For the six months ending 31 July 2023, the Fund returned +8.03%, outperforming the RBA Cash Rate by 6.20%. While there remains significant work to do to return Fund performance to above our internal objectives, we continue to be encouraged by the turnaround in performance.
It remains a challenging backdrop for overall corporate profits given significant interest rate increases and sticky inflation. Despite this, we are seeing outstanding stock specific opportunities on the long and short side given significant dislocation in valuations across the market. We enter FY2024 confident in the outlook for the portfolio to deliver meaningful positive returns over the medium term, irrespective of equity market movements.
POSITIVE CONTRIBUTORS
First Quantum Minerals
First Quantum Minerals outperformed following a 5% increase in the copper price through July. The company also reiterated that it expects to achieve the low end of its guidance range, implying a strong rebound in the H2 2023. It also expects to ratify its new agreement with the Panama government by the end of October. First Quantum is the Fund’s preferred pure-play copper exposure with a strong management team and medium-term brownfield growth opportunities.
Incitec Pivot
Incitec Pivot shares outperformed as the company confirmed it had received a number of approaches for the potential acquisition of its fertilisers business. The Board will evaluate any offers alongside the proposed demerger of the business. In addition, ammonia prices appear to have found a floor after falling ~75% since September last year.
AGL
AGL shares continued to outperform strongly following its June update on FY2024 earnings guidance and long-term capex intentions. Of the $20 billion of investment that AGL has earmarked to be spent on the energy transition, roughly half will be on AGL’s balance sheet, with only $4 billion to be spent between now and 2030. This capex profile enables AGL to pay out 50-75% of profits as dividends, providing a strong, sustainable yield for investors.
NEGATIVE CONTRIBUTORS
CSL
CSL shares underperformed ahead of a key trial for a product that competes with CSL’s Immunoglobulin (IG) franchise. Positive results from the trial mean that the product, manufactured by Argenx, will now compete with CSL across ~25% of the IG market. Our view is that CSL’s IG revenue growth outlook is only slightly impacted due to growth opportunities across the rest of the portfolio.
Estia Health
Estia Health underperformed after providing an update on the revised bid received from Bain Capital on 7th June 2023. The bid stands at $3.20 per share to acquire all the issued capital of Estia. The exclusivity period ended on 27th July and Bain Capital continues to engage in constructive discussions to progress the transaction. Estia is trading at a ~15% discount to the bid price as at the end of July.
Allkem
Allkem underperformed in July in sympathy with a falling lithium price. While the market remains focused on the upcoming merger with US-listed company Livent, the company continues to make excellent progress on its high-quality growth projects. During the month, Allkem achieved first production from its Stage 2 Olaroz project in Argentina.
Performance Commentary - June 30, 2023 The Fund returned 0.73% for the month ending 30 June 2023, outperforming the RBA Cash Rate by 0.41%.
For the quarter ending 30 June 2023, the Fund returned positive 3.67%, outperforming the RBA Cash Rate by 2.73%.
It was a pleasing finish to the financial year. The Fund has continued to build momentum over the past 9-months, following a challenging performance period in the first three quarters of CY2022. While we are encouraged by the turnaround, there remains significant work to do. We are determined to return Fund performance to above our internal objective of the RBA Cash rate plus 7% over the medium-term.
Despite a challenging backdrop for corporate profits due to higher interest rates and sticky inflation, we are seeing outstanding stock-specific opportunities on the long and short side. The narrow market leadership we have seen in equity markets (for example, seven stocks driving the majority of S&P 500 returns year-to-date) highlights the elevated opportunities for active management to identify mispriced stocks. We enter FY2024 confident in the outlook for the portfolio to deliver meaningful positive returns over the medium term, irrespective of equity market movements.
Performance Commentary - May 31, 2023 The Fund returned 3.92% for the month ending 31 May 2023, outperforming the RBA Cash Rate by 3.60%. The S&P/ASX 200 Accumulation Index declined -2.53% during the month.
2022 was a challenging performance year as highlighted in Figure 1 below. But we remain confident in the outlook for the portfolio to deliver meaningful positive returns over the medium-term, irrespective of equity market movements.
Performance Commentary - April 30, 2023 The Fund returned negative 0.97% for the month ending 30 April 2023, underperforming the RBA Cash Rate by 1.26%
Positive contributors to monthly returns included long positions in James Hardie Industries, Genesis Minerals, and Silk Laser Australia. Detractors included long positions in Star Entertainment Group, Mineral Resources, and The Lottery Corporation. We discuss each further in our commentary below.
POSITIVE CONTRIBUTORS
Newcrest Mining
Newcrest Mining outperformed during the month as it received a revised non-binding proposal from Newmont. The revised offer represented a total value ~11% above the previous offer. Subsequently, Newcrest granted Newmont exclusive due diligence until 11th May 2023.
Genesis Minerals
Genesis Minerals performed strongly over the month after renegotiating a deal with St Barbara to consolidate the gold-rich Leonora Province in WA. Under the new arrangement, Genesis Minerals will purchase St Barbara’s Australian assets for $600 million. This deal is far simpler than the prior merger arrangement, enabling the market to focus on the underlying value of the assets.
NEGATIVE CONTRIBUTORS
Star Entertainment Group
Star Entertainment Group shares underperformed in April after the company cut its previous FY23 earnings guidance by 15% due a deterioration in operating conditions. Star cited ongoing regulatory restrictions and a weakening consumer as the key drivers of the weaker performance. In response to the new challenges, Star announced implementation of a range of cost savings initiatives, including the elimination of five hundred full-time positions across the group.
Mineral Resources
Mineral Resources underperformed during the month due to weakness in global lithium prices and March quarter production volumes which missed consensus forecasts. The company has reset expectations for Lithium and Mining Services volumes resulting in downgrades to full year estimates. However, the outlook for lithium prices is beginning to improve. After a five month-long, 70% sell-off, China’s lithium spot prices appear to have stabilised and have moved up again in recent weeks.
Performance Commentary - March 31, 2023 The Fund returned 1.17% for the month ending 31 March 2023, outperforming the RBA Cash Rate by 0.88%. For the quarter ending 31 March 2023 the Fund returned negative 1.53%, underperforming the RBA Cash Rate by 2.34%.
Performance Commentary - February 28, 2023 The Fund returned 1.32% (after fees) for the month ending 28 February 2023, outperforming the RBA Cash Rate by 1.07%.
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