Capital Long Short seeks to achieve strong, positive, risk-adjusted returns over the long term (in AUD terms). The return objective is 10% return net of fees and expenses p.a. over the long term. To conduct bottom up company research to identify mispriced securities, the fund may hold long or short stock positions (or derivatives) to profit from this mispricing. Securities will be listed (or expected to list) on a global stock exchange.
Global markets were weak in September with a sharp rise in long-term bond yields weighing on investor sentiment.
Central banks maintained their hawkish tone of higher interest rates being required for longer to combat inflation. This contributed to a 49bps increase in the U.S. 10-year bond yield over the month to 4.57%, a 16-year high. The Australian 10-year bond yield mirrored the move offshore, with a 46bps increase in September to 4.49%, the highest level since October 2011.
Oil was one of the few areas of the market that performed positively, with WTI up 8.6% to ~US$91/bbl. Oil prices were supported by an extension of supply cuts by OPEC+ for the remainder of the calendar year as well as an expectation of more resilient global demand.
The S&P/ASX 200 Accumulation Index returned -2.8%. Energy (+1.6%), Financials (-1.6%) and Consumer Staples (-1.8%) were the strongest sectors, while Property (-8.6%), Information Technology (-7.9%) and Health Care (-6.2%), lagged.
The portfolio performed positively over the month, with stockspecific gains and tailwinds from our exposure to energy more than offsetting the weaker general market backdrop.
Key contributors to portfolio performance in September were:
Seven Group Holdings (Long +11%) shares continued to rise after reporting strong FY23 results in August and providing a positive outlook for the FY24 period with high-single-digit EBIT growth expected. WesTrac and Coates performed strongly, with earnings well positioned to grow over the medium term as investment in mining, construction and infrastructure continues to increase. Seven also holds a 71.6% shareholding in Boral, one of the largest building and construction materials companies in Australia. Boral’s earnings have been impacted by surging input costs and significant wet weather. Under new leadership, and in a normalised trading environment, we believe Boral has the potential to double earnings over the medium term from FY23 levels.
Cenovus (Long +5%) shares rallied as WTI oil prices rose to ~US$91/bbl over the month, the highest level since November 2022. The company also had tailwinds from higher refinery margins, particularly in North America which remains their key exposure.
What is L1 Capital Long Short – Retail L1 Capital Long Short – Retail is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Long Short 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 L1 Capital Long Short – Retail has Assets Under Management of 0.00 M with a management fee of 1.56%, 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 L1 Capital Long Short – Retail has returned 4.14% in the last month. The previous three years have returned 8.36% annualised and 21.11% each year since inception, which is when the L1 Capital Long Short – Retail 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 L1 Capital Long Short – Retail first started, the Sharpe ratio is NA with an annualised volatility of 21.11%. The maximum drawdown of the investment product in the last 12 months is -6.87% and -39.44% 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 L1 Capital Long Short – Retail has a 12-month excess return when compared to the Domestic Equity - Long Short Index of -6.62% and 2.29% 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. L1 Capital Long Short – Retail has produced Alpha over the Domestic Equity - Long Short 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 - Long Short Index category, you can click here for the Peer Investment Report.
What level of diversification will L1 Capital Long Short – Retail provide? L1 Capital Long Short – Retail has a correlation coefficient of 0.73 and a beta of 0.78 when compared to the Domestic Equity - Long Short 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 L1 Capital Long Short – Retail and its peer investments, you can click here for the Peer Investment Report.
How do I compare the L1 Capital Long Short – Retail with the ASX Index 200 Index? For a full quantitative report on L1 Capital Long Short – Retail compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the L1 Capital Long Short – Retail to do my own analysis? To sort and compare the L1 Capital Long Short – Retail financial metrics, please refer to the table above.
Has the L1 Capital Long Short – Retail 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 Global markets were weak in August, with a mixed corporate reporting period, bond market volatility and concerns over Chinese economic growth weighing on investor sentiment.
The U.S. Government’s credit rating was downgraded one notch from AAA to AA+ by Fitch based on ‘fiscal deterioration’ and rising debt levels. The downgrade, together with a high level of Treasury issuance, led to a 37bps increase in U.S. 10- year bond yields to a 16-year high of 4.35%, before stabilising to end the month at 4.11%.
Chinese economic data across credit growth, retail sales, industrial output and investment was all weaker than expected, prompting a cut to key policy rates to shore up activity. This led to a decline in copper (-4.5%) and nickel (-9%) prices over the month. Oil prices initially declined but recovered towards the end of the month on concerns that Hurricane Idalia may disrupt production in the Gulf of Mexico.
After a strong July, the portfolio gave back most of those gains in August. The portfolio was impacted by the general market downturn as well as the decline in commodity prices on softening China sentiment. Reporting season-specific updates had a roughly neutral impact overall, with some positive and some negative stock updates.
A key contributor to portfolio performance in August was:
Seven Group Holdings (Long +7%) shares gained after reporting strong FY23 results and providing a positive outlook for the FY24 period with high-single-digit EBIT growth expected. WesTrac and Coates continue to perform strongly, with earnings well positioned to grow over the medium term as investment in mining, construction and infrastructure continues to increase. Seven also holds a 71.6% shareholding in Boral, one of the largest building and construction materials companies in Australia. Boral earnings have been impacted by surging input costs and significant wet weather delays. Under new leadership, and in a normalised trading environment, we believe Boral has the potential to double earnings over the medium term from current levels.
Key detractors from portfolio performance in August included:
Imdex (Long -17%) shares fell as the company delivered a full year 2023 result modestly below consensus expectations and guided that it expects conditions to remain subdued in the near term. We believe Imdex will continue to outperform the broader exploration drilling industry because of its strong execution and its roll-out of market-leading new products.
Performance Commentary - July 31, 2023 Global markets extended their gains in July, with constructive economic data reinforcing investor expectations for a potential soft-landing in the U.S.
Incremental U.S. economic data was reassuring, with U.S. GDP coming in at 2.4% (versus consensus expectations of 2.0%).
Inflation continued to moderate with the PCE price index slowing further to 3.0% YoY in June from 3.8% in May.
Resources started the month negatively on weaker Chinese economic data (Q2 GDP of 6.3% versus expectations of 7.3%), however, recovered strongly in the back half on Chinese Politburo stimulus talks (brent crude +14%, nickel +9%, copper +6%).
Bond yields in Australia remained relatively flat after the RBA paused in both the July and August monetary policy meetings. The Fed lifted rates by 25bps in line with market expectations and maintained their ‘hawkish’ tone, leading to a 10bps increase in U.S. 10-year bond yields.
The S&P/ASX 200 Accumulation Index returned 2.9%. Energy (+8.8%), Financials (+4.9%) and Information Technology (+4.5%) were the strongest sectors, while Health Care (-1.5%), Consumer Staples (-1.0%) and Materials (+1.4%) lagged.
Portfolio performance was strong over the month, driven by several supportive stock-specific updates along with tailwinds from a recovery in commodity prices.
Key contributors to portfolio performance in July included:
Downer (Long +7%) shares strengthened over the month as the company continues to progress its transition towards a higherquality urban services portfolio. With a renewed leadership team at both the Board and senior management level, Downer continues to pursue additional self-help measures and simplification initiatives within the core business. These include a cost reduction target of $100m p.a. by FY25 and further asset sales. We anticipate these changes will help transform Downer into a more resilient, less capital-intensive and lower risk services business exposed to growing, annuity-style contracts.
Alibaba (Long +23%) shares performed strongly on betterthan-expected pro-market policy guidance from the Chinese leadership. We believe that Alibaba remains a high-quality business with leading positions in both eCommerce and Public Cloud, and management is taking proactive steps to unlock shareholder value. It has announced plans to split into six major business groups – Cloud Intelligence, Taobao Tmall, Local Services, Global Digital, Cainiao Smart Logistics and Digital Media, and Entertainment Group. We believe this restructure will be a strong positive catalyst to unlock the sum-of-the-parts valuation upside in the company.
Performance Commentary - June 30, 2023 Global equity markets rose in June on increased optimism for a possible soft-landing in the U.S. Economic data surprised positively, with first quarter U.S. GDP growth revised upwards from 1.3% to 2.0% as consumer spending remained more resilient than expected. Inflation also showed further signs of moderation, with the Fed’s preferred measure, the Core PCE Price Index, slowing to 3.8% in May, the lowest level in two years.
Mega-cap technology stocks continued their strong performance, maintaining the extremely narrow level of market leadership we have seen over the year to date.
Bond yields rose in Australia and the U.S. (Australian 10-year yield +42bps and U.S. 10-year yield +18bps). The RBA lifted interest rates by 25bps during the month, in a surprise move relative to consensus expectations. The Fed paused, however, signalling that a further 0.5% increase in U.S. interest rates is likely by the end of 2023.
The S&P/ASX 200 Accumulation Index returned 1.8%. Materials (+4.8%), Information Technology (+3.5%) and Financials (+3.1%) were the strongest sectors, while Health Care (-6.6%), Communications Services (-1.0%) and Property (0.0%) lagged.
Portfolio performance was positive over the month, driven by several supportive stock-specific updates.
Performance Commentary - May 31, 2023 The ASX200 and MSCI World fell in May as investors remained concerned with rising interest rates and a softening demand environment, along with elevated risks of a potential U.S. debt default, with debt levels approaching the US$31.4 trillion debt ceiling.
Mega-cap technology stocks performed strongly as artificial intelligence and ChatGPT dominated headlines across the market. This perpetuated the extremely narrow level of market leadership we have seen over the year to date, with the seven best performing stocks in the S&P500 responsible for 100% of the total index return in 2023 (i.e. the aggregate return of the remaining 493 stocks has been zero). ‘Value’ equities underperformed ‘Growth’ equities in May by the most of any month in over 20 years. The last time this level of divergence in performance occurred was near the peak of the dot-com boom.
Bond yields rose in Australia and the U.S. (Australian 10-year yield +27bps and U.S. 10-year yield +22bps) as both the RBA and the Fed lifted interest rates by 25bps over the month with inflation continuing to remain sticky.
Commodity markets were weak (iron ore -3%, coking coal -3%, copper -6%, brent crude -9%, nickel -16%) primarily driven by concerns over weakening U.S. demand and a sluggish Chinese economy, as well as a stronger U.S. dollar.
Performance Commentary - April 30, 2023 Global equity markets rose modestly in April as interest rate hike expectations moderated after significant volatility in March from the onset of the U.S. banking crisis. A slowdown in the flight of deposits from U.S. regional banks further supported markets, providing investors with greater confidence that an extensive banking crisis may be avoided.
Bond yields were generally flat over the month in both Australia and the U.S. (U.S. 10-year yield -5bps and Australian 10-year yield +4bps). Commodity markets were generally weaker with copper, iron ore and oil prices falling, while gold remained at record highs close to US$2,000/oz.
The S&P/ASX 200 Accumulation Index returned 1.8% in April. Property (+5.3%), Information Technology (+4.8%) and Industrials (+4.4%) were the strongest sectors, while Materials (-2.6%) and Utilities (+1.4%) lagged.
Portfolio performance was positive over the month, driven by some supportive stock-specific updates, along with tailwinds from M&A activity in some of our key positions.
Performance Commentary - March 31, 2023 Global markets were volatile in March, with a sharp fall in the middle of the month driven by fears of a banking crisis as two regional U.S. Banks, Silicon Valley Bank and Signature Bank, collapsed on liquidity concerns. This led to further contagion in Europe, with Credit Suisse subject to a hasty takeover by UBS. As Credit Suisse is one of 30 banks considered to be of systemic importance to the global economy, the Swiss Government and regulator facilitated the takeover to quickly stem further banking turmoil.
Markets recovered in the back half of the month as the flight of deposits from U.S. regional banks slowed, the Credit Suisse takeover terms were finalised and inflation showed further signs of moderation.
Bond yields collapsed in both Australia and the U.S. during the month (U.S. 10-year yield -42bps and Australian 10-year yield -56bps) with stress in the banking system leading the market to price in three rate cuts in the U.S. in the back half of the year. The S&P/ASX 200 Accumulation Index returned -0.2% in March with mixed performance across sectors. Materials (+5.9%), Communication Services (+3.4%) and Consumer Discretionary (+1.7%) were the strongest sectors, while Property (-6.8%), Financials (-4.9%) and Energy (-1.5%) lagged.
Portfolio performance was marginally positive over the month, driven by strong performance of a number of key portfolio positions along with tailwinds from our exposure to the gold sector. This was partially offset by the movement in bond yields which supported the outperformance of high-multiple growth stocks where we have some short positions.
Performance Commentary - February 28, 2023 After rallying in January on easing Fed interest rate expectations, global equity markets retraced in February as inflation continued to remain sticky, the job market remained tight (January U.S. Nonfarm Payrolls rose 517k, well above forecasts of 187k) and reporting season highlighted areas of weakness in corporate earnings, coupled with uncertainty over the near-term operating outlook. This led to a pivot in market forecasts, from a potential for interest rate cuts in the second half of 2023, to an expectation that the Fed would likely maintain higher interest rates for longer in order to fight inflation.
Bond yields rose in both Australia and the U.S. over the month (U.S. 10-year yield +39bps and Australian 10-year yield +30bps). Commodity prices were generally weaker on the back of a stronger U.S. dollar, rising interest rates and softening investor sentiment (Gold -5.3%, Copper -3.0% and Oil -2.3%).
The S&P/ASX 200 Accumulation Index returned -2.4% in February with mixed performance across sectors. Utilities (+3.4%), Information Technology (+2.7%) and Industrials (+1.5%) were the strongest sectors, while Materials (-6.6%), Financials (-3.1%) and Energy (-0.8%) lagged. Portfolio performance was relatively in line with the market, with several positive stock-specific updates being more than offset by general weakness across the market.
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