Yarra Emerging Leaders Fund (JBW0010AU) Report & Performance

What is the Yarra Emerging Leaders Fund fund?

Yarra Emerging Leaders Fund aims to achieve medium-to-long term capital growth by investing in small and medium sized Australian companies that are considered to possess strong capital-growth potential. In doing so, the Funds aim to outperform the benchmark over rolling three-year periods.

  • The fund, substantially through its investment in the Emerging Leaders Pooled Fund, invests in securities which are listed on the ASE, but are not included in the S&P/ASX 50 Leaders Index.
  • Fund benchmark: Emerging Leaders Combined Benchmark, comprising S&P/ASX Midcap 50 Accumulation Index and S&P/ASX Small Ordinaries Accumulation Index.

Growth of $1000 Investment Over Time

Performance Report

Peer Comparison Report

Peer Comparison Report

Latest News & Updates For Yarra Emerging Leaders Fund

Yarra Emerging Leaders Fund Fund Commentary September 30, 2023

Key Contributors

Megaport (MP1, overweight) – our overweight position in the software technology company outperformed following a positive FY23 results and FY24 guidance. FY23 EBITDA increased materially to $20m compared to the prior period loss of $10m with revenue growth remaining strong at +40% yoy. FY24 EBITDA guidance has been upgraded multiples times over recent months with the cumulative uplift in EBITDA expectations over +50%. The solid earnings result was due to stronger than expected pricing and cost reductions. We continue to hold the position as we believe customer volume trends will improve in the medium to long term as execution improves. Furthermore, we would highlight that yield growth, low customer churn, margin expansion (including cost reduction programs) and lowe capex will support a transition to free cashflow positive in CY24 with significant cashflow potential longer term.

Carsales.com (CAR, overweight) — the online auto classifieds company outperformed during the period following its full-year result. The result proved up CAR’s investment case of the recent acquisitions of Trader Interactive in the US business and Webmotors in Brazil, with both businesses demonstrating double digit yield growth as dynamic pricing models were introduced. Combined with a strengthened market position in Australian private car sales, there is now much greater visibility around continued price and yield increases across the business.

Key Detractors

Iluka Resources (ILU, overweight) – our overweight position in the mineral sands company was a detractor during the quarter. Iluka reported a 10% decline in mineral sands revenue and a 22% decline in underlying EBITDA in its FY23 results, with the market concerned over the short-term outlook for mineral sands demand notwithstanding ILU’s commentary of flat pricing in the second half. We continue to like mineral sands markets long-term and favour ILU ‘s leverage as the world’s largest Zircon producer and fifth largest producer of titanium feedstocks. Iluka is moving into Rare Earths production through the Eneabba refinery and should be a critical component producer for the EV industry.

Healius (HLS, overweight) – the pathology and medical imaging company underperformed post the competition regulator (ACCC) raising concerns over its merger with Australian Clinical Labs (ACL). While recent HLS operational performance has been significantly impaired by a combination of below normal pathology volumes (slow rebound in business-as-usual activity following COVID) and elevated operational costs (elevated COVID-testing related costs), we see an opportunity under the new CEO to improve business focus, enhance operational margins and rebuild balance sheet resilience.

READ HISTORICAL PERFORMANCE COMMENTARIES

Product Snapshot

  • Product Overview
  • Performance Review
  • Peer Comparison
  • Product Details

Product Overview

Fund Name APIR Code
? A Product Code is unique a identifier code issued by a group or governing body, to reference products in a large group. For an example, APIR codes are commonly used for Funds and Ticker codes are commonly used for Securities such as ETFs and Stocks.
Structure
?
Asset Class
? An Asset Class breakdown provides the percentages of core asset classes found within a mutual fund, exchange-traded fund, or another portfolio. Asset classes (in microeconomics and beyond) generally refer to broad categories such as equities, fixed income, and commodities.
Asset Category
? An Asset Category is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset categories (or a sub-asset class) are made up of instruments which often behave similarly to one another in the marketplace, looking down to the Asset Category level is important if looking to build a diversified portfolio.
Peer Benchmark Name
? A Peer Index (benchmark) refers to a peer group of investment managers who have the same investment style or category. It is used to compare the performance of one manager to their peer group, which makes it simpler for investors to choose between the vast number of investment managers.
Broad Market Index
? A Market Index (benchmark) refers to a hypothetical portfolio of investments that represents a segment, asset or category of an investable market. Market Indices are used to benchmark managers performance, to assist their style reliability and ability to provide excess returns.
FUM
? Funds/Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.
Management Fee
? A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting finanical products and managing the portfolio.
Performance Fee
? A performance fee is a payment made to an investment manager for generating positive returns. This is as opposed to a management fee, which is charged without regard to returns. A performance fee can be calculated many ways. Most common is as a percentage of investment profits, often both realized and unrealized. It is largely a feature of the hedge fund industry, where performance fees have made many hedge fund managers among the wealthiest people in the world.
Spread
? A spread can have several meanings in finance. Basically, however, they all refer to the difference between two prices, rates or yields. In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.
Yarra Emerging Leaders FundJBW0010AUManaged FundsDomestic EquityAustralian Multi-ManagerDomestic Equity - Multi-Manager IndexASX Index 200 Index155.49 M1%0.00%0.41%

Performance Review

Fund Name Last Month
? Returns after fees in the most recent (last) month).
3 Months Return
? Returns after fees in the most recent 3 months.
1 Year Return
? Trailing 12 month returns.
3 Years Average Return
? Average Annual returns from the last 3 years.
Since Inc. Average Return
? Average (annualised) returns since inception
1 Year Std. Dev. (Annual)
? The standard deviation (or annual volatility) of the last 12 months.
3 Years Std. Dev. (Annual)
? The average standard deviation (or annual volatility) from the last 3 years.
Since Inc. Std. Dev. (Annual)
? The average standard deviation (or annual volatility) since the fund inception.
1 Year Max Drawdown
? The maximum drawdown in the last 12 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
3 Year Max Drawdown
? The maximum drawdown in the last 36 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Since Inc. Max Drawdown
? The maximum drawdown since inception - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Yarra Emerging Leaders Fund5.43%9.97%16.93%4.31%8.94%13.84%16.5%16.12%-6.61%-18.68%-51.6%

Peer Comparison

Fund Name Peer Index Name
? A group of individuals who share similar characteristics and interests are called peer groups. Peer group analysis is an essential part of assessing a price for a particular stock in investment research. The emphasis here is on making a comparison, meaning that the peer group constituents should be more or less identical to the company being examined, especially in terms of their main business and market capitalization areas.
12 Months Excess Return
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
Excess Return Annualised Since Inception
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
12 Months Alpha
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over 12 months. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
Alpha Annualised Since Inception
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market annualized since inception. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
12 Months Beta
? Rolling 12Month Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
Beta Annualised Since Inception
? Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
12 Months Tracking Error
? 12Month Tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark over the last 12 months. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
Tracking Error Since Inception
? Since Inception tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark since inception. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
12 Months Correlation
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Correlation Since Inception
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Yarra Emerging Leaders FundDomestic Equity - Multi-Manager Index-1.96%0.3%NA%NA%NA%1.35.34%6.39%0.960.93

Product Details

Fund Name Verifed by SMSF Mates Manager Address Phone Website Email
Yarra Emerging Leaders FundYes-https://www.yarracm.com/-

Product Due Diligence

What is Yarra Emerging Leaders Fund

Yarra Emerging Leaders Fund 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 Yarra Emerging Leaders Fund has Assets Under Management of 155.49 M with a management fee of 1%, a performance fee of 0.00% and a buy/sell spread fee of 0.41%.

How has the investment product performed recently?

The recent investment performance of the investment product shows that the Yarra Emerging Leaders Fund has returned 5.43% in the last month. The previous three years have returned 4.31% annualised and 16.12% each year since inception, which is when the Yarra Emerging Leaders Fund 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 Yarra Emerging Leaders Fund first started, the Sharpe ratio is NA with an annualised volatility of 16.12%. The maximum drawdown of the investment product in the last 12 months is -6.61% and -51.6% 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 Yarra Emerging Leaders Fund has a 12-month excess return when compared to the Domestic Equity - Multi-Manager Index of -1.96% and 0.3% 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. Yarra Emerging Leaders Fund 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 Yarra Emerging Leaders Fund provide?

Yarra Emerging Leaders Fund has a correlation coefficient of 0.93 and a beta of 1.3 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 Yarra Emerging Leaders Fund and its peer investments, you can click here for the Peer Investment Report.

How do I compare the Yarra Emerging Leaders Fund with the ASX Index 200 Index?

For a full quantitative report on Yarra Emerging Leaders Fund compared to the ASX Index 200 Index, you can click here.

Can I sort and compare the Yarra Emerging Leaders Fund to do my own analysis?

To sort and compare the Yarra Emerging Leaders Fund financial metrics, please refer to the table above.

Has the Yarra Emerging Leaders Fund 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 Yarra Emerging Leaders Fund?

If you or your self managed super fund would like to invest in the Yarra Emerging Leaders Fund please contact via phone or via email .

How do I get in contact with the Yarra Emerging Leaders Fund?

If you would like to get in contact with the Yarra Emerging Leaders Fund manager, please call .

Comments from SMSF Mates

SMSF Mate does not receive commissions or kickbacks from the Yarra Emerging Leaders Fund. All data and commentary for this fund is provided free of charge for our readers general information.

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Historical Performance Commentary

Performance Commentary - August 31, 2023

Key Contributors

Carsales.com (CAR, overweight) – the online auto classifieds company outperformed during the month following its full-year results. The results proved up CAR’s investment case of the recent acquisitions of Trader Interactive in the US business and Webmotors in Brazil with both businesses demonstrating double digit yield growth as dynamic pricing models were introduced. Combined with a strengthened market position in Australian private car sales, there is now much greater visibility around continued price and yield increases across the business.

WiseTech (WTC, underweight) – the logistics industry software solutions provider underperformed during the period following its full-year result, where earnings guidance for the next financial year fell well short of consensus estimates. The miss was driven by higher-than-anticipated investment expenses and margin dilution from recent acquisitions.

Megaport (MP1, overweight) – our overweight position in the software technology company outperformed following a positive FY23 result and upgraded FY24 guidance. FY23 EBITDA increased materially to $20m compared to the prior period loss of $10m with revenue growth remaining strong at +40% yoy. FY24 EBITDA guidance has been upgraded multiples times over recent months with the cumulative uplift in EBITDA expectations over +50%. The solid earnings result was due to stronger than expected pricing, lower churn and cost reductions. We continue to hold the position as we believe customer volume trends will improve in the medium to long term as execution improves. Furthermore, we would highlight that yield growth, low customer churn, margin expansion (including cost reduction programs) and lower capex will support a transition to free cashflow positive in CY24 with significant cashflow potential longer term.

Key Detractors

Judo (JDO, overweight) – the small to medium business lender underperformed during the period with concerns over NIM (net interest margin) headwinds. Since IPO, JDO has consistently hit its targets and appears on track to achieve its medium-term goals, however lack of detailed FY24 guidance impacted investor confidence. We see JDO as differentiated in the small cap financials space given it is an ADI (authorised deposit-taking institution), allowing it to take deposits and have a relatively lower cost of funding to many other non-ADI peers in the small caps index. Lower funding costs, combined with higher yielding SME loans, should allow JDO to generate a strong NIM of ~3%+ in the medium term. The valuation is attractive with JDO trading at a material discount to book value.

Alumina (AWC, overweight) – our overweight position in the alumina producer was a detractor during the month following its half-year results. We are concerned that environmental approvals to mine, close to the Serpentine dam may not be received in a timely manner, and the company has less than 12 months of remaining low-grade ore to mine at Huntly. We see a material risk that the Kwinana and Wagerup refineries may be forced to curtail production or even close at a time where the company’s debt levels are approaching unsustainable levels. This has led us to exit the position.

Iluka (ILU, overweight) – our overweight position in the mineral sands company was a detractor during the month. Iluka reported a 10% decline in mineral sands revenue and a 22% decline in underlying EBITDA in its FY23 results. Additionally, the market was concerned over the short-term outlook for mineral sands demand, notwithstanding ILU’s commentary of flat pricing in the second half. We continue to like mineral sands markets long-term and favour ILU ‘s leverage as the world’s largest Zircon producer and fifth largest producer of titanium feedstocks. Iluka is moving into Rare Earths production through the Eneabba refinery and would be a critical component producer for the EV industry.

Performance Commentary - July 31, 2023

Key Contributors

Megaport (MP1, overweight) – the software technology company outperformed in July following a positive earning guidance upgrade reflecting stronger-than-expected pricing and cost reductions. Confidence in MP1’s free cash flow increased which led to the tech company cancelling its (unused) debt facility. We continue to hold the position and expect volume trends will improve in the medium to long term as sales execution improves. Furthermore, we believe that yield growth, low customer churn, margin expansion (including cost reduction programs) and lower capex will support a transition to positive free cashflow in CY24 and with significant cashflow growth potential longer term.

Flight Centre (FLT, overweight) – the travel agent outperformed during the month following an upgrade to guidance on the back of better-than-expected corporate demand and higher margins. We continue to hold an overweight position. FLT’s Leisure division (40% of preCOVID EBIT) is set to benefit from pent-up travel demand, with improved margins after a material reduction in the cost base. The Corporate division (60% of pre-COVID EBIT) is rapidly expanding market share which will more than offset a smaller addressable market caused by increased use of virtual meetings. Furthermore, as group earnings improve, we believe there is additional value to be released from restructuring the balance sheet.

Key Detractors

Iluka (ILU, overweight) – our overweight position in the mineral sands company was a detractor during the month. Despite the company’s solid June quarterly production report, ILU expects demand to be softer during 2H23. Competitor Tronox also highlighted this trend which led to market concerns. While we see short-term demand risks, traditional supply sources – particularly in South Africa – appear to be in decline, supporting ILU’s expectations for flat pricing in the second half. We continue to favour the mineral sands markets for long-term investment, and specifically ILU as the world’s largest Zircon producer and fifth largest producer of titanium feedstocks. Iluka is moving into Rare Earths production through its Eneabba refinery, adding potential for the company to become a critical component producer for the EV industry.

Healius (HLS, overweight) – the pathology and medical imaging company underperformed following the ACCC detailing its concerns over the company’s proposed merger with Australian Clinical Labs (ACL). While recent HLS operational performance has been significantly impaired by a combination of below normal pathology volumes (a slow rebound in business-as-usual activity following COVID) and elevated operational costs (elevated COVID-testing related costs), we see an opportunity under new CEO Maxine Jaquet to improve business focus, enhance operating margins and rebuild balance sheet resilience.

Performance Commentary - June 30, 2023

Key Contributors

NEXTDC (NXT, overweight) – following the announcement of the data centre operator’s largest ever individual contract in April and subsequent regional expansion into Malaysia and New Zealand, NXT continued to outperform as the market’s conviction in Artificial Intelligence (AI) applications as a driver of demand growth grew. Most notably, global leading specialist chip maker Nvidia’s commentary around AI driven demand growth supported previous comments made by NXT management.

Pinnacle Investment Management (PNI, overweight) – the fund manager outperformed during the period, in part supported by stronger than expected inflows of +$1.9bn during the first three months of 2023. Going forward, we believe revenue growth will accelerate with material longer term growth potential as market conditions normalises from depressed levels, inflows re-accelerate across its diverse range of investment products and via international distribution, performance fees increase from near zero at the 1H23 result and new products mature. Furthermore, margin expansion will be supported by the fixed cost nature of funds management businesses and new manager formation both organically and via acquisitions, which we expect will create additional shareholder value.

Key Detractors

Allkem (AKE, underweight) – our underweight position in the lithium producer was a portfolio detractor during the quarter. Lithium carbonate prices rallied from recent lows across the period to end the quarter up 24% at US$41k/t. In addition, AKE announced plans to merge with peer Livent Corporation (LTHM.US), with the merger ratio implying a 7% premium for AKE shareholders. Our preference amongst lithium exposures remains IGO. While we recognize Allkem offers lithium supply diversity across both brine (Olaroz) and hard-rock (Mt Cattlin) operations, we are concerned with its material asset-specific and geopolitical risks.

WiseTech (WTC, underweight) – our underweight position in the logistics industry software solutions provider was a source of underperformance during the period, with WTC benefiting from a rotation into those software names that might benefit from AI developments. We believe WTC is continuing to build an exceptional product in CargoWise which should continue to attract and retain large and key freight forwarders. Despite WTC’s high-quality earnings growth, we struggle to justify paying 80-times earnings given the more attractive opportunities available in the sector (e.g. XRO).

Performance Commentary - May 31, 2023

Key Contributors

NEXTDC (NXT, overweight) – following the announcement of its largest ever individual contract the previous month, the data centre provider continued to outperform as the market’s conviction in Artificial Intelligence (AI) applications as a driver of demand growth grew. Most notably, global leading specialist chip maker Nvidia’s commentary around AI driven demand growth supported previous comments made by NXT management.

Key Detractors

oOh! Media (OML, overweight) – the outdoor media company underperformed in May given short term cyclical headwinds to revenue and higher than expected costs on contract renewals. We continue to hold an overweight position in OML given cyclical media market upside in the longer term, with the outdoor media category set to expand its share of traditional advertising (digital product / improved audience measurement). Lastly, OML is improving its market share of the outdoor category, we expect cost growth will be limited – the company has high fixed cost leverage – and the balance sheet is strong which provides support to the current share buyback.

Performance Commentary - April 30, 2023

Key Contributors

Reliance Worldwide (RWC, overweight) – the manufacturer and distributor of plumbing and heating parts outperformed following the release of its March-quarter trading update. The trading update was broadly positive, demonstrating the resilience of its repair-focussed end markets (total sales growth of +14.2% for the nine months ending March-23) and a robust margin outlook supported by cost-out plans and easing raw material cost pressure. We view RWC as a compelling opportunity, with the market pricing for a significant decline in earnings (P/E of only 14.9 times vs 17.0 times mid cycle) whereas we remain constructive on the demand environment given the defensive nature of RWC’s revenue base, the majority of which relates to repair and remodelling sales.

Key Detractors

Telix Pharmaceuticals (TLX, underweight) – radiopharmaceutical company TLX outperformed the market in April after announcing a strong Q123 revenue result. Sales of TLX’s key Illuccix product were substantially stronger than market expectations. This strength was partially driven by higher than anticipated numbers of PSMA-PET scans per patient. Further, a strong result from key competitor Lantheus suggests the overall market volumes are expanding well. We are underweight TLX given our cautious view on the long-term pricing sustainability of radiopharmaceuticals.

Performance Commentary - March 31, 2023

Key Contributors

Reliance Worldwide (RWC, overweight) – the manufacturer and distributor of plumbing and heating parts outperformed early in the quarter as the 30-year US mortgage rates compressed ~30bps and the market’s belief that the Fed was getting closer to the top of this rate hiking cycle strengthened. RWC also outperformed after its March Investor Day at which it announced two new products which should drive EBIT upgrades in later years (FY25+). We view RWC as a compelling opportunity, with the market pricing for a significant decline in earnings (P/E of only 14.5 times vs 17.0 times mid cycle) whereas we remain constructive on the demand environment given the defensive nature of RWC’s revenue base, the majority of which relates to repair and remodelling sales.

Key Detractors

Liontown Resources (LTR, underweight) – the lithium developer outperformed during the period, despite falling lithium prices, following a takeover offer from US-listed lithium producer Albermarle. The $2.50/share offer represented a 63% premium to last close, with the company trading above terms on expectations of a further bump in the bid following its rejection of the initial proposal. We continue to see further downside to lithium prices and prefer existing operator Pilbara Minerals (PLS) given its lower risk profile, strong balance sheet, and low capital intensity growth profile.

Performance Commentary - February 28, 2023

Key Contributors

AUB (AUB, overweight) – AUB outperformed in the month due to a strong 1H22 update which included a guidance upgrade. The result confirmed substantial premium growth trends in the industry, which assisted organic growth. AUB’s recent significant acquisition, Tysers, delivered a solid 1H22 performance which beat previous guidance and confirmed the integration of Tysers into AUB continues to travel well. The core Australian broking business saw good operating leverage, with EBIT margins increasing to 35.2% from 31.1%, and medium-term margin targets increased for various AUB divisions. We continue to hold AUB as the market gains further confidence in the outlook for the Tysers acquisition and continued operating leverage is realised in AUB’s operating divisions.

Flight Centre Travel (FLT, overweight) – the travel company outperformed during the period after announcing a stronger than expected 1H23 result above prior guidance, including positive outlook commentary which touched on the recently acquired premium leisure travel business, Scott Dunn. The Leisure division (40% of pre-COVID EBIT) is set to benefit from pent-up travel demand, with improved margins after a material reduction in the cost base. The Corporate division (60% of pre-COVID EBIT) is rapidly expanding market share, which we expect will more than offset a smaller addressable market caused by the increased use of virtual meetings. Furthermore, as group earnings improve, we believe there is additional value to be realised from restructuring the balance sheet.

Key Detractors

Evolution Mining (EVN, overweight) – the gold producer was a negative contributor during the period. EVN recovered value in late 2022 following disappointing production levels, guidance downgrades and balance sheet concerns during the middle of the year. However, the stock followed the gold price lower in February, with gold declining 5% to US$1,817/oz at month end. We continue to see support for gold prices across the medium term, and see EVN as well placed to benefit from an improving balance sheet, resource upside at Ernest Henry, and further turnaround Potentia at Red Lake.

Pinnacle Investment Management (PNI, overweight) – the investment manager underperformed during the period after reporting a 1H23 result below expectations, largely due to lower-than-expected revenues across both performance and management fees. Going forward, we believe revenue growth will increase, with material longer term growth potential as market conditions normalise from depressed levels, inflows increase across its diverse range of products, performance fees increase from recent near-zero levels, international distribution accelerates, and new products mature. Furthermore, margin expansion will be supported by the fixed cost nature of the funds management industry and new manager formation (organic and via acquisition), which has created material shareholder value over time.

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