The Yarra Ex-20 Australian Equities Fund provides investors with access to a diverse, balanced investment universe with lower stock and sector concentration. The Yarra Ex-20 Australian Equities Fund seeks superior returns, providing investors with access to a diverse and balanced portfolio offering strong growth potential over the medium to long-term. To achieve medium-to-long term capital growth through exposure to Australian Securities Exchange listed securities excluding those included in the S&P/ASX 20 Index. In doing so, the aim is to outperform the S&P/ASX 300 ex S&P/ASX 20 Accumulation Index over rolling three-year periods.
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.
Worley (WOR, overweight) – the leading provider of global engineering services outperformed during the period as the share price reached its highest level since 2020. We attribute this outperformance to increasing market awareness of the margin expansion opportunity that the company detailed at its recent investor day. We continue to like WOR as we expect margins will accelerate over the coming years as the company benefits from a more consolidated industry structure, operating leverage, and active mix management.
Incitec Pivot (IPL, overweight) – the fertiliser and explosives company outperformed during the period following a solid FY23 trading update. While the fertiliser division had a weak 2H23, explosives posted a strong recovery. The company announced stronger ammonia mining production volumes from Moranbah AN (30-40kt above guidance). The sale process for IPL’s fertilisers business is ongoing and the buyback remains on hold.
Key Detractors
Resmed (RMD, overweight) – our overweight position in the medical equipment manufacturer detracted during the month following the release of its full-year results. We would characterise the share price weakness as driven by firstly an increased focus on the potential future impact of weight loss drugs GLP-1s on the sleep-apnoea market and, secondly, an eventual return of competitor Phillips into the sleep-apnoea device market in the USA. There was also a degree of gross margin disappointment following delivery of the company’s full year result. Notwithstanding the above factors, we continue to see a solid market penetration outlook for RMD’s CPAP devices, and hence believe these are factored into expectations at current levels with the stock trading on an attractive valuation (21.7 times P/E FY24 vs 28.1 times longterm average).
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.
What is Yarra Ex-20 Australian Equities Fund Yarra Ex-20 Australian Equities Fund is an Managed Funds investment product that is benchmarked against ASX Index Small Ordinaries Index and sits inside the Domestic Equity - Small 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 Yarra Ex-20 Australian Equities Fund has Assets Under Management of 16.25 M with a management fee of 0.9%, a performance fee of 0 and a buy/sell spread fee of 0.31%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Yarra Ex-20 Australian Equities Fund has returned 3.93% in the last month. The previous three years have returned 7.82% annualised and 15.79% each year since inception, which is when the Yarra Ex-20 Australian Equities 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 Ex-20 Australian Equities Fund first started, the Sharpe ratio is NA with an annualised volatility of 15.79%. The maximum drawdown of the investment product in the last 12 months is -4.65% and -35.18% 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 Ex-20 Australian Equities Fund has a 12-month excess return when compared to the Domestic Equity - Small Cap Index of -0.73% and -2.31% 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 Ex-20 Australian Equities Fund has produced Alpha over the Domestic Equity - Small 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 - Small Cap Index category, you can click here for the Peer Investment Report.
What level of diversification will Yarra Ex-20 Australian Equities Fund provide?
Yarra Ex-20 Australian Equities Fund has a correlation coefficient of 0.91 and a beta of 0.93 when compared to the Domestic Equity - Small 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 Yarra Ex-20 Australian Equities Fund and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Yarra Ex-20 Australian Equities Fund with the ASX Index Small Ordinaries Index?
For a full quantitative report on Yarra Ex-20 Australian Equities Fund compared to the ASX Index Small Ordinaries Index, you can click here.
Can I sort and compare the Yarra Ex-20 Australian Equities Fund to do my own analysis?
To sort and compare the Yarra Ex-20 Australian Equities Fund financial metrics, please refer to the table above.
Has the Yarra Ex-20 Australian Equities 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.
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Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Yarra Ex-20 Australian Equities Fund. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 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.
NEXTDC (NXT, overweight) – data centre operator NEXTDC continued to perform strongly during the month after announcing another large step-up in contracted capacity. NXT has signed 25MW of capacity mainly in its M2 (Melbourne) data centre. This brings NXT to a 60MW (70%) increase in contracted capacity in the last three months, highlighting a step change in demand for data centre capacity and the company’s market leading capability.
Performance Commentary - July 31, 2023 Key Contributors
United Malt (UMG, overweight) – the global commercial malt processor and distributor outperformed as Malteries Soufflet signed a binding deal to acquire UMG at $5.00 a share (a +45% premium to the undisturbed price) following an extensive period of due diligence.
Worley (WOR, overweight) – the leading provider of global engineering services outperformed during the month as the share price reached its highest level since 2020. We attribute this outperformance to the increasing market awareness of the margin expansion opportunity that the company detailed at its recent investor day. We remain attracted to WOR, and expect strong revenue growth and margin acceleration over the coming years as the company benefits from a more consolidated industry structure, operating leverage, and active mix management.z
Tyro Payments (TYR, overweight) – the payments terminal provider outperformed during the month following the exit of strategic holder Grok Ventures from the register. Grok’s 12.4% shareholding had been an overhang on TYR’s share price and the stock rallied post the selldown transaction.
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.
Tabcorp (TAH, overweight) – the wagering operator underperformed in the lead up to its August result, led by concerns that market turnover has remained soft (likely down 5-10% in 2H23). We continue to see an opportunity over the medium term, and view TAH as a net beneficiary of the upcoming Victorian wagering license tender and regulatory alignment between retail and digital operators. In our view, the company also remains well positioned to benefit from its refreshed TAB25 strategy and gradual consolidation in the sector, which we expect will assist in delivering on the company’s medium-term 10% ROIC target.
Link Group (LNK, overweight) – the administration services provider underperformed during the month following the announcement of a major contract loss in late June in its Retirement & Superannuation Solutions (RSS) business. Whilst the revenue and earnings loss from this specific contract – which will roll off in FY25 – is manageable (approximately 4% of group revenue and 6% group EBIT), the loss in confidence around LNK’s ongoing major client renewal cycle has seen the stock de-rate further.
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.
Xero (XRO, overweight) – the online accounting software provider outperformed during the quarter after announcing a solid result, with subscribers and revenue in line with expectations and EBITDA ahead of estimates. The result saw XRO’s new CEO provide more detail about the company’s shift towards more disciplined growth, with an increased focus on yield as a growth lever along with subscriber growth. Insurance Australia (IAG, overweight) – our position in Australia’s largest personal lines insurer added value over the period following a positive investor day update, which demonstrated more conservative setting around reinsurance and perils allowances, de-risking the growth outlook.
Importantly, personal insurance providers are continuing to demonstrate excellent pricing power this CYTD (with doubledigit premium rate increases y/y) which is offsetting increased cost inflation and supporting margin trajectory. This, in turn, is supporting an appealing stock valuation (16.0-times forward P/E).
Key Detractors
Link Group (LNK, overweight) – the diversified superannuation administration provider underperformed over the period following an adverse update in late June specific to its Retirement & Superannuation Solutions (RSS) business which confirmed that a superannuation customer representing approximately 4% of the business’ revenue would not be renewing their contract in FY25. Notwithstanding LNK calling out that FY23 was overall tracking ahead of expectations, the share price weakened as investors queried if LNK may need to trade off margin for renewal certainty in future years. James Hardie (JHX, underweight) – the leading fibre cement sheeting manufacturer to the housing industry outperformed in the period following the release of its FY23 financial results.
While the result was broadly in-line with expectations, the company provided forward profit guidance for the Junequarter that was 10% ahead of market expectations, underpinned by solid volume and margin outcomes. While JHX is a quality building materials name, we remain cautious of the sustainability in its end markets (a portion of discretionary renovation spend), making it difficult to support the stock at its current valuation of 20.9 times forward P/E. Instead, we maintain a preference for plumbing supplies company Reliance (RWC), which trades on 14.2 times forward P/E. United Malt (UMG, overweight) – the global commercial malt processor and distributor underperformed during the period.
UMG received a takeover bid from peer Malteries Soufflet priced at $5.00/share (+45% premium to prior closing price) in late March but has retraced modestly from its highs as a degree of deal risk began to be priced. Our view has been that Malteries Soufflet has required time to undertake sufficient due diligence and that the likelihood of a deal proceeding remains high. Positively, following end of the June period on 3 July, UMG received confirmation of the bid proceeding at $5.00 subject to a number of deal requirements. This saw the stock up +8.6% on the first trading day in July.
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.
Xero (XRO, overweight) – the online accounting software provider outperformed during the month after announcing a solid result, with subscribers and revenue in line with expectations and EBITDA ahead of estimates. The result saw XRO’s new CEO provide more detail about the company’s shift towards more disciplined growth with an increased focus on yield as a growth lever along with subscriber growth.
Key Detractors
Tyro (TYR, overweight) – the domestic payments provider underperformed in May after prolonged takeover negotiations came to an end. During the nine-month period that TYR has been under takeover, the stock has delivered four upgrades to it FY23 earnings guidance, demonstrating strong operating leverage and allaying prior concerns on the ability of the business to grow profitably. The stock now trades on 13.4 times FY24 EV/EBITDA which we regard as relatively undemanding given the company’s growth profile.
James Hardie (JHX, underweight) – the leading fibre cement sheeting manufacturer to the housing industry outperformed in the period following the release of its FY23 financial results.
While the result was broadly in-line, the company provided forward guidance for the June-quarter that was 10% ahead of market expectations, underpinned by solid volume and margin outcomes. While a quality building materials name, we remain cautious of the sustainability in end markets for JHX (a portion of discretionary renovation spend) making it difficult to support the stock at current valuation of 20.3 times forward P/E. Instead, we maintain a preference for plumbing supplies company Reliance (RWC), which trades on 15.3 times forward P/E.
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.
Mineral Resources (MIN, underweight) – our underweight position in the mining services and lithium producer outperformed in April. Lithium prices continued to weaken during the month on excess supply chain inventories, with both lithium hydroxide and lithium carbonate prices falling around 50%. In addition, MIN’s March quarterly report released during the period was below consensus expectations across all divisions. Our preferred lithium exposure is IGO, given the higher quality of the company’s low-cost Greenbushes asset.
Northern Star Resources (NST, overweight) – our position in the gold miner was a positive contributor during the period, as gold prices rose 8.8% during April to close at US$1,988/oz. We see further support for the gold price given macro uncertainty, and an expectation that the current interest rate hiking cycle is nearing an end. We continue to favour NST’s solid assets and strong cost control. Aspirations to grow the business from current production of ~1.5Moz p.a. to >2Moz p.a. by 2026 are achievable within the current portfolio, led by the Thunderbox mill expansion project and improving grades at Pogo (Alaska). In our view, NST remains the quality name in the gold sector.
Performance Commentary - March 31, 2023 Key Contributors
United Malt (UMG, overweight) – the global commercial malt processor and distributor outperformed during the period after receiving a takeover bid from peer Malteries Soufflet priced at $5.00/share (+45% premium to prior closing price). It emerged that Malteries Soufflet has submitted four bids for UMG since December 2022, indicating strong interest in UMG’s assets. We believe that the likelihood of a deal proceeding is high.
Key Detractors
Incitec Pivot (IPL, overweight) – the manufacturer and distributor of fertilisers and explosives products underperformed over the period, as the price for Tampa ammonia fell 55% over the last three months on weaker gas prices in Europe and weaker demand. After IPL announced the sale agreement for its WALA asset (20 March 2023), the group is now much less exposed to movements in ammonia pricing going forward. IPL achieved a better-than-expected sale price for WALA of U$1.68bn and announced a value accretive offtake agreement with CF Industries. We expect that IPL will be able to commence its previously announced buyback of A$400m after its 1H23 result and may upgrade the buyback program with the A$1.25bn of net cash proceeds from the WALA sale.
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
Link Administration (LNK, overweight) – the outsourced services provider appreciated during the month as the company made material progress in resolving the uncertainty overhanging it UK Fund Solutions business. LNK announced that it had an in-principal agreement with potential acquirer Waystone to purchase its Fund Solutions business, with the UK regulator (FCA) agreeing that the proceeds from the sale would be sufficient to cover its restitution claims for unitholders in the collapsed Woodford funds.
Origin Energy (ORG, overweight) – the energy retailer outperformed during the month after updating the market on the proposed purchase of the business by suitors Brookfield and EIG. Despite speculation of the deal being repriced lower, the deal was recut only to include part of the consideration in US dollars. At the close of the month, the value of the deal was above the initial $9.00 offer. The company’s update increased the probability of a binding offer emerging in the near term.
QBE Insurance (QBE, overweight) – the general insurer performed strongly during the month, reporting a solid full year result which was largely in line with expectations, with guidance for gross written premium growth for 2023 of mid to high single digits leading to upgraded earnings expectations. QBE has made material progress in de-risking its portfolio which, combined with the strong revenue environment and the benefit to earnings from higher interest rates, have led to strong earnings and return outlook.
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