Celeste Australian Small Companies Fund. Bridges Presentation The Role of Small Caps in Volatile Markets June 2012

Transcription

1 Celeste Australian Small Companies Fund Bridges Presentation The Role of Small Caps in Volatile Markets June

2 Business Overview is an Australian based equities manager with a focus on listed small companies. The Celeste Investment team has over 90 years of financial markets experience. is 59% owned by the Investment Team and 39% by the ASX listed Treasury Group (TRG). All staff of are equity holders in the business. The Celeste investment style is process driven and style neutral. As at 30 th March 2012 Celeste managed over $500m in Australian equities. Our investment objective is to outperform our benchmark by 5% pa, over rolling 3 year periods, after fees. 2

3 Why allocate to Small Caps? The Small Cap market is under researched due to the size of the opportunity set and the specialist skills required to analyse the sector The Small Cap opportunity set is over 90% of all listed companies, but around 8% of aggregate market value Stock selection is critical to the generation of superior returns in the Small Cap sector Returns in Small Cap space are very stock specific and hence an investor s selection of asset manager is critical 3

4 What is the Australia small companies sector? Small companies can offer growth rates which are often greater than their large cap peers Small companies may offer industry exposures that are not available in the large cap space Small companies often trade on attractive fundamentals compared to their large cap peers with small companies generally having lower PE s & EV s with higher dividend yields $10,000 invested in 1990 grows to: Australian Small Cap Manager - $212,000 Australian Equity Manager - $88,000 S&P/ASX $77,000 S&P/ASX Small Ordinaries - $53,000 4

5 ASX S&P/Small Ords historic performance Small Ords Accum. Index - Quarterly Returns (%) 1991 to 2011 Dec-11 Mar-11 Mar-10 Mar-09 Jun-08 Dec-07 Dec-09 Jun-05 Mar-05 Jun-04 Mar-04 Dec-03 Mar-02 Sep-07 Sep-00 Mar-07 Jun-06 Jun-99 Sep-06 Dec-05 Sep-98 Dec-04 Mar-12 Mar-03 Mar-98 Jun-01 Dec-10 Dec-02 Sep-97 Dec-99 Jun-07 Sep-02 Jun-97 Sep-99 Sep-05 Jun-11 Dec-00 Mar-97 Mar-99 Sep-04 Jun-02 Mar-00 Dec-95 Dec-98 Jun-03 Sep-11 Mar-01 Jun-94 Jun-95 Dec-96 Sep-95 Sep-10 Jun-10 Jun-00 Sep-92 Sep-94 Sep-96 Sep-93 Dec-06 Jun-12 Mar-06 Dec-97 Jun-92 Mar-94 Jun-96 Jun-93 Sep-03 Sep-08 Sep-01 Mar-95 Mar-92 Dec-92 Mar-96 Mar-93 Dec-01 Dec-08 Mar-08 Jun-98 Dec-94 Jun-91 Dec-91 Sep-91 Mar-91 Dec-93 Sep-09 Jun to to to to to -5-5 to 0 0 to to to to to to +30 The June quarter to date is down over 15%. Whilst this represents one of the more negative return periods, it is not unusual. Historical data shows very poor quarters are often followed by very strong quarters.

6 ASX S&P/Small Ords historic performance Small Ords Accum. Index - Annual Total Return (%) 1991 to to to to to to to 0 0 to to to to to to to +70 Calendar year 2011 was a challenging year for the Small Ordinaries Accumulation Index being down 21.4%. Whilst the 2011 Small Ordinaries Accumulation Index performance was poor, the average return over the last 20 years is some 11.5% per annum.

7 Small Cap Valuations Small Cap Median P/E

8 Investment Process Our investment process requires an understanding of: The Business Model durability, robustness, competitive moat The Quality of Accounting conservative or aggressive in nature Management and Board how do we rate the stewards of capital ESG / Responsible Investment triple bottom line sensitivity and value at risk awareness 8

9 Celeste Australian Small Companies Fund Rules for Small Cap Investing Do I understand what the company does? People make the difference do the management and board act in the interests of all shareholders? There is no substitute for earnings and cashflow generation Can I identify the key variables in a company & how predictable are they? Is there potential to leverage the intellectual property base / business model? Does the business have a point of competitive differentiation / advantage? Do I know what the business will look like in five years time? Never lose sight of valuation A flexible mind set and lateral thought process are critical analytical tools There is no price to buy a company with poor accounting practices How much of the company's current capitalisation could be borrowed if it were a private company? 9

10 Celeste Australian Small Companies Fund Portfolio Positions as at 31 st May 2012 Code Name Active Weight BRG Breville Group 5.4% SKE Skilled Group 4.8% AUB Austbrokers Holdings 4.3% TPI Transpacific Industries Group 4.1% RCR RCR Tomlinson 3.3% NUF Nufarm limited 3.3% WSA Western Areas 3.0% SGN STW Communications 3.0% WHG WHK Group 3.0% DTL Data #3 2.9% Established brands High Return on Equity Experienced People Market Share Conservative Accounting Operating History Intellectual Property Unique Customer Relationships 10

11 Celeste Australian Small Companies Fund Risk Management Stock number 30 to 40 Cash generally held at a transactional level of less than 5% Stock Holding Limit 1% to 10%: Company issued Capital Maximum 10% Average Portfolio Turnover Expected Tracking Error Sector Bias 20% to 30% p.a. - the portfolio generally turns over every 3 to 4 years 8% to 12% - not explicitly targeted but an outworking of our investment process No structural sector bias Fund at a Glance Management Fee 0.95% Performance Fee Benchmark Investment objective 20% of outperformance relative to ASX/S&P Small Ordinaries Accumulation Index, subject to a high water mark S&P/ASX Small Ords Accumulation Index Benchmark +5% pa over rolling 3 years 11

12 Contact Details Level 14, 15 Castlereagh Street, Sydney NSW 2000 GPO Box 4266, Sydney NSW 2001 T F Frank Villante Chief Investment Officer frank@celestefunds.com.au Scott Armstrong Investment Analyst scott@celestefunds.com.au Paul Biddle Investment Analyst paul@celestefunds.com.au Andreas Stephens Investment Analyst andreas@celestefunds.com.au Stephen Hanich Operations Manager stephen@celestefunds.com.au Peter Walsh Head of Retail Distribution Treasury Group pwalsh@treasurygroup.com Shani Maund Client Service Manager Treasury Group smaund@treasurygroup.com Yumi Baldeon Client Services Manager Treasury Group ybaldeon@treasurygroup.com 12

13 Disclaimer This information is not intended to provide advice to particular investors, or take into account an individual s investment objectives, circumstances and needs for investment. Investors should consult a financial adviser. This information was prepared by Limited (ABN ). To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No Company in the Group guarantees the performance of any Fund or the return of an investor s capital. The offer to invest in the Celeste Fund Management Funds is made in a copy of the current disclosure document for the relevant Fund. Anyone wishing to invest in the Funds will need to complete the application form in the current disclosure document for the relevant Fund. Total returns have been calculated using gross returns. Past performance is not indicative of future performance. 13

14 Appendix A: Portfolio Performance 31 st May 2012 Celeste Australian Small Companies Fund S&P/ASX Small Ords Acc Index Performance 1 month (%) -7.3% -10.2% +2.9% 3 months (%) -2.8% -10.9% +8.1% 6 months(%) +5.5% -2.1% +7.6% 1 Year (%) -4.5% -14.9% +10.4% 2 Year (%pa) +7.5% +0.3% +7.2% 3 Year (% pa) +16.6% +6.2% +10.4% 4 Year (% pa) +5.3% -7.4% +12.7% 5 year (% pa) +0.1% -8.0% +8.1% 7 year (% pa) +8.5% +3.4% +5.1% 10 year (% pa) +12.2% +6.6% +5.6% Inception (% pa) 31 May % +5.5% +11.1% Net returns, including reinvestment of distributions 14

15 Celeste Australian Small Companies Fund Appendix B: Distribution History Total dist. (YE) Cents Per Unit Annual Yield %* June June June June June June June June June June June June June *CPU/unit price at beginning of period. 15