UBS Australian Small Companies Fund. Quarterly investment report to 30-Sep-18

Transcription

1 UBS Australian Small Companies Fund Quarterly investment report to 30-Sep-18

2 Performance comments Before fees and expenses, the portfolio rose by 2.52% over the quarter, outperforming its benchmark. The largest positive contributors to portfolio performance during the September quarter were Technology One, Starpharma, Bapcor and Beach Energy. Tech One rebounded strongly after it held a briefing to explain its progress on migrating its platform to cloud from desktop and clarifying the impact of new software related accounting standards. Starpharma reported initial trial results from its collaboration with AstraZenica using and AstraZenica drug combined with the Starpharma delivery system. The results were very encouraging. Bapcor released a consistently strong FY18 result. The market was also encouraged by the ongoing growth opportunities facing the company. Beach Energy was strong on the back of very strong oil prices and the consequent rapid pay down of Lattice acquisition debt. After fees and expenses, the portfolio rose by 2.29% over the quarter, outperforming its benchmark % Return (Net) Fund 2 Benchmark* Difference 3 months year years years Calendar Year to Date Since inception (03/04) Performance figures are net of ongoing fees and expenses. * S&P/ASX Small Ordinaries Accumulation Index Performance can be volatile and future returns can vary from past returns. The benchmark does not incur these costs. The performance figures quoted are historical, calculated using end of month redemption prices and do not allow for the effects of income tax or inflation. The calculations also assume that all income distributions have been reinvested. Performance has been prepared in accordance with 2017 GIPS standards. The main relative detractors during the September quarter were Next DC, Metals X, St Barbara and Regis Resources. Next DC's FY18 result was not well received as its sales in 2H18 were below expectations. The share price had also been strong into the result which exacerbated the impact of the below expectations 2HFY18 result. Metals X announced a capital raising during the quarter to accelerate the ramp up of the Nifty mine which gas underperformed. St Barbara and Regis underperformed on a weaker gold price. Both have been very strong performers over the last 12 months. % Return (Gross) Fund 1 Benchmark* Difference 3 months year years years Calendar Year to Date Since inception (03/04) Performance figures are gross of ongoing fees and expenses. UBS Asset Management 2

3 Stock Contributors & Detractors (%) Company name Return Contribution Over / underweight Technology One OW Starpharma OW Bapcor OW Beach Energy OW Worleyparsons OW Total of top 5 Contributors 3.17 ARB Corportion (16.08) (0.41) OW Regis Resources (25.87) (0.42) OW St. Barbara (26.28) (0.43) OW Metals X (26.25) (0.54) OW NextDC (14.02) (0.60) OW Total of top 5 detractors (2.40) Note: Position at quarter-end, which may be different to the position during the quarter. Market Review The S&P/ASX Small Ordinaries Index declined 0.35% during September, outperforming the ASX100 which declined 1.3%. The Small Resources sector declined 0.15% outperforming the Small Industrials (-0.41%). Best performing sectors for September were Biotechnology +28% (Mesoblast +31%, Starpharma +22%, Clinuvel +16%), Metals & Mining - Steel +11% (OM holdings +11%), Energy +7% (Beach +10%, Sundance +8%) and Base Metals +5% (Metals X +12%). The worst performing sectors during September were Metals & Mining - Other - 8% (Lynas -27%, New Century -19%), Consumer Discretionary -7% (Blackmores -19%, BWX -15%), Precious Metals -6% (Resolute -14%, St Barbara 10%) and Internet Services -4% (Webjet -9%). Best performing stocks in September for the Small Ordinaries index were Mesoblast, Scottish Pacific, Pro Medicus and Starpharma. Worst performers for the month were Lynas, Estia, Japara and New Century Resources. Portfolio Positioning Active Positions by Industry Group (%) Top 5 Overweights Top 5 Underweights Capital Goods 4.29 Real Estate (6.92) Software & Services 2.45 Commerical & Professional Services (3.30) Consumer Services 1.64 Media (3.19) Automobiles & Components 1.35 Food, Beverage & Tobacco (2.97) Health Care Equipment & Services 0.59 Telecommunication Services (2.77) Active Positions by Stock (%) Top 5 Overweights Top 5 Underweights Technology One 4.61 Altium (1.67) Bapcor 4.08 Washington H Soul Pattinson (1.58) NextDC 3.75 Metcash (1.42) Summerset 3.64 NIB (1.38) Collins Foods 3.31 Corporate Travel (1.29) Note: Position at quarter-end, which may be different to the position during the quarter.

4 Outlook & Strategy The S&P/ASX Small Ordinaries Index finished September 2018 priced at PER of 16.8x, a premium to the S&P/ASX 100 at 15.2x. The Small Ordinaries index (- 0.45%) outperformed the ASX 100 (-1.3%). The Australian economy is generally performing well despite mixed data on retail sales and Australian housing. Inflation remains low and employment growth is strong. Official interest rates are on hold for at least the next 12 months although recent wholesale funding costs have risen in the US. There is now a risk however that credit is reduced as implementations rom the Hayne Royal commission begin to be implemented even prior to the release of the findings. House prices are already declining in many parts of the country and car sales are now very weak. Global growth remains synchronised with European and US economies on sustained growth paths. The risks around the growing US Chinese trade dispute seem to be escalating which could be a risk to global growth. Most of the global macro risks remain similar including elevated consumer debt and a wind back of global quantitative easing. Australian small companies remain an attractive asset class, offering long term investors unique opportunities for excess returns in a low growth, highly indebted world. We prefer well managed, growing and quality-biased businesses with high returns on capital and lower debt levels. Many of these businesses also have enduring structural tailwinds that should deliver our investors good returns over our typical five year investment horizon. UBS Asset Management 4

5 UBS Asset Management (Australia) Ltd (ABN ) (AFS Licence No ) is a subsidiary of UBS Group AG. This material provides general information only and has been prepared by UBS Asset Management (Australia) Ltd without taking into account your objectives, financial situation or needs. No representation or warranty, either express or implied is provided in relation to the accuracy, completeness, or reliability of the information contained herein. The information in relation to model portfolios including performance figures may not reflect your actual portfolio as the implementation of recommended model trades and holdings is beyond the responsibility of UBS and may differ due to timing differences or other considerations by others. UBS Asset Management (Australia) Ltd Chifley Tower Level 16, 2 Chifley Square Sydney NSW 2000 Tel Fax This material does not constitute an offer or recommendation to buy or sell any securities or financial products, or to conclude any legal act of any kind whatsoever. Any opinions or forecasts expressed in this material are subject to change without notice and may differ or be contrary to opinions or forecasts expressed by other business areas or divisions of UBS Group AG or its affiliates ("UBS") as a result of using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS. Neither UBS Group AG nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material. Your investment does not represent deposits or other liabilities of UBS, and is subject to investment risk, including loss of capital invested. UBS Group AG The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.