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Ellerston Australian Small
Companies Fund
PERFORMANCE REPORT April 2015
The Ellerston Australian Small Companies Fund employs an active research driven investment
approach to identify a portfolio of 30 - 50* small company securities which aims to deliver returns
superior to the S&P/ASX Small Ordinaries Accumulation Index over time.
Ellerston Australian Small Companies Fund Performance
Return %
Net^
Benchmark
Net Alpha
Gross
1 Month
2.02%
1.66%
0.36%
2.12%
3 Months
11.09%
8.10%
2.99%
11.79%
FYTD
12.26%
6.40%
5.85%
14.07%
1 Year
14.40%
5.31%
9.09%
17.04%
Since Inception p.a.
11.23%
4.61%
6.63%
13.36%
Ellerston Australian Small Companies Fund Top Holdings
Top 5 Stock holdings as at
30 April 2015
Slater & Gordon Ltd
Austal Limited
Mantra Group Limited
Transfield Services Limited
Nextdc Limited Ordinary Fully Paid
Sector
%
Consumer Discretionary
4.80
Industrials
3.82
Consumer Discretionary
3.79
Industrials
3.77
Information Technology
3.47
^ The net return figure is calculated after fees & expenses. The gross return is calculated before fees & expenses. Past performance is not a reliable indication of future performance.
The benchmark is the ASX Small Ordinaries Accumulation Index. The Fund commenced on 10 October 2013.
*This is the typical number of stocks in the portfolio. The Information Memorandum does allow for 20 - 50 stocks.
Ellerston Capital Limited
ABN 34 110 397 674
AFSL 283 000
Level 11
179 Elizabeth Street
Sydney NSW 2000
Tel: 02 9021 7797
Fax: 02 9261 0528
[email protected]
www.ellerstoncapital.com
APIR Code: ECL0015AU
Commentary
For the month ending 30 April 2015, the Ellerston Australian Small Companies Fund outperformed the ASX
Small Ordinaries Accumulation index rising 2.0% (Net) compared to a 1.7% gain for the index. During the month
the Small Industrials Accumulation Index was flat whilst the Small Resources Accumulation Index increased
11.3%. The Fund’s outperformance was largely driven by stock specific benefits as we retain a less than half
market weighting in resources versus the index.
The top contributors to positive relative performance were Bellamy’s (BAL), Metals X (MLX), and Austal Ships
(ASB). Bellamy’s reported very strong earnings for the half year and ungraded prospectus guidance which has
resulted in continuing positive momentum in the share price. The key constraint to growth in the short term is
supply of product rather than demand, indicating an opportunity to accelerate further. The company’s revised
guidance looks conservative to us and whilst the valuation looks high, further upgrades are likely to be
supportive. Metals X continued its strong share price performance despite the gold price remaining flat for the
month, although there was generally positive price action in the small cap gold miners. Metals X spent a small
fraction of its market cap to become a mid-tier Australian gold company as well as one of the few listed Tin
producers globally. Austal Ships announced during the month that the US Navy would fund another 2 Littoral
Combat Ships with the option of another vessel. This continues the trend of the business continuing to win work
for its US shipyard and extending the order book. These latest contracts mean that the US Navy has now funded
up to half of the vessels that are expected in the full fleet program.
The largest detractors during the month were Slater & Gordon (SGH), Next DC (NXT) and IMF Bentham (IMF).
The Slater & Gordon share price fell after a significant capital raising was undertaken during the month to fund
the acquisition in the UK of a business unit of Quindell. The acquisition is expected to be 30-40% accretive,
however, the price paid and therefore the size of the raising was significantly larger than expected which
weighed on the market price. Next DC fell marginally for the month after a significant run up in the share price
over the previous 3 months. There was no new news flow. IMF Bentham lost two cases during the month
including the bank fees case versus ANZ and they lost on appeal in South Africa against National Potato. This is
part of the normal course of doing business as a litigation funder. As long as you win more than you lose over
the medium term.
Outlook
The low interest rate environment continues to be supportive of the equity market as the yield differential is so
large. However, the domestic economy continues to be sluggish and generating EPS growth for the market as a
whole continues to be difficult. Couple this with a rising equity market and it continues to be difficult to find
“value”. This is not just a local phenomena but a global thematic, whereby central banks have pushed interest
rates to such historical lows that equity markets look attractive on a yield basis, rather than historical PE and
DCF measures. Consequently, the three year outlook for Portfolio returns, look less attractive than the last
couple of years. That said, in a continuing low interest rate environment it is difficult to see any more attractive
asset class than equities at the moment
About the Ellerston Australian Small Companies Fund
The Fund employs an active, research-driven investment approach which seeks
to identify a portfolio of smaller company securities with the aim of delivering
superior returns to the Benchmark over time.
The Fund will invest in companies that are believed to have the potential to deliver significant upside
over the medium term and where there is a reasonable margin of safety to mitigate the downside risk.
We will actively manage the positions of the Fund.
Investments will generally be made in companies that have a sound business franchise with an
attractive earnings profile, that operate in growth industries and trade at a discount to valuation.
Fund Facts
Strategy Funds Under Management
$831 million
Total number of Stocks
46
Application Price
$1.1377
Redemption Price
$1.1321
Inception Date
10 October 2013
Disclaimer
Returns are unaudited estimates and before fees and expenses and assume distributions have been reinvested. Past performance is not indicative of future
performance. This letter does not constitute an offer of any Units in the Fund. This letter does not take into account your investment objectives, financial situation
or particular needs. Before making an investment decision about the Fund, persons should read the information memorandum which can be obtained from
Ellerston Capital and obtain advice from an appropriate financial adviser. This material has been prepared based on information believed to be accurate at the
time of publication. Assumptions and estimates may have been made which may prove not to be accurate. Ellerston Capital undertakes no responsibility to
correct any such inaccuracy. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information. Stock opinions and
views expressed in this document are Ellerston Capital’s and are not necessarily the views or opinions of the market. To the full extent permitted by law, none of
Ellerston Capital, or any member of the Ellerston Capital Limited Group of companies makes any warranty as to the accuracy or completeness of the information
in this document and disclaims all liability that may arise due to any information contained in this document being inaccurate, unreliable or incomplete