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| Fund Overview | The overriding objective of the Concentrated Australian Equities Fund is to seek investment opportunities which are under-appreciated and have the potential to deliver positive earnings, while satisfying our stringent quality criteria. Bennelong's investment process combines bottom-up fundamental analysis together with proprietary investment tools which are used to build and maintain high quality portfolios that are risk aware. The portfolio typically consists of 20-35 high-conviction stocks from the S&P/ASX 300 Index. The Fund may invest in securities listed on other exchanges where such securities relate to ASX-listed securities. Derivative instruments are mainly used to replicate underlying positions and hedge market and company specific risks. |
| Manager Comments | The Fund returned -2.09% in May. The largest detractor was Reliance Worldwide after the company downgraded its earnings guidance during the month. As Reliance had a significant weighting in the portfolio, the share price decline had a material impact on performance. In their latest report, Bennelong point out a number of issues they believe impacted Reliance's performance, noting that they believe these issues are largely one-off events and that they continue to believe in the company's longer term prospects. Other detractors included Corporate Travel Management and Costa Group. Aristocrat Leisure contributed positively after the company reported a strong interim result during the month, with growth revenues and earnings per share of 30% and 17% respectively. Bennelong's view is that while valuation metrics such as price-to-earnings ratios appear relatively attractive for the ASX, the main risk they see is that of earnings risk; i.e. the risk that companies disappoint investors by delivering earnings below expectations. They noted that share prices have often fallen disproportionately in response to earnings downgrades, such as those seen with Reliance Worldwide and Costa Group. Their conclusion is that investors remain very risk-averse, short-term focused and skittish. |
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