Solaris High Alpha Australian Equity Fund (APIR: WHT0016AU) Quarterly Investment Report As at 31 March 2018
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Solaris High Alpha Australian Equity Fund (APIR: WHT0016AU) Quarterly Investment Report as at 31 March 2018 Fund Performance The Fund outperformed its benchmark for the quarter by 1.03%. Overweight holdings in Macquarie Group Limited, Insurance Australia Group Limited, Lendlease Group, Altium Limited and CSL Limited made a positive contribution to relative performance. The main detractors were overweight holdings in The Star Entertainment Group Limited, TABCORP Holdings Limited, Aurizon Holdings Limited and BT Investment Management Limited together with an underweight position in The A2 Milk Company Limited. Returns Month Rolling FYTD 1 Year 3 Years 5 Years 7 Years Since Inception Quarter p.a. p.a. p.a. p.a. (31/08/2012) Fund Gross Return^ -3.37% -2.83% 8.00% 7.86% 6.80% 11.51% 9.57% 11.19% Benchmark Return* -3.77% -3.86% 4.19% 2.54% 3.76% 7.66% 7.23% 8.79% Active Return 0.40% 1.03% 3.81% 5.32% 3.05% 3.84% 2.34% 2.40% Fund Net Return^ -3.45% -3.06% 7.22% 6.83% 5.78% 10.44% 8.52% 9.99% Benchmark Return* -3.77% -3.86% 4.19% 2.54% 3.76% 7.66% 7.23% 8.79% Active Return (After 0.32% 0.80% 3.03% 4.29% 2.02% 2.77% 1.29% 1.20% fees) ^ Performance is for the Solaris High Alpha Australian Equity Fund (APIR: WHT0016AU), also referred to as Class B units, and is based on month end prices before tax. Net performance is calculated after management fees and operating costs, excluding taxation. Gross performance is stated excluding all fees, costs and taxation. This is historical performance data. It should be noted the value of an investment can rise and fall and past performance is not indicative of future performance. * Benchmark refers to the S&P/ASX 200 Accumulation Index. Significant Contributors Significant Detractors Altium Limited (+50.1%) Aurizon Holdings Limited (-11.9%) Management reported their 1st half 2018 result which was The regulator (Queensland Competition Authority) recently well ahead of market expectations. Revenue growth was 30% published an unfavourable draft decision which will negatively which drove net profit growth of 51%. The outlook also looks influence their future profitability on their regulated assets. bright with the proliferation of electronics through the rise of Aurizon will contest the draft decision and argue it will smart connected devices. adversely affect operational efficiency and volume capacity. Lendlease Group (+8.0%) TABCORP Holdings Limited (-19.4%) At the company’s 1st half 2018 result, management delivered The company announced their 2018 half year results and net profit after tax of $426 million, an increase of 8% on the reported normalised net profit of $82 million, down from prior corresponding period. The result was driven by a large $103 million in the 1st half 2017. Earnings in their wagering increase in residential development completions which were and media division were weaker due to cost growth driven by up 48%. increased customer acquisition activity. CSL LIMITED (+10.7%) The Star Entertainment Group Limited (-11.8%) Management released their 1st half 2018 result with net profit The company reported their 1st half 2018 result with after tax of $1,086 million, up 35%. Management cited robust normalised net profit after tax of $120 million, up 12% demand for their differentiated products and the compared to the prior corresponding period. The Queensland effectiveness of their patient focussed research and division achieved revenue growth of 8.5%, however earnings development pipeline. The company also highlighted a strong for this division disappointed investors due to higher costs. outlook for their products and upgraded 2018 earnings guidance. Contact us +61 1300 010 311 [email protected] www.solariswealth.com.au 1 Solaris High Alpha Australian Equity Fund (APIR: WHT0016AU) Quarterly Investment Report as at 31 March 2018 Top 10 Stocks Name Sector Fund Westpac Banking Corporation Financials 9.2% National Australia Bank Limited Financials 9.0% BHP Billiton Limited Materials 7.9% CSL Limited Health Care 5.9% Macquarie Group Limited Financials 5.3% Macquarie Atlas Roads Group Industrials 4.3% Link Administration Holdings Limited Information Technology 4.0% The Star Entertainment Group Limited Consumer Discretionary 3.7% Insurance Australia Group Limited Financials 3.7% Scentre Group Real Estate 3.6% Sector Allocation 9% 6% 3% 0% Active Weight Active -3% -6% -9% Energy Utilities Materials Financials Industrials Real Estate Real Health Care Consumer Staples Consumer Information Technology Information Consumer Discretionary Consumer Telecommunication Services Telecommunication Cash Other & including futures Contact us +61 1300 010 311 [email protected] www.solariswealth.com.au 2 Solaris High Alpha Australian Equity Fund (APIR: WHT0016AU) Quarterly Investment Report as at 31 March 2018 Market Review The S&P/ASX200 Accumulation Index finished down 3.8% for the March quarter with the Banks sector under pressure, down 7.1%. The Royal Commission publicly exposed a number of unsavoury activities that appear to have been partly caused from the remuneration structure that has been in place for bank employees. Elsewhere, the Energy and Materials sectors underperformed on declining commodity prices including iron ore which was down over 10% during the quarter and news that the US will impose trade tariffs on a variety of imports. In company news, Wesfarmers announced plans to divest their Coles business and Premier Investments produced a better than expected half year result. In other news, Fortescue Metals downgraded earnings due to their iron ore product attracting further discounts because steel mills in China have preference for higher grade material. S&P/ASX 200 Top & Bottom performing sectors for the quarter ending 31 March: The best performing sectors in the S&P/ASX200 Accumulation Index for the quarter were Food Beverage & Tobacco (+14.1%), Pharmaceuticals & Biotechnology (+11.5%), Real Estate Management & Development (+6.0%), Automobiles & Components (+3.1%) and Media (+2.0%). The worst performing sectors included Household & Personal Products (-21.8%), Telecommunication Services (-11.0%), Banks (-7.1%), Utilities (-6.9%) and Energy (-6.6%). S&P/ASX200 Top & Bottom performing stocks for the quarter ending 31 March: The top 5 performing stocks in the S&P/ASX200 Accumulation Index for the quarter were Sirtex Medical Limited (+67.9%), The A2 Milk Company Limited (+55.5%), Nine Entertainment Co. Holdings Ltd (+51.1%), Altium Limited (+50.8%) and Flight Centre Travel Group Limited (+30.2%). The bottom 5 performers included Retail Food Group Limited (-62.3%), IPH Limited (-36.4%), Myer Holdings Limited (-34.8%), WiseTech Global Limited (-33.4%) and Syrah Resources Limited (-29.7%). Market Valuation & Earnings Estimates: Market & Sector Market & Sector Marker & Sector EPS Growth PE’s Dividend Yield Pro-rated to June FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E All Companies 12.1% 8.7% 7.2% 16.9x 15.5x 14.5x 4.1% 4.6% 4.8% Banks 2.5% 0.8% 3.1% 12.1x 12.0x 11.7x 5.8% 6.3% 6.4% Listed Property Trusts 3.1% 2.5% 3.6% 15.5x 15.2x 14.6x 4.8% 5.1% 5.3% Resources 93.9% 33.3% 5.5% 18.3x 13.7x 13.0x 2.7% 4.0% 3.9% Industrials (ex-Banks & Property) 3.6% 5.7% 10.7% 19.8x 18.8x 17.0x 3.8% 4.0% 4.3% Source: Solaris Investment Management, March 2018 Contact us +61 1300 010 311 [email protected] www.solariswealth.com.au 3 Solaris High Alpha Australian Equity Fund (APIR: WHT0016AU) Quarterly Investment Report as at 31 March 2018 Market Outlook Equity indices around the globe, including Australia suffered a tough quarter. We would highlight the weakness was largely a result of macro economic induced volatility rather than from stock specific factors. The recent company reporting season in the US was strong and the Australian reporting season was overall, mildly positive. From a macro perspective, expectations around the Federal Reserve tightening cycle and ramifications from the Trump Administration’s trade tariffs weighed on markets. Closer to home, the market was cautious the announcement from The Australian Labour party’s to alter the tax policy for franking credits. We expect the higher market volatility experienced in 2018 relative to 2017 will continue, however, we note that after the recent sell off experience during the March quarter, the Australian market valuation is now more compelling. The ASX 200 index is currently trading on 14.6 times price to earnings ratio which compares to 16.0 times in December 2017 and a 10 year average of 14.1 times. Contact Details For further information, please contact Solaris’ distribution partner: Pinnacle Investment Management Limited on 1300 010 311, alternatively, please email: [email protected] Interests in the Solaris High Alpha Australian Equity Fund (‘Fund’) (ARSN 128 860 159) are issued by Pinnacle Fund Services Limited, ABN 29 082 494 362, AFSL 238371, as responsible entity of the Fund. Pinnacle Fund Services Limited is not licensed to provide financial product advice. You should consider the Product Disclosure Statement of the Fund available at www.solariswealth.com.au in its entirety before making an investment decision. Solaris Investment Management Limited (‘Solaris’) (ABN 72 128 512 621 AFSL 330505) is the investment manager of the Fund. Pinnacle Fund Services Limited and Solaris believe the information contained in this communication is reliable, however its accuracy, reliability or completeness is not guaranteed. Any opinions or forecasts reflect the judgment and assumptions of Solaris and its representatives on the basis of information at the date of publication and may later change without notice. The information in this communication is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment.