6/5/2020 12:00:00 AM

Fund Reviews: Australasian Growth

Written by Doug Jopling, Senior Investment Analyst and Portfolio Manager

Growth Fund

The fund was up 8.5% during the month and ended at a record end-of-month high.

The strategy of having exposure to both technology stocks for growth and gold stocks for defensive qualities worked well, with strong contributions from all gold stocks and technology stocks. Given their performance I have taken some profits in both sectors.

I have added a couple of new positions to the fund. Alpha HPA produces high purity Alumina for the battery and LED industries using a unique chemical process involving readily available chemicals. I have followed the company for the last 8 months but waited for further progress which would de-risk the project.Recent announcements regarding the results of their pilot plant and signing a MOU with a large Australian chemical company has provided enough comfort that the process works, so I have initiated a small position.I will review the position size as more updates become available.The second company I have taken a small stake in is Class Ltd a software provider to the self-managed super fund industry, the company has net cash on its balance sheet, 94% recurring revenue streams and has a new product set to launch in the next few months.

Certain sectors of the market such as technology have re-rated significantly over the last couple of months, this prompts me to look at other areas to see if the crowds have overlooked any hidden gems.




Written by  Mike Ross, Senior Investment Analyst

Dividend Fund

The Dividend Fund returned 9% in May as markets continued renewed optimism throughout the month.

Strong recoveries from Macquarie Telecom, City Chic, Elicpx and AMA made up a large portion of performance during the month. Our larger weights in Johns Lyng and Uniti dragged on relative returns, as these stocks had largely recovered by the end of April.

City Chic, a position we recently added to, rallied 28% in May. Late in the month the company announced its ANZ online platform had seen a 57% increase in sales since it closed its store base in late-March. It has also started to reopen stores. The sales result, albeit at lower gross margins, was ahead of our expectations given the company sells apparel (intuitively one buys less clothes when in isolation) and had managed its inventory position down in anticipation of COVID-19’s impact on demand. The update demonstrated the company’s online capabilities, the benefits of its category expansion strategy, and the brand’s leadership position within the plus-size segment.

Eclipx, a significant detractor from recent performance, was up almost 69% during May. The share price had been hammered on concerns around debt covenants, residual values and liquidity. Eclipx reported its half-year result midway through the month which provided more confidence around these points. The fund benefitted as we recently increased our position in the company. The case for consolidation in the fleet management and novated sector has been strengthened by COVID-19.

Austal had a busy month for news flow which was capped off with an earnings upgrade on the final day of the month. Earlier in May the company announced it had won a new $324m contract to build six Cape-class Patrol boats for the Australian Navy. The same morning it announced it had missed out on the prime contractor role for the US Navy Frigate Program. The latter would have gone a long way to maintaining long-term returns from its asset base in the US once its current shipbuilding programs for the US Navy roll-off in 2024. There are other opportunities, including unmanned surface vessels, which could still help to replace these earnings, although timing and quantum is uncertain. Ultimately, we believe Austal’s US assets are important to the US Navy and that the Navy’s plans to grow its fleet with more smaller vessels is supportive.

Service Stream, which downgraded earnings for FY2020, still finished ahead for the month. The downgrade from about $116m EBITDA to $108m was due to elevated costs responding to COVID-19 and some delayed spend in the wireless and utilities segments. While any downgrade is disappointing, the revised outlook will likely prove a resilient outcome relative to many other companies during the upcoming reporting period. 




Written by Chris Bainbridge, Senior Investment Analyst and Portfolio Manager

Emerging Fund

ECF was up 1.1% during the month versus the Emerging Companies Index which is up 13.6%.

ECF has performed strongly over the last year, up 16.8% on an annualised basis versus the Emerging Companies Index which is down 3.6%. However, we are disappointed with our level of relative underperformance during the month. The underperformance can be attributed to two factors:

(1) a solid batting performance but a poor slugging percentage. That is, a number of our positions performed strongly during the month (e.g. WSP, PSQ and UBN) but our weighting to these positions was too small; and

(2) relative underperformance in larger positions which didn’t move during the month or were slightly down (RUL and KME).

It’s important to remember performance doesn’t come in a straight line. At the same time, we’re not taking our underperformance lightly. We’ve rigorously reviewed the portfolio and cut positions which we don’t believe can re-rate, added to positions with further upside and maintained a number of our positions which haven’t made a recovery yet, but where we remain confident in their future prospects. We’re confident ECF can regain its cadence moving forward. 




Written by  Chris Bainbridge, Senior Investment Analyst and Portfolio Manager

Growth Fund 2

Global equity markets continued their strong rally in May as developed nations began emerging from lock down and fiscal stimulus assisted with a stronger than expected rebound in consumer spending. Growth 2 participated in this rally, ending the month up 16.1% versus the Australian Small Ordinaries Index which was up 10.6%.

Performance during the month was driven by positive trading updates from a number of positions including Nearmap, EML Payments and Superloop. Nearmap tightened its ACV guidance range to $103m-$107m and guided churn had dropped to below 10% on an annualised basis. The churn number is particularly important. Churn below 10% represents churn of just 4% in 2HFY20 and underlines the non-discretionary nature of NEA’s product. Re-accelerating growth and improving unit economics in the toughest environment for enterprise sales in ten years point to a best-in-class product and strong execution. I expect NEA to recover its market darling status as the market plays catch up on these points.

Underperformance during the month came from PVS (exited as I recycled capital into winners) and FNP, which provided a disappointing market update.

Looking forward, June is generally a quiet month as companies are in black out ahead of financial year end. More generally, whilst markets have rallied strongly off their lows, many of our positions are trading well below their former highs and my assessment of intrinsic value. This combined with a healthy degree of scepticism from market participants leaves me optimistic about G2’s future prospects.


Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser. Pie Funds is the issuer of the Pie Funds Management Scheme. For access to the PDSs, please click here.