Asymmetric Opportunities Fund July 2023 Update
Dear Investment Partner,
For the month ended 31 July 2023 the Asymmetric Opportunities Fund (AOF) returned 2.3% (net of fees and expenses and assuming the reinvestment of distributions).
By comparison, the fund’s benchmark - the S&P/ASX Small Industrials Accumulation Index - returned 4.8%.
The closing net asset value (NAV) unit price was $1.1917
Portfolio Update
Global macro data was by and large viewed positively by markets in July with the main US index, the S&P500, making gains three weeks in a row. Meanwhile the Dow Jones notched a 13-day winning streak – a feat not matched since 1987.
The Australian stock market enjoyed a similarly positive tempo with the large cap S&P/ASX 200 up 2.9%, the Small Ordinaries up a little more at 3.5%. Our benchmark, the Small Industrials was up a very solid 4.8% highlighting the weak performance of Small Resources in July.
Although the AOF didn’t manage to keep up with its benchmark this month, we remain both comfortable with the fund’s portfolio of companies and pleased to see small caps outperforming large caps.
A standout for the fund was an ~14% return from Smartgroup which is a leading provider of salary packaging services including novated leases to government departments, hospitals and not-for-profits. We’ve owned this company since November 2019 except for a period when we successfully switched our exposure to competitor MacMillan Shakespeare.
Smartgroup has earned a place in the portfolio because of the quality of the business exhibited through its impressive returns on capital, strong balance sheet and defensive revenue base (amongst other factors). We leapt at the opportunity to purchase when mispricing was evident.
A recent development has been the Federal Government’s Electric Car Discount legislation (passed in December 2022) to encourage the uptake of Electric Vehicles (EVs) via a fringe benefit tax (FBT) exemption if the EV is acquired via a novated lease. This is emerging as a likely driver of future returns for Smartgroup.
Early indications are that demand for EVs has materially increased thanks to the FBT exemption with analysts at Macquarie Bank for example recently commenting that “EVs funded via novated lease has materially exceeded our expectations”. Macquarie currently have an “outperform” rating on all four major listed players in this space.
Kind regards,
Tim McArthur & Pierre Prentice
Co-Portfolio Managers
Disclaimer: The information contained in this document is general information only and does not constitute investment or other advice. The contents of this document do not constitute an offer or solicitation to subscribe for units in the Asymmetric Opportunities Fund. Asymmetric Asset Management (AFSL No: 536830) accepts no liability for any inaccurate, incomplete or omitted information of any kind or any losses caused by using this information.