Sam Twidale
As investors focus on the prospect of a strong recovery from the coronavirus pandemic combined with significant pent-up demand and rebound of the global economy over coming quarters, the DNR Capital Australian Emerging Companies Fund[1], continues to show impressive results.
Sam Twidale, Portfolio Manager for the DNR Capital Australian Emerging Companies Fund says: “We are positioned across a broad range of opportunities, including the more cyclical areas of the market like resources and consumer discretionary, reopening stocks that will benefit from a normalisation of the pandemic, and quality growth stocks that we believe are attractively priced.
“Although the macroeconomic outlook is receiving a lot of attention given the debate around inflation/deflation and the direction of bond yields, we continue to search for strong bottom-up opportunities, with a preference for companies that can deliver value for shareholders regardless of the prevailing economic environment.
“Given the lessons learnt following the GFC when a number of economies suffered double-dip recessions and anaemic growth, there appears limited appetite to tighten policy too prematurely. This is providing a supportive environment for equities and general risk appetite levels.
“Given this backdrop, many of the more cyclical sectors of the market performed strongly recently.
“Of the Fund’s holdings, this included companies exposed to housing like Reece (REH), a leading supplier of bathroom and plumbing products. Commodity prices also strengthened further, benefiting holdings in the Materials sector like IGO (IGO) and Orocobre (ORE) who are exposed to growth in renewables investment and electric vehicles.
“We continue to focus on high-quality business models with positive long-term outlooks. For example, we recently added to the Fund’s holdings in Breville Group (BRG), with the shares having fallen nearly 20% since the positive update in February. However, we remain cautious on those areas of extreme valuation, with many of the secular growth stocks still on elevated valuations and with optimistic earnings forecasts.
“A key risk surrounding the market outlook is a pickup in inflation, especially given the unprecedented scale of the stimulus measures. A number of companies are already warning of increased inflationary pressures, which we expect to build further as the global economy recovers and capacity utilisation tightens,” notes Twidale.
The DNR Capital Australian Emerging Companies Fund has a ‘Recommended’ rating from leading ratings house Zenith Investment Partners.
The Fund reported returns[2] of 16.18%p.a. since its inception in August 2018, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 8.39%p.a.
The Fund takes a concentrated approach, investing in between 20 and 45 stocks. Its investable universe is the ASX Small Ordinaries Accumulation Index. It has an active share greater than 75 per cent – a measure of active management that tracks the extent to which the Fund varies from the composition of its benchmark index.
Twidale adds: “We back quality small cap companies because we believe they can successfully reinvest capital and achieve pricing power that allows them to grow above inflation.
“Additionally, these companies have strong balance sheets that allow them to ride out cycles, along with providing strategic optionality.”
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