Embed Size (px)
Citation preview
1
Bridges Presentation
The Role of Small Caps in Volatile Markets June 2012
Celeste Australian Small Companies Fund
2
Celeste Funds Management Business Overview
• Celeste Funds Management is an Australian based equities manager with a focus on listed small companies.
• The Celeste Investment team has over 90 years of financial markets experience.
• Celeste Funds Management is 59% owned by the Investment Team and 39% by the ASX listed Treasury Group (TRG). All staff of Celeste Funds Management are equity holders in the business.
• The Celeste investment style is process driven and style neutral.
• As at 30th March 2012 Celeste managed over $500m in Australian equities.
• Our investment objective is to outperform our benchmark by 5% pa, over rolling 3 year periods, after fees.
3
Celeste Funds Management Why allocate to Small Caps?
• The Small Cap market is under researched due to the size of the opportunity set and
the specialist skills required to analyse the sector
• The Small Cap opportunity set is over 90% of all listed companies, but around 8% of
aggregate market value
• Stock selection is critical to the generation of superior returns in the Small Cap sector
• Returns in Small Cap space are very stock specific and hence an investor’s selection
of asset manager is critical
4
Celeste Funds Management What is the Australia small companies sector?
• Small companies can offer
growth rates which are
often greater than their
large cap peers
• Small companies may offer
industry exposures that are
not available in the large
cap space
• Small companies often
trade on attractive
fundamentals compared to
their large cap peers – with
small companies generally
having lower PE’s & EV’s
with higher dividend yields
$10,000 invested in 1990 grows to:
– Australian Small Cap Manager - $212,000
– Australian Equity Manager - $88,000
– S&P/ASX 100 - $77,000
– S&P/ASX Small Ordinaries - $53,000
Celeste Funds Management ASX S&P/Small Ords historic performance
The June quarter to date is down over 15%. Whilst this represents one of the more negative return
periods, it is not unusual. Historical data shows very poor quarters are often followed by very
strong quarters.
Dec-09
Dec-11 Jun-05
Mar-11 Mar-05
Mar-10 Jun-04
Mar-09 Mar-04
Jun-08 Dec-03
Dec-07 Mar-02
Sep-07 Sep-00 Mar-07
Jun-06 Jun-99 Sep-06
Dec-05 Sep-98 Dec-04 Mar-12
Mar-03 Mar-98 Jun-01 Dec-10
Dec-02 Sep-97 Dec-99 Jun-07
Sep-02 Jun-97 Sep-99 Sep-05
Jun-11 Dec-00 Mar-97 Mar-99 Sep-04
Jun-02 Mar-00 Dec-95 Dec-98 Jun-03
Sep-11 Mar-01 Jun-94 Jun-95 Dec-96 Sep-95 Sep-10
Jun-10 Jun-00 Sep-92 Sep-94 Sep-96 Sep-93 Dec-06
Jun-12 Mar-06 Dec-97 Jun-92 Mar-94 Jun-96 Jun-93 Sep-03
Sep-08 Sep-01 Mar-95 Mar-92 Dec-92 Mar-96 Mar-93 Dec-01
Dec-08 Mar-08 Jun-98 Dec-94 Jun-91 Dec-91 Sep-91 Mar-91 Dec-93 Sep-09 Jun-09
-30 to -25 -25 to -20 -20 to -15 -15 to -10 -10 to -5 -5 to 0 0 to +5 +5 to +10 +10 to +15 +15 to +20 +20 to +25 +25 to +30
Small Ords Accum. Index - Quarterly Returns (%) 1991 to 2011
Celeste Funds Management ASX S&P/Small Ords historic performance
Calendar year 2011 was a challenging year for the Small Ordinaries Accumulation Index being
down 21.4%.
Whilst the 2011 Small Ordinaries Accumulation Index performance was poor, the average return
over the last 20 years is some 11.5% per annum.
Small Ords Accum. Index - Annual Total Return (%) 1991 to 2011
2010
2002 2007
1997 2005 2004
1994 2001 1995 1999 2006
2008 2011 2000 1992 1998 1991 1996 2003 2009 1993
-60 to -50 -50 to -40 -40 to -30 -30 to -20 -20 to -10 -10 to 0 0 to +10 +10 to +20 +20 to +30 +30 to +40 +40 to +50 +50 to +60 +60 to +70
Celeste Funds Management Small Cap Valuations
Small Cap – Median P/E
8
Celeste Funds Management Investment Process
Our investment process requires an understanding of:
• The Business Model – durability, robustness, competitive moat
• The Quality of Accounting – conservative or aggressive in nature
• Management and Board – how do we rate the stewards of capital
• ESG / Responsible Investment – ‘triple bottom line’ sensitivity and ‘value
at risk’ awareness
9
Celeste Australian Small Companies Fund Rules for Small Cap Investing
• Do I understand what the company does?
• People make the difference – do the management and board act in the interests of
all shareholders?
• There is no substitute for earnings and cashflow generation
• Can I identify the key variables in a company & how predictable are they?
• Is there potential to leverage the intellectual property base / business model?
• Does the business have a point of competitive differentiation / advantage?
• Do I know what the business will look like in five years time?
• Never lose sight of valuation
• A flexible mind set and lateral thought process are critical analytical tools
• There is no price to buy a company with poor accounting practices
• How much of the company's current capitalisation could be borrowed if it were a
private company?
10
Celeste Australian Small Companies Fund Portfolio Positions – as at 31st May 2012
Established brands
High Return on Equity
Experienced People
Market Share
Conservative Accounting
Operating History
Intellectual Property
Unique Customer Relationships
Code Name Active
Weight
BRG Breville Group 5.4%
SKE Skilled Group 4.8%
AUB Austbrokers Holdings 4.3%
TPI Transpacific Industries Group 4.1%
RCR RCR Tomlinson 3.3%
NUF Nufarm limited 3.3%WSA Western Areas 3.0%SGN STW Communications 3.0%
WHG WHK Group 3.0%
DTL Data #3 2.9%
11 11 11
Celeste Australian Small Companies Fund
Fund at a Glance
Management Fee 0.95%
Performance Fee 20% of outperformance relative to ASX/S&P Small Ordinaries Accumulation Index,
subject to a high water mark
Benchmark S&P/ASX Small Ords Accumulation Index
Investment objective Benchmark +5% pa over rolling 3 years
Risk Management
Stock number 30 to 40
Cash generally held at a transactional level of less than 5%
Stock Holding Limit 1% to 10%:
Company issued Capital Maximum 10%
Average Portfolio Turnover 20% to 30% p.a. - the portfolio generally turns over every 3 to 4 years
Expected Tracking Error 8% to 12% - not explicitly targeted but an outworking of our investment process
Sector Bias No structural sector bias
12 12
Contact Details
Celeste Funds Management Level 14, 15 Castlereagh Street, Sydney NSW 2000
GPO Box 4266, Sydney NSW 2001
T 02 9216 1800
F 02 9216 1899
www.celestefunds.com.au
Frank Villante
Chief Investment Officer
02 9216 1820
Andreas Stephens
Investment Analyst
02 9216 1860
Paul Biddle
Investment Analyst
02 9216 1840
Scott Armstrong
Investment Analyst
02 9216 1815
Stephen Hanich
Operations Manager
02 9216 1890
Peter Walsh
Head of Retail Distribution
Treasury Group
02 8243 0404
Shani Maund
Client Service Manager
Treasury Group
02 8243 0425
Yumi Baldeon
Client Services Manager
Treasury Group
02 8243 0425
13 13
Celeste Funds Management Disclaimer
This information is not intended to provide advice to particular investors, or take into account an individual’s
investment objectives, circumstances and needs for investment. Investors should consult a financial adviser.
This information was prepared by Celeste Funds Management Limited (ABN 78 098 628 605).
To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on
this information. No Company in the Celeste Funds Management Group guarantees the performance of any
Fund or the return of an investor’s capital.
The offer to invest in the Celeste Fund Management Funds is made in a copy of the current disclosure
document for the relevant Fund. Anyone wishing to invest in the Funds will need to complete the application
form in the current disclosure document for the relevant Fund. Total returns have been calculated using gross
returns. Past performance is not indicative of future performance.
14
Celeste Funds Management Appendix A: Portfolio Performance – 31st May 2012
Celeste
Australian Small
Companies
Fund
S&P/ASX
Small Ords
Acc Index Performance
1 month (%) -7.3% -10.2% +2.9%
3 months (%) -2.8% -10.9% +8.1%
6 months(%) +5.5% -2.1% +7.6%
1 Year (%) -4.5% -14.9% +10.4%
2 Year (%pa) +7.5% +0.3% +7.2%
3 Year (% pa) +16.6% +6.2% +10.4%
4 Year (% pa) +5.3% -7.4% +12.7%
5 year (% pa) +0.1% -8.0% +8.1%
7 year (% pa) +8.5% +3.4% +5.1%
10 year (% pa) +12.2% +6.6% +5.6%
Inception (% pa) 31 May 1998 +16.6% +5.5% +11.1% Net returns, including reinvestment of distributions
15
Celeste Australian Small Companies Fund
Appendix B: Distribution History
Total dist. (YE) Cents
Per Unit
Annual
Yield %*
June 99 3.07 2.9
June 00 17.37 11.3
June 01 13.88 7.8
June 02 27.17 14.2
June 03 7.01 3.9
June 04 21.71 11.2
June 05 49.48 19.5
June 06 18.88 7.3
June 07 34.32 12.3
June 08 38.82 9.9
June 09 10.06 4.2
June 10 18.70 8.9
June 11 11.89 4.6 *CPU/unit price at beginning of period.
