Performance Summary
* All Platypus Performance data is provided on an after fees basis.
Past Performance
April 2010
Month in Review
The Platypus portfolio declined by 2.8% in April, underperforming the benchmark ASX/S&P300 accumulation index by 1.4%. Positions in Financials, Healthcare and Energy sectors were the major contributors to the negative performance. Only Industrials added to the relative return of the portfolio during the month. At the stock level there were no outright disasters during the month, rather a large number of relatively small negative contributions from stocks we do not hold as well as companies in the portfolio. Po Valley Energy was the worst performer in the portfolio while Medusa Mining was the best during April.
Turnover in April was about 6% of the portfolio. We sold four small cap resources investments during the month representing due to a combination of project delays and/or poor project delivery. We continued to reorganize our retail exposure, reducing Woolworths, JB HiFi and David Jones but adding to Wesfarmers and Super Cheap Auto. Super Cheap announced an acquisition during the month of Ray’s Outdoors, funded by a capital raising. Super Cheap has continued to trade well in a tough retail environment and has managed to secure a highly complementary business at what could be the bottom of the cycle. We also added Wotif.com to the portfolio during the month and added to our holdings in CSL.
Sector in Review
The equity market broke to new highs in the first two weeks of April only to reverse over the second half of the month. Strong profit results from US companies for the March quarter were not enough to offset renewed concerns over the solvency of Greece.
Healthcare (-6.75%) was the worst performing sector due to a +10% fall in CSL which represents 50% of the Healthcare index. CSL declined due to a poor result from competitor Baxter International, and despite CSL reiterating their profit guidance for 2010 investors applied the theory of naive extrapolation to their CSL holdings and dumped the stock. Other poor performing sectors included Consumer Staples (-4.02%) which was impacted by disappointing sales results from Woolworths and Wesfarmers and Materials (-3.86%). Telecommunications (+5.49%) and Financials (+0.87%) were the only sectors to rise during the month.
Outlook
Looking forward, the market is still in the sideways trading range that was established in October of 2009, governed by 5000 points on the upside and 4400 points on the downside. The S&P/ASX300 recently made a new high but retreated soon after as sovereign debt issues in Europe took centre stage once more. Combined with the Rudd governments proposed Resources Super Profits Tax (RSPT) the sell-off in Australian equities has accelerated in recent days as foreign investors flee a market that now carries more sovereign risk. Given the uncertainty of this new tax and the implications for our listed mining companies we expect the market to trade cautiously over coming weeks and possibly months. We are unlikely to see a break-out of the trading range to new recovery highs until we get some clarity on the RSPT, which may not happen until after the next Federal election.
Banks have produced a good set of interim results as expected, driven by a reduction in bad debt charges. However, bank share prices have sold off dramatically as many analysts have raised concerns about margin pressure and slower than expected revenue growth. We still believe that the banking sector offers a good risk-reward investment case as the economic recovery continues and credit growth improves. The Resources Super Profits Tax has seen a dramatic sell off in resource stocks, especially for the larger mining companies such as BHP Billiton and Rio Tinto which will disproportionally bear the burden of this new tax. We see opportunity in this sector as natural resource share prices overcompensate for the impact of the RSPT and fluctuate more around opinion polls than commodity prices. In addition it is worth remembering that a lot of the corporate activity in the sector to date has been from entities looking for resource security more than financial rewards.
The retail sector has also been subject to weakness as companies post lacklustre sales figures. This is a consequence of cycling previous stimulus packages combined with price deflation, driven by heightened discounting and low fresh food prices. While we expect the sector to remain under pressure over the next couple of months we would also treat any material sell off as an opportunity to add to positions as difficult comps roll off and the RBA pauses. The Bank has recently changed its rhetoric on rates, suggesting the cash level of 4.5% level is “around average levels”. Given the obvious impact recent rate hikes have had on the domestic economy (most notably in retail sales) and heightened risks from offshore we believe rates are on hold for the foreseeable future, which should give retail a much needed boost.
Monthly Performance
*After fees.
Performance These figures represent past performance only. Past performance is no indication of future performance. Neither Platypus Asset Management Pty Limited, nor any of its representatives makes any representation as to the future performance or success of the fund. General Platypus Asset Management Pty Limited believes that the information contained in this document is accurate as at this time and date of issue. However, Platypus Asset Management Pty Limited provides no warranty of accuracy or reliability in relation to any information contained in this document and to the extent permitted by laws accepts no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether expressed or implied (including responsibility to any person by reason of negligence) is accepted by Platypus Asset Management Pty Limited, officer, agent or employee of Platypus Asset Management Pty Limited.