The Level 18 Fund increased by +2.0 per cent net of fees for the month.

Commentary

The Level 18 Fund increased by +2.0 per cent net of fees for the month. 

During the month the S&P/ASX Small Ordinaries Accumulation Index increased by +5.1 per cent and the All Ordinaries Accumulation Index increased by +3.4 per cent.

For the September quarter, the Level 18 Fund returned +7.1 per cent net compared to the All Ordinaries Accumulation Index at +7.9 per cent and the S&P/ASX Small Ordinaries Accumulation Index at +6.5 per cent.  Since inception (2012), the Level 18 Fund has delivered a +12.7 per cent net return per annum. 

September is traditionally a poor month for global equities and the month started as expected.  Initially, investor concerns regarding the growth outlook for the US economy and fears of a recession contributed to the market sell off in the first week of the month.  However, a 50 bp cut in interest rates from the Federal Reserve provided investors with the confidence to buy equities.  Markets in both Australia and the US finished the month in positive territory.

In Australia, the resource sector delivered a strong rally into the end of September following the announcement of several new monetary and fiscal policy changes in China.  In addition to interest rate cuts, a relaxation of mortgage policy, further housing and social welfare policy reform in China was welcomed by investors.  The surprising news delivered a strong rotation into resource-exposed stocks. 

While a degree of scepticism remains regarding the effectiveness of the proposed measures to turnaround growth in the Chinese economy, the magnitude of the policy announcements exceeded market expectations.  It remains to be seen whether the strong market rally in China exposed stocks can be sustained.  Given the structural challenges in the Chinese economy, we wouldn’t be surprised if the recent rally proves to be somewhat short-lived. 

Now that the US Federal Reserve has joined the Bank of England, the Bank of Canada, the Reserve Bank of New Zealand and several major European Central Banks in delivering interest rate cuts, it is important to consider how markets normally respond post the start of a rate cutting cycle.  Despite the economic cycle in Australia lagging the US by approximately 9 to 12 months, the US equity market remains an important lead indicator for the local market.  According to Schroders research, “in the 12-months after the US Federal Reserve starts cutting interest rates, the average return from US stocks has been +11 per cent ahead of inflation.”

As interest rates decline, we expect corporate earnings to recover.  In the first phase of a rate cutting cycle, revenues tend to increase on reduced cost bases which combined deliver expanded operating margins and profitability.  In the absence of any extraordinary global events, our bullish outlook for the equity market is unchanged. 

We continue to identify good investment opportunities at attractive valuations.  We currently own several structural growth stories such as XERO (XRO), Supply Network (SNL) and Pro Medicus (PME) as well as several small cap exposures in the financial services sector such as Judo Capital (JDO), Zip Co (ZIP) and Humm Group (HUM). 

Positive contributors to the Fund in September include payments and finance provider Zip Co (ZIP) post a strong FY24 result, dairy product processor, manufacturer & distributor Bega Cheese (BGA), healthcare imaging and radiology software business Pro Medicus (PME) and enterprise software billing company Gentrack (GTK).

Cross platform gaming content developer Light & Wonder (LNW), Internet service provider Superloop (SLC) and electrical, communications & maintenance provider Southern Cross Electrical Engineering (SXE) made negative contributions to performance in the month. 

The Level 18 Fund Information Memorandum (IM) and application form are available on the Centennial Asset Management website.  Please note existing unit holders are only required to compete a one-page additional application form.  The following link (https://www.centennialfunds.com.au/) provides access to the IM and application documents.

Thank you as always for your continued support and please contact Michael Carmody (mcarmody@centennialfunds.com.au or +61 2 8071-9215) if you would like any further details.

The Centennial Team

Monthly Net Returns Since Inception

About Centennial Asset Management
Centennial Asset Management is an independent Australian asset management business, and the manager of the Level 18 Fund, an index unaware fund, with asset allocation flexibility and a concentration of small capitalised companies.  Further information on Centennial is available on our website - www.centennialfunds.com.au

Disclaimer
Strictly confidential: This report has been prepared by Centennial Asset Management ACN 605 827 745 & AFSL No. 515887 for Wholesale Clients only as an indicative record of the performance of an investment in the Level 18 Fund. No recommendation is made or advice given in respect of any entity in which the Level 18 Fund has, is or may in the future be, invested. The contents of this report are confidential, and the client may only disclose such contents to its officers, employees or advisers on a need to know basis, or with the prior written consent of Centennial Asset Management. Centennial Asset Management does not guarantee the performance of the Level 18 Fund or the return of any investor's capital in the Level 18 Fund. This investment report contains historical information, and does not imply any indication of future performance, recommendation or advice. Past performance is not a reliable indicator of future performance. Any investment needs to be made in accordance with and after reading any relevant offer document. This material has been prepared based on information believed to be accurate at the time of publication. Assumptions and estimates may have been made which may prove not to be accurate. Centennial Asset Management accepts no responsibility to correct any such inaccuracy. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information. To the full extent permitted by law, none of Centennial Asset Management, or any related body corporate or any officer or employee of any of them makes any warranty as to the accuracy or completeness of the information in this report and disclaims all liability that may arise due to any information contained in this newsletter being inaccurate, unreliable or incomplete.  *Prior to launch of the Level 18 Fund on 1 September 2014, Centennial Asset Management had established a separately managed account (“SMA”) and performance prior to 1 September 2014 is illustrated on a gross pro-forma basis, that invests with the same mandate as the Level 18 Fund and is included in the tables above, for comparative purposes only. The returns assume reinvestment of distributions.