The Level 18 Fund increased by +1.3 per cent net of fees for the month.

Commentary

The Level 18 Fund increased by +1.3 per cent net of fees for the month. 

During the month the S&P/ASX Small Ordinaries Accumulation Index and the All Ordinaries Accumulation Index increased by +1.8 per cent and +3.6 per cent respectively.  April delivered a strong intramonth recovery in both international and local markets.  The performance in the month reversed the negative trend of the previous two months.  Investors largely assumed the risks associated with the Trump administration’s new US tariff policy regime were priced into market valuations and a recovery rally was delivered.

The Level 18 Fund continues to navigate the short-term volatility and the investment risks.   The performance for the rolling 12 months to April 30, 2025 is +13.9 per cent after fees.  During the same period, the All Ordinaries Accumulation Index delivered a return of +8.8 per cent and the S&P/ASX Small Ordinaries Accumulation Index of +3.7 per cent respectively. 

Since inception (2012), the Level 18 Fund has outperformed the market, delivering a +12.3 per cent net return per annum versus the All Ordinaries Accumulation Index at +9.7 per cent.

The Australian market outperformed the US market during the month.  Specifically, the All Ordinaries Accumulation Index increased by +3.6 per cent versus the S&P 500 at -0.8 per cent. The technology heavy Nasdaq Composite Index delivered a positive return of +0.9 per cent.    

It was a heavy news flow month for equity markets.  On April 2, the Trump administration formally announced details regarding promised “reciprocal” tariffs, including a 10 per cent baseline tax on imports from all countries.  In response, the S&P 500 delivered its worst two-day sell off since March 2020 as investors explored to implications for global trade and economic growth. 

Shortly after (April 9), the president announced a 90-day pause on high-level reciprocal tariffs.  The prospect of potential trade negotiations led to the S&P 500 posting its best day since October 2008. 

China was excluded from the pause, with tariff rates instead lifting further to 145 per cent.  In retaliation, the Chinese elected to increase tariffs on US imports to 125 per cent.  Later in April, President Trump indicated that Chinese tariffs were likely to be substantially reduced, and automotive sector tariffs were moderated. 

Against the uncertain US tariff backdrop, equity strategists revised their year-end Index targets and generally increased estimates regarding the likelihood of a US recession in 2025.  Specifically, Goldman Sachs raised the odds of a US recession to 45 per cent versus 35 per cent previously but moderated the call following the announced tariff pause.

On the economic front, the initial first quarter reading for annual US GDP delivered a decline of -0.3 per cent driven by front loaded pre-tariff imports and a drop in government spending.   US consumer confidence also dropped to its lowest level since the 1H of 2020.  Not surprisingly, the US quarterly reporting season delivered mixed outlook commentary from many of the management teams. 

We have been surprised by the strength of the rally in equity markets given the significant economic and valuation risks that still exist in the current environment.  The rebound on share markets since the market bottomed on April 8 has been remarkable: the S&P 500 is now up +11.7 per cent and the ASX 200 up an impressive +10.1 per cent to April 30.

The Level 18 Fund continues to hold structurally high levels of cash.  We expect market volatility to persist until more tariff/trade clarity emerges.  However, we expect the Trump policy swings to moderate over the remainder of 2025 and believe the investment outlook, particularly in Australia, is becoming more constructive.  Our cash levels have now declined from 50 per cent to approximately 40 per cent.  Over the next quarter and post the annual corporate earnings ‘confession’ season in May, we expect the cash position to return to normal levels at 5 -10 per cent.  We believe the outlook for the 2H of 2025 is constructive and expect domestically exposed businesses that operate along Australia’s east coast to offer investment opportunities that are more insulated from Trump’s tariffs.

We continue to monitor Central Bank activity and monetary policy closely.  At the most recent RBA meeting, the Board decided to leave the cash rate target unchanged at 4.10 percent.  In April, the annual headline CPI rate was flat at 2.4 per cent.   We expect the Reserve Bank of Australia to cut the cash rate several times this year, which would inject fresh momentum into household spending and boost consumer-facing stocks.

During April in Australia, the Financial sector was the strongest performer as investors sort liquidly and leverage to an improving outlook.  Discretionary and real estate exposures were the next best performers.  Commonwealth Bank (CBA) and Wesfarmers (WES) were strong, up +10.4 per cent and +8.8 per cent respectively. 

Energy underperformed.  The sector was down -7.7 per cent.   Woodside Energy (WDS) was down -10.3 per cent in the month.

Positive contributors to the Fund in April include internet service provider Superloop (SLC), equipment financing and broking business COG Financial Services (COG), branded dairy and food provider Bega Cheese (BGA) and residential & commercial real estate group Mirvac (MGR).   

SME banking service provider Judo Capital (JDO), Construction and maintenance group GenusPlus (GNP), data centre service provider Macquarie Technology Group (MAQ) and life insurance product provider ClearView Wealth (CVW) made negative contributions to the performance in the month. 

The following link (AFR  Article_Matthew Kidman) to a recent interview with Matthew Kidman  in The Australian Financial Review provides readers with additional detail regarding how the Fund’s flexible mandate allows us to defend ourselves in bad markets and to take advantage of better markets.

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.