The Level 18 Fund decreased by -2.3 per cent net of fees for the month.

Commentary

The Level 18 Fund decreased by -2.3 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 declined by -3.6 per cent and -3.5 per cent respectively.  March extended February’s negative returns.  Uncertainty regarding the Trump administration’s new US tariff policy regime fuelled the market sell-off. 

The Level 18 Fund continues to navigate the short-term volatility and the investment risks.   The performance for the rolling 12 months to March 31, 2025 is +11.4 per cent after fees.  During the same period, the All Ordinaries Accumulation Index delivered a return of +2.2 per cent and the S&P/ASX Small Ordinaries Accumulation Index of -1.3 per cent respectively. 

Since inception (2012), the Level 18 Fund has outperformed the market, delivering a +12.2 per cent net return per annum versus the All Ordinaries Accumulation Index at +9.4 per cent.

The Australian market outperformed the US market during March.  Specifically, the All Ordinaries Accumulation Index declined by -3.5 per cent versus the S&P 500 at -5.8 per cent. The technology heavy Nasdaq Composite Index was down -8.2 per cent.    

US trade policy and tariff news continued to dominate the direction and tone of global markets.  Post the month close, the US administration formally announced a new tariff regime that was substantially larger and more wide-ranging than expected.  As a result, global markets moved significantly lower as investors priced the increased risks of inflation and a global recession.   

At the time of writing, the S&P 500 and Nasdaq Composite have decline by -17.6% and -22.6% from there recent highs respectively.   Markets have quickly moved to price the possibility of a global recession.

We see two scenarios over the next month. 

Firstly, the announced US tariffs are unchanged, demand contracts materially and the global economy moves into recession.  In that circumstance, equity markets are likely to fall further.   While we would expect the US federal reserve to lower interest rates in response, any rate cuts will only be possible if inflation doesn’t materially increase.

Alternatively, the US administration negotiates new trading terms with its major trading partners (European Union, Mexico, Japan, China & Canada) and a significant global recession is avoided.

We believe the second scenario is most likely.

The Trump administration appears willing to engage in negotiations with trading partners which implies the possibility that tariff levels could move lower versus current levels.  Brazil, India, and the EU have all signalled a desire to start bilateral discussions. 

Global markets have already moved to price a significant slowing of global demand.  Renegotiated trade deals between the US and it major trading partners should see a sharp recovery in equity prices.  

In the short-term, a lack of clarity regarding the structure of US tariffs will continue to negatively impact investor confidence, extending the market sell-off that started in February. 

Given the uncertainly, we have moved to defensively position the Fund to protect capital.  In the short-term, we have elected to temporarily increase our cash holdings to 50 percent and increased our exposure to less volatile large cap stocks. 

The tariff situation is complicated, and a rapid resolution seems unlikely.  As a result, we will continue to carefully manage market risk with portfolio diversification and stock specific exposures. 

Notwithstanding the selloff, we have identified a range of potential new investments which appear well-positioned in the current market.  We expect the market to ‘price’ the risks associated with the new Trump administration policy changes quickly once it has clarity on the detail.  While precise timing is difficult to forecast, we are positioned to add additional investments to the portfolio once the investment risks moderate. 

During March in Australia, Gold was the strongest performer as investors sort safe-haven assets in the midst of escalating policy and geopolitical risks.  Gold increased in value by +10.6 per cent in USD terms while gold stocks also outperformed.  Defensive companies were also robust performers in a declining market.  Utilities, Telecom and Insurance were all up +1-2 per cent in the month. 

Technology underperformed.  The sector was down -5.7 per cent.   Exacerbating the underperformance within the technology sector was the ‘high-multiple’ risk-off decline that took place in March.

Australian equity valuations declined in the month.  The 12-month forward market price to earnings multiple (PER) is now sitting at 16.9x vs 17.5x a month ago.  Small Caps continue to trade at a discount to large caps.  The 12 month forward small cap PER multiple is currently 14.5x versus large caps at 16.9x . Consensus earnings estimates for FY26 currently imply growth of +8.0 per cent. 

At the most recent RBA meeting, the Board decided to leave the cash rate target unchanged at 4.10 percent.  The RBA noted that, “inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.” 

In addition, the RBA indicated that recent data also suggests underlying inflation continues to ease.  Importantly, the RBA noted the potential for increased risks associated US tariffs and geopolitics on global markets and confidence.  As a result, investors are increasingly confident that the RBA will cut rates in May.  Specifically, consensus now forecast an 82 per cent chance the RBA will cut to 3.85 per cent at its May 20 meeting versus a forecast of 70 per cent previously.

Level 18 Fund holding RPMGlobal (RUL) performed well during March.  At the 1H FY25 result the company announced the divestment of its global Advisory division to SLR Consulting for $63M in cash.  The transaction has now been finalised.  Subject to an ATO ruling, the proceeds will be distributed as a capital return to shareholders. 

Positive contributors to the Fund in March include life insurance product provider ClearView Wealth (CVW), telecom and information services provider Telstra (TLS), branded dairy and food provider Bega Cheese (BGA) and communication and metal detection group Codan (CDA). 

Online automotive, motorcycle and marine classified business CAR Group (CAR), online software accounting and business solution group Xero (XRO), Payments and finance provider Zip Co (ZIP) and specialty asset maintenance engineering group SRG Global (SRG) made negative contributions to the 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.