The Level 18 Fund increased by +2.3 per cent net of fees for the month.

Commentary

The Level 18 Fund increased 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 increased by +5.8 per cent and +4.2 per cent respectively. 

In contrast to April, small caps outperformed large caps as investors moved capital to cheaper, higher growth companies.  In the last 18 months, market performance in Australia and in the US has been dominated by a small number of large cap stocks, we expect the trend to reverse as investor risk appetite returns to the market.  Small cap outperformance is expected to continue in the future, particularly in the next year.     

May was a strong month for the Australian equity market, extending the positive performance in April.  Investors continued to discount the risks associated with the Trump administration’s proposed US tariffs.  On the back of reports suggesting US trade deals with the EU and Japan were close, the market rallied to pre-tariff announcement highs (April 2).  At the end of the month, the US indicated that President Trump and China’s President Xi were likely to hold trade talks regarding tariffs in the next week. 

The Level 18 Fund continued to move capital out of defensive large caps and into several new small cap investments during May.  Post the Trump tariff volatility, cash levels are closer to normal levels (80 per cent), and the portfolio is now positioned to benefit from the earnings growth recovery we expect from the ex-100 universe of companies. 

Our bullish view of the market is based on a number of constructive investment themes.  Given annual headline inflation has now declined to within the Reserve Bank of Australia target range, we expect the RBA to cut rates several times this year.  This is expected to inject fresh momentum into household spending and to boost the value of consumer-facing stocks.  The RBA has now cut interest rates twice since the peak in late 2023. 

Secondly, post the recent Federal election where the government was returned with an increased majority, we expect announced housing policies designed to boost supply and affordability to deliver additional growth for companies exposed to the sector.

Combined, these growth drivers are expected to inject fresh momentum into household spending and consumer demand within the Australian economy.  Post the upcoming FY25 reporting season, we would not be surprised to see consensus earnings upgrades for companies exposed to domestic demand.  Recent additions to the portfolio have been Cedar Woods Properties (CWP), Nick Scali (NCK), and Australian Finance Group (AFG).

The Level 18 Fund’s performance for the rolling 12 months to May 31, 2025 is +15.2 per cent after fees.  During the same period, the All Ordinaries Accumulation Index delivered a return of +12.4 per cent and the S&P/ASX Small Ordinaries Accumulation Index of +9.8 per cent respectively. 

In the longer-term the Fund has consistently outperformance the market.  Since inception (2012), the Level 18 Fund has outperformed the market, delivering a +12.4 per cent net return per annum versus the All Ordinaries Accumulation Index at +10.0 per cent.

During May in Australia, the Technology sector was the strongest performer (+18.8 per cent) as investors sort exposure to earnings growth and AI leverage. Gold was also a solid performer (+10.5 per cent) as earnings upgrades continued despite a flat gold price.

Defensives performed poorly.  Utilities (+0.3 per cent) were the worst, followed by Staples (+1.2 per cent) and Healthcare (+1.4 per cent).  Earnings downgrades contributed to the poor performance of the Consumer Services group, IDP Education (IEL) and Aristocrat Leisure (ALL) were down -12 per cent and -6 per cent respectively. 

Positive contributors to the Fund in May include Construction and maintenance group GenusPlus (GNP), specialty asset maintenance engineering group SRG Global (SRG), direct real estate investment group Qualitas (QAL) and property investment & development group Cedar Woods Properties (CWP).

Wealth management digital platform group, Praemium (PPS), motor vehicle retailing & services group Autosports Group (ASG) and Audio-visual & electrical contractor SKS Technologies (SKS) made negative contributions to the performance in the month. 

The following link (AFR Article - Michael Carmody) to a recent interview with Michael Carmody in The Australian Financial Review provides readers with additional detail regarding our bullish outlook for small caps and our preference for investments with domestic earnings growth.  

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.