The Level 18 Fund increased by +2.5 per cent net of fees for the month.

Commentary

The Level 18 Fund increased by +2.5 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 +0.8 per cent and +1.4 per cent respectively. 

For the year to June 30 2025, The Level 18 Fund increased by +14.8 per cent after fees compared to the All Ordinaries Accumulation Index at +13.2 per cent and the S&P/ASX Small Ordinaries Accumulation Index at +12.3 per cent respectively.    

Importantly, the Fund has continued to outperformance the market.  Since inception (2012), the Level 18 Fund has delivered a +12.5 per cent net return per annum versus the All Ordinaries Accumulation Index at +10.1 per cent.

FY25 was a strong year for both international and Australian markets. The Australian market and the US market achieved all-time highs in June.

The second half of the financial year delivered significant share price volitivity for investors associated with the Trump administration’s trade policy tariff announcements and news flow associated with ongoing geopolitical tensions in both Europe and the Middle East. 

In Australia, the RBA continued to cut rates.  Another cut in May followed the first move down in February 2025.  Rates have now declined by 50bps to 3.85 per cent.  Recently, the RBA revised down its average estimate of the nominal neutral cash rate from 2.9 per cent to 2.7 per cent.   With headline inflation now within the RBA’s target range, we expect several further cash rate cuts over the next 12-18 months.  

Lower rates are likely to inject fresh momentum into domestic household spending, consumer demand and GDP over the next 12 to 24 months. 

In June, global equity investors shifted focus from the Trump administration’s tariff headlines to geopolitical risks in the Middle east.  The conflict drove a short-lived rally in the oil price.  Despite the obvious risks, global equity markets performed well.  During the month, the S&P 500 and Nasdaq Composite increased by +5.1% and +6.6% respectively.  

In Australia, the equity market rally from the April 7 low continued into June.  The industrial sector outperformed resources.  Energy was the best performing sector followed by Financials.  Materials underperformed.

Notwithstanding a volatile and eventful period for global equity markets in the last six months, we remain bullish regarding the outlook for the Australian market, particularly small caps that are delivering above market growth.     

Specifically, we expect the housing and domestic defence sectors to perform well in the next year. 

Government housing policy designed to boost supply and affordability is expected to deliver additional growth for companies exposed to the sector.  Specifically, the construction & development sector (land release and construction) plus household retailers (hardware, furniture, floor covering and bedroom products) are expected to perform well.  Construction plans for new and upgraded venues associated with the Brisbane 2032 Olympics are also expected to contribute economic growth in Queensland over the medium to long-term.  

We also expect heightened geopolitical tensions in the Indo-Pacific region to deliver an increase in domestic defence spending over the medium to long-term.  Additional expenditure for the construction of critical infrastructure and security is set to benefit a number of companies with defence engineering and construction capabilities.    

The Australian small cap sector currently trades at a 30 per cent valuation discount to large caps.  The small cap 12-month forward market price to earnings multiple (PER) is now sitting at 13.3x vs the large caps 18.9x. 

Given the fundamental growth drivers outlined above and the higher exposure to the domestic economy for small caps, we believe the sector can deliver superior earnings growth over the next year.  As a result, the PER valuation gap is likely to close and small caps are expected to deliver outperformance over the next 12 to 18 months.   

Since inception, the majority of the Level 18 Fund’s outperformance has been generated through exposure to small cap companies.  Going forward, we expect our unchanged stock selection process to deliver ongoing outperformance.

Positive contributors to the Fund in June include payments and finance provider Zip Co (ZIP), internet service provider Superloop (SLC), construction and maintenance group GenusPlus (GNP), motor vehicle retailing & services group Autosports Group (ASG) and direct real estate investment group Qualitas (QAL). 

Online software accounting and business solution group Xero (XRO), wealth management digital platform group, Praemium (PPS) and aftermarket commercial parts supplier Supply Network (SNL) 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.