Dear investor

2022 will be remembered as a difficult year for Third Link Growth Fund from three perspectives:

• Poor investment performance
• A difficult transition to a new Responsible Entity and custodian
• Website fallout from a ransomware attack

Poor investment performance
Share markets around the world performed poorly in 2022, primarily caused by rapidly rising inflation and interest rate hikes (which affects the valuation of shares) to combat inflation.  In addition, investors continued to be very concerned with rising energy prices, the instability of the Russia/Ukraine war and the dramatic slowdown in the Chinese economy caused by its Covid lockdown situation.

For the year ended 31 December 2022, the Third Link Growth Fund returned -18.2% after fees.  While this in itself is disappointing for our investors, even more disappointing was that the Fund underperformed its benchmark (the S&P/ASX 300 Accumulation Index) by 16.4%, which was the worst year in Third Link’s 14-year history.  So why was this the case?

The performance of the Australian share market over calendar 2022 was remarkable because of the very unusual differences in the performance of different-sized companies.  Consider the following returns from these parts of the market:

• Total return for the ASX20 (the 20 largest companies) = +3.63%
• Total return for the ASX100 (the 100 largest companies) = +0.63%
• Total return for the ASX200 (the 200 largest companies) = -1.08%
• Total return for the Small Ordinaries = -18.38%
• Median return for all ASX companies = -30.91%

Given that Third Link Growth Fund tends to invest with underlying investment managers that target small to mid-sized companies, it is no surprise that the Fund has performed poorly compared to the performance of larger companies.  Investors tend to perceive large companies as safer when returns start falling significantly.  So when the world seems as risky as it has in 2022, investors move their money from small companies to large ones.  The good news is that markets tend to “mean revert”, so we expect a strong rebound in the smaller companies sector at some stage in the near future.

The poor performance of Third Link Growth Fund over 2022 has prompted a thorough review of all the underlying managers used within the Fund.  Following this review, we were very satisfied that the manager selection criteria is appropriate, and we have an extremely capable group of managers within the Fund.  We are confident that the strong performance that Third Link Growth Fund has produced over the years will return as share markets recover.

Although 2022 has been a disappointing year for Third Link investors, it is heartening to see that the long-term returns of the Fund are still strong.  In the nearly 11 years that Third Link Growth Fund has been operating as an Australian share fund, it has produced an annual compound return of 9.9% after fees and outperformed the S&P/ASX 300 Accumulation Index by 0.8% per annum (being 19.5% outperformance in total over the full period).

A difficult transition to a new Responsible Entity and custodian
Investors in Third Link Growth Fund will be aware that during 2022 the Responsible Entity of the Fund changed.  This, in turn, resulted in new administration procedures as well as a change of custodian of the Fund assets.  Such changes came with considerable teething problems, causing unusual delays in unit pricing and fund reporting.  However, we believe things have settled down now, and our service levels will improve significantly for 2023 and onwards.

Website fallout from a ransomware attack
Unfortunately, we experienced a major IT issue late in 2022 when the hosting company for our website was subject to a ransomware attack.  We had to draw on backups to reinstate our site, and it took some time to update portions of the site, including past unit prices, distributions, newsletters and fund reports.  The whole incident has been the catalyst for a project which is now underway to renew our website and the software/suppliers/controls that underpin it.  We expect this project to be completed by the end of June this year.

In tough years like 2022, it still gives us great comfort and satisfaction to look back over time and see the enormous contribution the Fund has made to the charitable sector…. its reason for being.  In 2022 alone, charitable donations from the Fund were around $2.5 million, and since the Fund was created, charitable donations from the fund have totalled $18.8 million.  Your investment in the Fund is really making a difference.

Regards,
Chris Cuffe AO, Founding Director and Portfolio Manager
Third Link Investment Managers Pty Limited

Portfolio update

The objective of Third Link Growth Fund (“the Fund”) is to provide a well-managed investment in Australian listed shares. To achieve this, the Fund extensively invests with professional third party investment managers.

As at the end of December 2022, the portfolio was invested as below:

The Fund paid an income distribution of $0.0200 per unit for the six months ending 31 December 2022. In the quarter to 31 December 2022, the Fund made a partial redemption of its investment held in the EGP Concentrated Value Fund.

A description of each of the fund managers we invest with can be found on our website. Each of these managers rebates their management fees and performance fees, effectively meaning they are managing the assets of the Fund for free. It is through this extraordinary generosity, together with that of other service providers, that Third Link is able to make sizeable donations to the charitable sector without diluting the returns to investors from the Fund.

Fund performance

The aim of the Fund is to outperform, after fees and over rolling five year periods, the S&P/ASX 300 Accumulation Index¹. As at the end of December 2022 the Fund performance relative to the Fund benchmark was as below:

Figures greater than one year are expressed as annual compound returns. No allowance is made for tax. The benefits of franking credits from dividends received have not been included.

¹ The S&P/ASX 300 Accumulation Index covers the largest 300 shares listed on the Australian market. Being an accumulation index, it measures changes in both the value and income of the shares.

² The Fund was registered on 12 March 2008, commenced operations on 18 April 2008, and commenced investing on 1 June 2008 as a multi-sector growth fund. In February 2012 the Fund's investment strategy changed from multi-sector growth to Australian equities.  

Getting young mums and their children back on track

A pattern of intergenerational disadvantage in Australia traps too many young mums on welfare for life. One program, the Young Mothers Pathways Project, wants to put a stop to that pattern for good.

For the past two years, Campbell Page has been leading a consortium of partners to pilot the Young Mothers Pathways Project. It supports young mums to study, find work, access affordable childcare and housing, and build a happy, healthy family.

This effective intervention is a wraparound approach with a dual focus on young mothers’ capabilities, education, training, and employment, as well as children’s development and education so they can thrive.

Supported by foundational investors Macquarie Foundation and Third Link, the project has aimed to demonstrate a model that can, by 2025, reduce the incidence of intergenerational unemployment in the areas it serves by increasing the number of single mothers aged 19-30 in sustainable employment by 20 percent. Against a market benchmark of 18 percent, the program is achieving 45% sustained employment as at June 2022.

Critical to this success is the partnership of organisations that have joined forces to enable young mothers like Libby, Jodie and Toni to achieve their goals. Below, they candidly share the difficulties they faced before and since becoming mothers, including intimate partner violence, substance misuse, disruption to their education, lack of financial security and stigma surrounding mothering at a young age.  

Libby (above) has experienced judgement and assumptions as a young mum.

Libby left school after giving birth to her daughter due to the lack of support and judgement from teachers and peers. “They assume that I sleep around all the time - they don’t know the whole story.”

The Young Mothers Pathway Project is working with Libby to help her get back to school, a goal she knows will allow her to change the future for her and her daughter. “They’ve helped me get all my I.D. and stuff done for when I needed to get my learners. They give me help with my [baby] and housing and school.”

Gaining her blue card back will be a critical step to Toni achieving her dream

Like 60% of single mothers in Australia, Toni has left violent relationships. Prior to her pregnancy, Toni was in an unsafe living situation with a violent partner and using drugs. Since commencing with the Young Mothers Pathways Project, Toni has built her confidence, gained a job, earned a promotion and is working hard to earn back her blue card [working with children clearance] with the support of the team. Toni is experiencing financial freedom for the first time and is excited to achieve her goal of qualifying in social work.

“Money’s not an issue at the moment, which is something I haven’t always been able to say, so that’s another huge blessing.”

Jodie lives an hour away from the bus stop; with the program's support, she got her licence and a car so she can transport her daughter anywhere, any time.

Isolated, Jodie struggled to find reliable transport to get to important appointments with her daughter, let alone get to work on time. Before her pregnancy, she worked in hospitality and events but had difficulty breaking back in with the demands of parenting.

At the time of filming, Jodie’s biggest goal was getting a job, which she has now achieved with the team's support. “I’ve been struggling with that kind of stuff. Work, getting my career back on track.”

These are just snippets of the considerable impact of the Young Mothers Pathways Project on breaking intergenerational disadvantage and supporting young mothers to achieve goals they never imagined.

“We have the evidence of impact and that with the right co-investment, we can continue our operations in Deception Bay, and scale into Queanbeyan, the ACT and the South Coast of NSW,” said Anne Hodge, Head of Community Services, Campbell Page.

For further information, contact Anne Hodge, Head of Community Services, via phone at 0448 243 155 or email anne.hodge@campbellpage.org.au

Important Information: ­This information has been issued by Third Link Investment Managers Pty Ltd (Third Link), ABN 31 128 965 702, AFSL 321611 as investment manager of the Third Link Growth Fund (Fund).  This information provided is general information only.  It does not constitute financial, tax or legal advice or an offer or solicitation to subscribe for units in the Fund. This information has been prepared without taking account of your objectives, financial situation or needs. Before acting on the information or deciding whether to acquire or hold a product, you should consider the appropriateness of the information based on your own objectives, financial situation or needs or consult a professional adviser. There can be no assurance that the Fund will achieve its targeted rate of return and no guarantee against loss resulting from an investment in the Fund. All investments carry risks. Past fund performance is not indicative of future performance. Fundhost Ltd ABN 69 092 517 087, AFSL No. 233045 is the Responsible Entity for the Fund. Applications can only be made on the application form dated 30 June 2022 accompanying the Fund Product Disclosure Statement (PDS) dated 30 June 2022. Potential investors should consider the PDS and the Additional Information to the PDS (AIB) before deciding whether to invest, or continue to invest in the Fund. The PDS and AIB can be obtained from www.thirdlink.com.au or by contacting Third Link. The TDM can be found at fundhost.com.au/fund/the-third-link-growth-fund/

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