Cadence Opportunities Fund returned a negative performance of 7.8% in February, underperforming the All Ordinaries Accumulation Index by 5.3% for the month. The largest detractors from performance during February were Citi Chic Collective, Domino’s Pizza, Tietto Minerals, BHP, Syrah Resources, Star Entertainment Group and Capstone Copper. The top contributors to performance were Red 5, Sierra Rutile Holdings, Kogan and Genworth Financial.
Equity markets declined in February led by the resource and financial sectors which were down 6.9% and 3.1% respectively. Financial conditions continued to tighten during the month, with the RBA and the US Federal Reserve raising interest rates by 0.25% to 3.35% and 4.75% respectively. The reporting season on the ASX was weaker than expected, with nearly 50% of companies missing earnings expectations, significantly above the longer-term average of 30%. Many companies are finding it difficult to maintain profit margins in an environment of ongoing inflation pressure and demand that is starting to falter.
Portfolio performance was impacted by stocks in turnaround situations where progress was slower than hoped. For example, AMP traded weaker post its result as divestments and cost cutting measures are taking longer than expected, however we believe a large amount of its market capitalization remains in surplus capital that is likely to be returned to shareholders. Domino’s Pizza was also sold off heavily following results that showed sales were weaker than expected despite price rises, suggesting customers were more price sensitive than originally thought. The fund has exited its DMP position. Star Entertainment issued a downgrade as a result of the increased regulatory oversight into operations and undertook a $800m capital raise at $1.20 p/share to repair the balance sheet.
Elsewhere, the main positive contributors to performance were short positions in selected mining companies such as Red 5 which needed to undertake an emergency $80m capital raise after raising $60m only four months ago. Sierra Rutile performed well on the back of solid results showing the company is trading well below book value and is generating enough cashflow to reduce the need for external equity to develop its expansion project in Sierra Leone. Genworth Financial was another positive contributor that is also trading well below book value and is in the process of simplifying its operations to improve transparency for shareholders. The company is also benefitting from higher interest rates in its life insurance operations.
Fully Franked Half-Year Dividend
On the 3 February the Board declared a 7.5 cent fully franked half-year dividend. This interim dividend equates to a 6.5% annualised fully franked yield or a 9.2% gross yield (grossed up for franking credits) based on the share price on the date of the announcement of $2.32 per share.
After paying this dividend the Company still has 36 cents per share of profits reserves to pay future dividends. The Ex-Date for the dividend is the 14 April 2023. The payment date for the dividend is the 28 April 2023.The Dividend Re-Investment Plan (“DRP”) is in operation for the half-year dividend. The issue price will be at a 3% discount to the weighted average of the prevailing share price over the relevant DRP pricing period.
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To watch CDO’s half-year Audiocast please click here. This Audiocast gives an update on the Company’s performance, its portfolio composition, some of its current investment holdings and the outlook for the rest of the year.
Portfolio manager Jackson Aldridge was recently interviewed:
- Nadine Blayney Interviewed Jackson Aldridge on Ausbiz – 17 February 2023 (Click here to watch)
- Nadine Blayney Interviewed Jackson Aldridge on Ausbiz – 3 March 2023 (Click here to watch)
To view all previous Cadence webcasts and interviews please visit the Media Section of the website.
We encourage you to visit our 52 books you should read before buying your next stock page on our website. We have compiled a list of books/ documentaries that have influenced our investment style or helped provide insight into the investment process.