The ability to weather headwinds like persistent inflation, cost pressures, and sector-specific challenges were key to our strong performance during the recent reporting season, says CEO and portfolio manager Mark Freeman.
The half-year company reporting season in February delivered positive news for AMCIL shareholders. Several companies within our portfolio generated solid results, often accompanied by strong share price performance.
Share price volatility also continued to increase, partly attributable to greater allocation of funds invested in quantitative, momentum and passive investment strategies.
Against the backdrop of cost-of-living pressures and regulatory risks, companies increasingly emphasised margin pressures and community contributions. Predictably, given community and government scrutiny, banks and supermarkets were at the top of this list.
Portfolio highlights: investment framework drives outperformance
The composition of our portfolio continued to demonstrate strength and durability. Many of our stocks are what we perceive to be fully priced. Our view is that having a portfolio of fully priced companies offers greater stability for our shareholders in the long-term rather than trying to chase lower-quality investments in the hope they may go up in the short term. Whilst this may lead to underperformance in the short term, having a portfolio of quality companies is a better approach as a long term investor.
We actively manage our portfolio to ensure holdings align with our investment framework. This approach has proven to be effective in identifying quality companies, evidenced by the portfolio’s performance over the year to 30 April 2024 of 16.2%, when the benefit of franking is included.
Several companies within our portfolio delivered solid results and share price appreciation, demonstrating their ability to deliver for shareholders over the long term, even through more challenging economic times.
One example of a company with growth potential is software company Altium which saw its share price rising substantially due to a takeover. This is the second takeover attempt in recent years, highlighting its strong market position.
Their success is driven by a long-term CEO with significant ownership, high profitability with an ROE of 24%, a strong financial position with net cash on the balance sheet, and consistent customer acquisition. They also invest heavily in R&D, a key driver of future growth.
Mixed signals on pricing, cost inflation and spending
The recent reporting season presented a mixed picture on pricing, cost inflation, and consumer spending. Earnings growth moderated to 6%, of which 4.7% was driven by CPI inflation. However, better cost control emerged as a driver of earnings outperformance for many companies.
Cost inflation remains a concern, with raw material prices remaining buoyant and geopolitical tensions impacting freight costs. However, there are signs of a shift, with wage inflation cooling and labour availability improving.
Consumer spending data also presented mixed messages. While spending softened over the Christmas and traditional Boxing Day sales period in categories exposed to indebted households, baby boomers benefiting from higher interest rates provided an offset.
Further, despite rising mortgage rates and fixed rate mortgages rolling off, home loan delinquency rates remain low, for the moment at least.
Our outlook remains cautiously optimistic
We believe the performance of companies in our portfolio this reporting season demonstrates the value of our approach, reaffirming our commitment to delivering long-term value for shareholders.
More recently markets have continued to climb which is providing a challenge to find value. Nonetheless we are confident opportunities will continue to present themselves as the market invariably has periods of volatility even in periods when the momentum is behind rising markets.