Growth
Australian Growth Share Fund, Growth Fund, Equity Trust Update
September Quarter 2007
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Download the Growth Fund, Equity Trust Update
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The performance shown in the Fund Update is the gross performance of the fund. To view the net performance of the fund or of the different unit classes of the fund download the Fund Performance Report or visit Fund Performance.
Gross performance returns and benchmark performance shown do not include expenses, fees or tax. Net performance returns are prepared on an exit-to-exit fee basis which includes all ongoing fees and expenses.
Performance review
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Gross returns
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Benchmark* returns
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Out-
performance^
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3 Month
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7.04%
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5.72%
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1.32%
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6 Month
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15.53%
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11.65%
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3.89%
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1 Year
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38.57%
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32.70%
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5.86%
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2 Year (pa)
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27.66%
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24.07%
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3.59%
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3 Year (pa)
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32.22%
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26.58%
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5.64%
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5 Year (pa)
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25.91%
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22.30%
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3.62%
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Past performance is not necessarily a guide to future performance.
*S&P/ASX 300 Accumulation Index
^Shows the difference between Gross return and Benchmark return.
Long term performance returns show the potential volatility of returns over time. Gross performance figures shown are composite numbers for the Growth Fund and make no allowance for expenses, fees or taxes. Composite returns are used for indicative purposes and minor variations may occur.
The main drivers of the Funds’ performance over the September quarter were as follows:
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Key positive influences
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- Overweight holdings in BHP Billiton (+28.3%), Newcrest Mining (+33.1%), , Aditya Birla (+46.8%) and Brambles Industries (+22.7%), and;
- A nil holding in National Australia Bank (-3.2%).
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Key negative influences
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- Overweight holdings in Rams Home Loans Group (-17.9%), MFS (-15.5%), Babcock & Brown (-13.6%), Graincorp (-30.0%), and Babcock & Brown Power (-16.8%).
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Fund outlook
- The surprise action by the US Federal reserve (Fed) to cut the Federal Funds rate by 50 bps was the key event in the quarter that saw a very strong rally in equity markets toward the end of September.
- In our view, the 50 bps reduction, rather than the expected 25 bps cut, was driven by a perceived need by the Fed to restore confidence in credit markets to avoid the risk of a recession, outweighing concerns in relation to the ‘moral hazard’ of being seen to be bailing out speculative activity.
- A direct consequence of this action is the decline in the value of the U.S. dollar as investors exit U.S. treasury securities and seek better returns from higher yielding assets. This has seen strong rises in base and precious metal prices, oil and other commodities.
- The flow-on effect for Australia equities has been a predictable bounce in the diversified miners BHP Billiton and Rio Tinto, as well as pure plays like Oxiana and Aditya Birla Minerals.
- In addition, the Fed rate cut has seen short covering in the investment banks Macquarie Bank and Babcock & Brown, coupled with a stronger appreciation that the Australian investment banks have no material exposure to the credit market issues that have befallen U.S. investment banks.
- However, the share market rally has not extended to smaller capitalisation companies, which continued to under-perform in September. Likewise, stocks with high U.S. dollar denominated earnings or are directly exposed to U.S. housing, have also performed poorly.
- We believe that continuing our long held strategy of investing via our bottom-up process and remaining focused on medium-term fundamentals will ensure the Fund remains well positioned to outperform the market over three to five years.
Fund activity
- Through the volatility of recent months, we have maintained our focus on quality business franchises generating good cash flows with strong balance sheets.
- We maintained our overweight holdings in resource companies despite swaying sentiment towards the sector.
- We continue to believe that the outlook for domestically focused companies exposed to resources and infrastructure development remain robust over the medium-term.
- We are also adopting a cautious approach to companies with U.S. dollar exposures.
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Top 10 Positions as at 30/9/07
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Rio Tinto
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Newcrest Mining Limited
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BHP Billiton Limited
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Oil Search Limited
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Babcock & Brown
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Aristocrat Leisure Limited
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MFS Limited
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Babcock & Brown Power
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CSL Limited
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Cochlear Limited
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Investment objective
The primary aim of the Funds is to achieve total return over the long-term through investment in Australian securities. We aim to achieve this goal by outperforming the S&P/ASX 300 Accumulation Index over rolling five year periods.
Fund strategy
The investment strategy of the Funds is to enhance returns through our stock selection process. The Funds may hold up to 80 stocks. Any portion of the Funds not invested in securities will be invested in the money market (‘cash’) through a Merrill Lynch wholesale fund.
Designed for investors who…
- Seek an Australian share portfolio that provides exposure to a combination of large mid, and smaller capitalisation stocks.
- Focus on total return.
- Accept the risks of significant price fluctuations.
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