The ASX 200 Accumulated Index was up 1.9%for the month of February, and Luke's Fund achieved a return of -6.3%over the same period, bringing the Fund’s current returns for FY2022 to 3.8%, compared to the ASX 200 Accumulated Index return for year to date of -0.8%.
The breakdown of our holding’s contribution to performance over the past month is outlined in Figure 1 below:
Figure 1 – Contribution Breakdown Bar Chart
The top contributor over the month was Sequoia Financial Group, which reported a strong half yearly result in February. A breakdown of contributions, according to Macro segment, as outlined in Figure 2, was telling, with all goldilocks/reflation assets all down over the month. The results for February provides some comfort that our Macro risk overlay is valid for the time being.
Figure 2 – Macro Segment Contribution Breakdown Bar Chart
Portfolio Breakdown
The breakdown of the portfolio as a the end of the month is outlined in Figure 3 below. Over the month, we reduced our exposure to investments that perform well in Goldilocks / Reflationary macro environment from 43% at the beginning of the month to 33% , we will continue to reduce our Goldilocks / Reflationary exposure until we are below an overall weighting of 30% across our portfolios.
We note, the majority of our deflationary assets will be within Luke’s Global Fund, given the ‘risk on’ characteristics of the Australian dollar.
Figure 3 – Portfolio Macro Segment Pie Chart
TRADING ACTIVITY
We made the following portfolio changes over February:
We continued trimming our exposure to Goldilocks / Reflationary assets, namely, Camplify Holdings. Camplify Holdings is now a relatively small position size, which we intend to hold through the economic cycle, or until our investment thesis breaks. We will re-build our position when we enter a goldilocks / reflationary macro regime.
We sold out of Cettire, following their half year results, where marketing spend exploded, to be in excess of gross margins for the period. We simply could not hold onto a business burning cash, with no end in sight, and leading into a global slow down later in the year.
We sold most of our holdings in Yandal Resources, following the unexpected resignation of the CEO, and our desire to exit speculative exploration positions.
We held 25% cash at the end of February. You will note this remains unchanged January, which is a result of transferring cash out of this portfolio and into Luke's Global Fund portfolio.
COMPANY NEWS & REPORTS
Notable news from our holdings included:
Sequoia Financial Group
Sequoia report their half yearly results, reporting a 51% increase in revenue ($59 M) and 57% increase in profit ($2.6 M) on the previous corresponding period. Operating cashflow was $4.2M for the half.
Cettire Ltd
Cettire Ltd released it's half yearly results, reporting revenue if $114 million, up 181% on the prior period,. However, advertising costs ballooned by $23M, eating away the entire gross profit for the 6 months to December 31. We are yet to be convinced that Cettire's customer retention can justify the enormous investment in advertising spend. We exited our position, booking a 42% gain since May 2021.
KEY LEARNINGS FROM THIS MONTH
We learnt this month the macro environment can, at times, be highly volatile, presenting challenges to one's portfolio allocation strategy. The Ukraine War looks to have accelerated the bifurcation, and de-globalisation of the global economy. This is likely to result in higher inflation in the near to medium term, counteracting longer term secular deflationary trends. Populist measures, such as fuel excise reductions, are likely to exacerbate this issue.
Our best wishes are with the people of Ukraine, and we hope the war comes to a satisfactory conclusion for the people of Ukraine as soon as possible.
If you have any opinions on the companies we hold, or what like to know more, we would love to hear your feedback.
Regards,
Sean