The ASX 200 Accumulated Index was down 6.4% for the month of January, and Luke's Fund achieved a return of -7.9% over the same period, bringing the Fund’s current returns for FY2022 to 7.3%, compared to the ASX 200 Accumulated Index return for year to date of -2.1%.
Global markets are down, following the tightening of liquidity in US financial markets. But the Federal Reserve is yet to start tapering you say? That is correct, however, Janet Yellen is effectively doing the work of the US Federal Reserve, reducing the US Treasuries balance sheet over recent months. The US Federal Reserve is about to attempt the equivalent of landing a Boeing 747 onto a football field. This has never been done before, nor has taming inflation without sending an economy into recession.
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 Calidus Resources, which is a few weeks away from the commencement of gold production, and benefiting from a rising gold price.
The majority of the portfolio, which consists predominantly of high beta assets, were down for the month. High beta assets do not perform well in inflationary / deflationary environments, and we continue to actively switch out of high beta assets & into more defensive assets.
Given the Australian dollar is a “risk on” currency, we transferred approximately 15% of our funds out of Luke’s Fund, and into Luke’s Global Fund, as the probability of a “risk off’ event has increased substantially according to 42Macro analysis.
The breakdown of the portfolio as a the end of the month is outlined in Figure 2 below. Over the month, we reduced our exposure to investments that perform well in Goldilocks / Reflationary macro environment from 51% at the beginning of the month to 43% , 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 characteristics of the Australian dollar we outlined earlier in this blog.
Figure 2 – Portfolio Macro Segment Pie Chart
We made the following portfolio changes over January:
We continued trimming our exposure to Goldilocks / Reflationary assets, namely, Camplify Holdings and Talga Group.
We trimmed Calidus Resources, following a strong run up after announcing a JV with a tin pot company to explore for Lithium resources.
We added Bapcor Ltd to our portfolio, following the recent management upheaval, and our desire to add low beta, defensive assets, with reliable income and dividend streams that will outperform in a deflationary environment.
We added DEXUS Industrial REIT to our portfolio, given it is a defensive asset, with a reliable income stream, that will outperform in a deflationary environment.
We held 25% cash at the end of January.
COMPANY NEWS & REPORTS
Notable news from our holdings included:
On January 18, Calidus Resources announced forming a JV for a Lithium exploration venture. The partner appears to have achieved very little over a long period of time. Nevertheless, Calidus Resources is very close to the commencement of production, with ore mining underway ahead of commissioning of the mine plant.
Electro Optic Systems
Long term thorn in our portfolio’ side, EOS reported the conversion of a significant contract asset to cash in Q4 2021, which was a rare positive. Q1 2022 will be a critical quarter, with the Land 400 Phase 3 contract award announcement, along with financing and offtakes for Spacelink required to maintain project program and minimise risk to shareholder capital. IF EOS fail to deliver in Q1 2022 on these milestones, we will exit our position.
Talga Group released their quarterly activities report, which confirmed the anode pilot plant will be commissioned in February, and will commence production shortly. Critically, mining permits are progressing, and Stage 1 mining approval is anticipated in the next few months, with increasing political interest in supporting a domestic battery industry in Sweden.
We have retained an outsized position size in anticipation of some significant catalysts over the coming 3-6 months.
IntelliHR released their quarterly activities report, outlining receipt grew 10% on the prior quarter, and ARR grew 109% over the quarter on an annualised basis. However, cost growth is concerningly high. This may well be incremental increases to meet anticipated demand, but we would like to see good cost discipline going forward.
Camplify Holdings released their quarterly activities report, reporting revenue growth of 140% on PCP, and the RV Fleet grow by 13% on the prior quarter.
Camplify Holdings reported positive operating cashflow, benefitting from receiving payments upfront, and good cost control, with reduced marketing and administration costs over prior quarters.
KEY LEARNINGS FROM THIS MONTH
Our primary focus since December has been managing risk, and we are implementing a number of lessons, relating to our macro risk frame, notably asset allocation across our portfolios, to maximise exposure to assets that perform well in a deflationary environment.
If you have any opinions on the companies we hold, or what like to know more, we would love to hear your feedback.