The Fund has experienced a strong start, with performance stemming from a diverse range of stocks, evidenced by 11 contributors exceeding 1% to gross performance and only two detractors surpassing negative 1%. Gentrack, a tech enterprise software provider to airports and utilities, has rebounded impressively after facing temporary challenges, benefiting from improved revenue growth and margin recovery. Despite its increased valuation, the long-term potential remains promising as utility customers continue upgrading systems amidst the energy transition. Similarly, News Corp, particularly its transformed Dow Jones segment, has delivered robust results, prompting the market to recognise its improved quality and adjust its valuation accordingly. On the flip side, Tabcorp has faced challenges amid a soft wagering market, although its operational performance remains satisfactory. Despite short-term fluctuations in performance, the investment approach remains focused on long-term fundamentals rather than transient market sentiment, ensuring alignment with investors' interests through Will’s personal holdings in the Fund.
Over the past year, the resilience of the consumer sector has been a standout theme, defying expectations amid rising interest rates and cost of living pressures. Despite macroeconomic uncertainties, retailers like Premier Investments and Nick Scali have demonstrated record profits and margins, driven by the strength of their business models and robust management. The volatility in retail valuations, with significant increases within a short timeframe, provides opportunities for active managers to capitalise on quality businesses at attractive prices. This is shown by the Fund's performance, where retailers, initially a drag, have become top performers, highlighting the dangers of short-term focus and the importance of a long-term investment mindset. It’s important to stay true to a disciplined, long-term investment approach amidst market fluctuations.
Despite the challenges posed by the current market environment with soaring valuations, the Fund maintains an optimistic outlook due to its broad mandate and focus on the small-cap universe. With a well-established process for identifying nascent high-quality businesses, honed over several years, the team remains confident in their ability to uncover opportunities despite market fluctuations. This optimism reflects a belief in the Fund's ability to navigate evolving market conditions and capitalise on potential opportunities for future growth.
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