Bennelong ex-20 Australian Equities Fund Commentary

The calendar-year-to-date returns have evidenced the benefits of an ex-20 specific exposure to round out one’s broader investment strategy. The top 20 stocks returned just 0.7% in the first six months; the ex-20 index returned 6.5%. The Bennelong Australian ex-20 Equities Fund (the Fund) bettered both, with a return of 8.5%. The Fund seeks to invest in high quality and strongly growing businesses, the type that generally stand tall in tough markets and tend to outperform over time. Examples include Aristocrat, Fisher & Paykel Healthcare, Treasury Wine Estates and BWX Limited, all of which contributed meaningfully to the Fund’s relatively strong performance over the most recent half year.

The stocks cited characterise some interesting themes within the portfolio at present. The first is that all of their businesses sell products into relatively defensive end-markets with quite predictable demand. Respectively, their products are slot games, medical breathing devices, wine and skincare creams. Secondly, all have what might be called ‘exportable’ competitive advantages. In essence, this means they have products that sell well offshore, generally because of some advantage they have over the competition. These advantages derive from Treasury’s well recognised wine brands that include Penfolds and Wynns; BWX’s natural and affordable Sukin skincare brands; Aristocrat’s innovative and popular gaming products; and Fisher & Paykel’s comfortable and efficacious breathing devices. Thirdly, and consistent with the investment philosophy behind the Fund, all of these companies are growing strongly, particularly assisted by their ability to expand in offshore markets. Aristocrat and BWX have predicted an earnings guidance of over 30% for this year, and the Fund managers believe the other two are likely to achieve similar results.

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