The Frame Long Short Australian Equity Fund rose +8.53% in February. Comparatively, the XJO achieved a return of +1.00% for the period.
February was an eventful month, as the domestic reporting season provided numerous opportunities for the strategy. Macroeconomic developments, namely, rising yields, added to the volatility, as we witnessed a rotation from growth into value names toward the second half of the month. Given the ASX 200’s higher weighting of financial companies, our market performed relatively well under these conditions. Some have compared the situation to what happened during the tail end of 2018, where US treasury yields rose materially, causing a market selloff. We will be actively monitoring this theme as it develops.
Upon conclusion of the month, the 5 largest holdings within the portfolio were Lynas Rare Earths Limited (LYC), Pro Medicus Limited (PME), Bank of Queensland Limited (BOQ), Iluka Resources Limited (ILU) and Fletcher Building Limited (FBU). The top sector weighting was Materials at 57%. Our view is that materials and cyclical businesses should continue to outperform as the global economy recovers.
The top three performers and their approximate contributions were LYC, OZL and BOQ, contributing +1.59%, +1.18% and +0.97% respectively. LYC beat consensus expectations for EBITDA, NPAT and EPS. OZL delivered a sixth consecutive year of meeting or exceeding copper production guidance. BOQ announced their intention to acquire ME Bank.
The bottom three performers and their approximate detractions from performance were Nanosonics Limited (NAN), SEEK Limited (SEK), REA Group Ltd (REA) -0.59%, -0.45% and -0.34% respectively.
In terms of Fund activity, we exited investments in NAN, SEK and REA, as each business released underwhelming half yearly results.