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Evergreen upgrades Ellerston global mid cap strategy


The Ellerston Global Mid-Small-cap fund (Class A) has received a “commended” rating by research house Evergreen Ratings. This rating means Evergreen has confidence in the investment product, which has scored consistently well across most areas of Evergreen Ratings’ research and analysis framework. The fund has a high probability of meeting its objectives and is reasonably well-designed, with fees in line with the nature of the product and its peers.

  • The team at Ellerston has narrowed its focus to global small-mid cap companies and away from the large-cap developed market which has held the lion’s share of global portfolio allocations. The reason for this tilt is due to the shifting landscape and potential upside in small-mid caps despite last year’s record returns.

    The fund’s investment strategy is to construct a concentrated portfolio of companies selected from Ellerston’s highest-conviction ideas that are “in a period of price discovery, and offer an attractive risk/reward dynamic.” Using a bottom-up stock and fundamental analysis overlay, the portfolio will hold roughly 20-40 stocks, picked on the basis of a contrarian, high-conviction, benchmark-independent approach.

    Evergreen founder and CEO Angela Ashton says, “We agree with the manager’s view that global mid-small-cap companies offer an overlooked investment opportunity and that the diversity of industries and countries in this sector provides additional diversification benefits for Australian investors.”

    Bill Pridham, portfolio manager for Ellerston’s Global Equity Strategies, says electric vehicles, batteries and consumer discretionary are some of the themes the company is backing for the next 12 to 18 months. The portfolio’s top contributors in September were Webster Financial, Advantest and WillScot Mobile Mini, while the three biggest detractors were Bed Bath & Beyond, Travis Perkins and Sensata. Bed & Beyond shares fell in September due to a disappointing set of sales and earnings numbers. Ciena, which is also in the portfolio, delivered a solid set of numbers with revenue coming in above expectations.

    The stock in focus is TKH Group (AMS: TWEKA), which provides high-end niche technologies in high-growth markets around the world. Abilities in the field of R&D, engineering, marketing, process development, project management, manufacturing, logistics and assembly are shared between the three business segments. Some of the products the company delivers are fibre optics cables, energy cables for infrastructure and wind farms, 3D vision technology for machine vision, 5G consumer electronics and type manufacture systems. Ellerston has owned the stock for three years and is confident in its outlook following a strong first-half result. Guidance was well ahead of expectations.

    All in all, the fund’s goal is to generate a 3 per cent a year outperformance over the MSCI World Mid Cap Index (AUD) over a rolling five-year period, and so far it has beaten its benchmark by close to 5 per cent a year. The portfolio has managed an average return of 17.8 per cent a year over the three years to the end of September, compared with growth of 11.7 per cent a year for the index. Over the past 12 months the Fund has returned 38.9 per cent, compared with the index return of 32 per cent.

    Pridham, says “the low interest rate, low growth environment of the past few years has benefited large-cap, high P/E stocks.” Bonds rates have started to rise and inflation is popping up. “This is an environment for mid-small-caps and cyclicals to outperform,” he says.

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