May delivered a solid rebound on the back of the RBA’s 25bp rate cut and an easing in global trade tensions. The All Ordinaries Accumulation Index rose 4.2%. Our Growth, Balanced and High Conviction portfolios gained 9.0%, 7.0% and 8.5% after fees, comfortably ahead of the market. Since inception they have compounded at 11.0%, 10.1% and 10.7% p.a. compared to the index at 8.7%.
Macro and Market
The rate cut to 3.85% and dovish language from the RBA offset concerns about a larger post election deficit. US bond yields climbed as Congress debated a USD 3.8T spending bill, while China eased policy by trimming rates and reserve ratios.
One stock dominated local headlines: CBA, which we do not own, has accounted for over 30% of the market’s return this year. Passive money (e.g. index ETF’s) keeps piling into CBA, pushing the shares to 27x forward P/E and 3.7x book. The balance sheet is low risk but the valuation is anything but. At A$300b market cap, history says such distortions seldom unwind gently.
Portfolio Positioning
We took advantage of the recent market weakness and finished May with comfortably low cash balances.
- Contributors – Life360 beat expectations across every metric, EML Payments continued its recovery and Macquarie’s result confirmed momentum in both asset management and banking.
- Detractors – Webjet and Premier Investments were the main laggards.
- New positions – WiseTech, South32 and Iress. WiseTech offers rare exposure to high margin supply chain software, while South32 provides leveraged but disciplined exposure to aluminium and copper with a net cash balance sheet.
- Exits – We sold Solvar after an 80% rally off the low back to NTA, and recycled Webjet and Mineral Resources into higher conviction names.
May Newsletters
Outlook
Rate cuts are starting to feed through just as fiscal spending lifts, supporting revenue growth but keeping bond volatility elevated. We continue to back businesses with pricing power, recurring cash flow and robust balance sheets, focusing on tech infrastructure, quality industrials and select consumer names. Australian valuations remain undemanding, and our recent buys give the portfolio fresh upside for the next phase of the cycle. After a challenging start to the year, we believe the portfolio has turned the corner and is well set for what lies ahead.
Regards
The Endeavor Team
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*Note: Performance of the strategy group is representative of individual client portfolios, although performance can differ due to inherent differences between clients portfolios such as initial entry timing, legacy holdings or requested stock exclusions. Performance measured is after fees, taxes and franking credits. Monthly performance figures include an accrual for fees charged quarterly.
