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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Devon Funds navigated a challenging September by maintaining elevated cash levels and selectively adding positions like Tourism Holdings and CSL. Despite market headwinds from central bank hawkishness and rising oil prices, the firm sees opportunities emerging from falling inflation and potential New Zealand election tailwinds for construction sectors."
Devon Funds' September 2023 report reflects a challenging month for markets as central banks maintained their 'higher for longer' messaging on interest rates. The firm's Alpha Fund held almost 15% cash, positioning for opportunities amid market volatility. Key contributors included Fletcher Building and Infratil in New Zealand, while Goodman Group declined despite strong year-to-date performance. The Australian Fund outperformed its benchmark, benefiting from BHP and Rio Tinto, though resource sector profits were taken due to cost pressures and Chinese market concerns. The Dividend Yield Fund added CSL, taking advantage of healthcare sector weakness, while Suncorp continued outperforming despite regulatory setbacks. The Sustainability Fund added Tourism Holdings following their merger with Apollo, expecting structural improvements in the motorhome rental market. Looking ahead, managers anticipate deploying cash as opportunities arise, supported by falling US and European inflation and potential New Zealand election-driven tailwinds for construction and housing markets.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The letter discusses multiple named positions across various funds with some specific commentary, but lacks concentrated positioning or strong conviction language. The diversified approach across multiple funds and hedged commentary about market conditions caps conviction at moderate levels.
Growth Outlook
The managers acknowledge challenging market conditions but express cautious optimism about the final quarter of 2023, citing falling inflation in the US and Europe and potential locally driven tailwinds for the New Zealand market.
Risk Appetite
The Alpha Fund holds almost 15% cash, indicating a cautious but ready-to-deploy stance. Some profit-taking occurred in resources, but new positions were added in Tourism Holdings and CSL, showing selective risk appetite.
Capital Deployment
The Alpha Fund holds 15% cash and managers anticipate deploying this capital, while some new positions were added (Tourism Holdings, CSL) and profits were taken in resources. This represents selective deployment activity but not aggressive capital deployment.
Forward Guidance
Managers anticipate deploying cash as opportunities present themselves and expect exciting opportunities in the coming months, showing a mild deployment bias despite current caution.
Language Signal
Language is balanced with mentions of 'challenging month,' 'headwinds,' and 'volatility' offset by 'exciting opportunities,' 'tailwinds,' and 'better quarter in store,' resulting in slightly positive net language.
Perceived Risk
Managers identify multiple specific risks including central bank policy uncertainty, sticky inflation concerns, surging oil prices, and Chinese property market weakness. Risk discussion is meaningful but not alarmist.
Opportunity Density
Managers see selective opportunities emerging, particularly in healthcare (CSL) and tourism (Tourism Holdings), and anticipate 'exciting opportunities' to deploy cash amid market volatility, suggesting moderate opportunity density.
Time Horizon
The letter discusses multi-year tailwinds for Tourism Holdings, long-term data centre strategy for Goodman Group, and structural improvements following mergers, indicating a medium to long-term investment horizon typical of equity fund managers.
