In years with a negative trend, the June quarter is especially unpleasant because Australian investors use the end of the tax year to settle losses. In the past year, this was particularly true for small caps in the raw commodities sector, which had a very negative half-year and was never able to recover from considerable losses, especially in December. NESTOR Australia has had a high level of exposure here for many years.
The market was not very receptive here, nor were institutional investors. This is because the catastrophic opening of new mines by Gascoyne and Dacian Gold demonstrated the inherent risks associated with mining raw materials in a particularly unpleasant way. Due to rising iron ore prices, iron ore producers were able to keep up their positive performance. Anyone who did not hold any BHP, RIO or Fortescue shares (like the NESTOR Australia!) had trouble achieving positive performance.
The somewhat significant movements in individual stocks meant that the quarter saw some unusually active trading within the fund. Positions in Gascoyne, Impedimed, Imugene, and Bingo Industries were sold off entirely. In addition to this, Liontown Resources, Kina Securities, and Antipa Minerals were reduced further. Positions were built up in the companies Tietto Minerals, Sheffield Resources, Australis Oil & Gas, and Fleetwood Corp, as well as in Metro Mining immediately after the end of the fiscal year.
A pleasing development is on the horizon during the first few days of the new fiscal year. The pressure to sell shares in the losers of the 2018/19 fiscal year decreased noticeably and good news ultimately leads to better prices. This is particularly evident with Sheffield Resources, Metro Mining, Breaker Resources or West African Resources, which have seen a pleasing performance.
Value can be quite difficult to find in many stock markets if company valuations are generally not ambitious in comparison with extremely strong interest rate markets. By historical standards, shares are expensive and are still undervalued compared to bonds! This is especially true for commodity equities. When it comes to these, the smaller they are, the more favorable! The escalating trade dispute between the United States and China has caused risk-averse investors to neglect this sector.
We hope and believe that reason will prevail in the end and that Trump and Xi will agree on a reasonable end to the trade war, which has been having a negative effect on all sectors! Even if it would likely mean the end of the booming bond market, we think that commodity equities will benefit greatly from an agreement.