August 2026 Newsletter

The Level 18 Fund increased by 0.4 per cent net of fees for the month.

Commentary

The Level 18 Fund increased by +0.4 per cent net of fees for the month.

In Australia, the FY26 reporting season dominated news flow and set the tone for equity markets during the month. In aggregate, company results were not as bad as expected. According to Morgan Stanley research, 32 per cent of companies beat consensus expectations while 19 per cent missed. 

The strongest earnings growth was delivered by the resources sector due primarily to elevated commodity prices. The industrial sector lagged delivering low to middle single-digit earnings growth. Higher interest rates, elevated inflation and weaker consumer spending dragged on industrial company earnings in FY26. While a number of companies exceeded market expectations, most of the beats were driven by cost reductions rather than revenue growth. A management focus on costs and margin performance was a consistent theme during August. Given the uncertain outlook, management commentary and guidance was generally conservative.   

In August the market delivered a contrasting performance between large caps and small caps. The S&P/ASX Small Ordinaries Accumulation Index was up +5.2 per cent and the All-Ordinaries Accumulation Index increased by +1.9 per cent in the month respectively. The strong small cap performance was primarily driven by resources. During August, small cap resources were up +17.4 per cent and small cap industrials were down -0.3 per cent respectively. The gold price was up by more than +10 per cent in the month. 

Results also dominated US equity markets during August. The US reporting season delivered strong earnings growth, particularly from AI and semiconductor exposed corporates. AI capital investment was a key earnings driver for the market and ongoing expenditure now appears to be both the US market’s growth engine and its central risk at the same time. Semiconductor stocks recovered post a selloff in the previous month. Like the Australian market, the US healthcare sector also delivered a strong performance. The S&P 500 and the Nasdaq Composite Index finished the month up +2.6 per cent and +3.9 per cent respectively. 

In Australia the RBA held rates at 4.35% in August after three hikes earlier in 2026. The post meeting commentary explicitly left the door open for additional hikes in the future. Later in the month, the CPI result (inflation) for July surprised on the upside. As a result, the Australian dollar and 10-year bond yields moved higher as the market adjusted for the increased likelihood of another interest rate hike before the end of the year.

In the US, interest rate increases now also appear more likely. Newly installed Federal Reserve Chair, Kevin Warsh, delivered a speech at the Jackson Hole Economic Policy Symposium that emphasised that inflation was “not slowing fast enough.” He warned that the Fed may need to tighten policy further. However, no specific forward guidance was provided. The next Fed meeting is in mid-September. 

Australian corporate M&A activity continues to gain momentum. This year we have seen takeover bids for Ooh Media (OML), Reliance Worldwide (RWC), Steadfast (SDF), Accent Group (AX1), Perpetual (PPT), Cleanaway (CWY) and Betmakers Technology Group (BET). Given the uncertain economic outlook and modest top line growth delivered in FY26, both listed and unlisted groups are moving to acquire assets with strong market positions and low relative valuations.

Several portfolio positions delivered better than expected results for FY26. Codan (CDA) was a standout. The company delivered excellent growth during the year. Revenue increased by +30 per cent and net profit grew by +69 per cent. Importantly, the growth translated into considerable operating leverage. Group EBIT margins expanded from 21.7% to 27.9%. The result leaves Codan entering FY27 with considerable momentum. Its Communications orderbook reached $380M at 30 June, up +50 per cent from a year earlier, while management is currently targeting around +20 per cent Communications revenue growth in FY27.

Post the reporting season, we have added several new exposures to the portfolio including CSL (CSL), Fisher & Paykel Healthcare (FPH), Suncorp (SUN), Cuscal (CCL), COG Financial Services (COG), Guzman y Gomez (GYG), Wagners (WGN), GR Engineering (GNG) and IPD Group (IPG).

Contract demand within the mining services sector remains robust. NRW Holdings (NWH) recently announced that its Mining division received a Letter of Award for the Karara mining services contract. The award extends NRW’s activities at the Karara mine by a further five years. The completion date is now February 2032. The contract extension is valued at approximately $960M.

Positive contributors to the Fund’s performance in August include technology development group Codan (CDA), engineering services group SRG Global (SRG), engineering & project delivery services group Lycopodium (LYL) and data-centre interconnection provider Megaport (MP1).

Healthcare imaging and radiology software business Pro Medicus (PME), telecommunication and internet service provider Superloop (SLC) and facilities management service provider Downer EDI (DOW) made negative contributions to performance in the month.

Please contact Michael Carmody (mcarmody@centennialfunds.com.au or +61 414 952 985) if you would like any additional information regarding the fund.

The Level 18 Fund Information Memorandum (IM) is available on the Centennial Asset Management website. The following link (https://www.centennialfunds.com.au/) provides access to the IM.

The Centennial Team

Monthly Net Returns Since Inception

About Centennial Asset Management

Centennial Asset Management is an independent Australian asset management business, and the manager of the Level 18 Fund, an index unaware fund, with asset allocation flexibility and a concentration of small capitalised companies. Further information on Centennial is available on our website - www.centennialfunds.com.au

Disclaimer
Strictly confidential: This report has been prepared by Centennial Asset Management ACN 605 827 745 & AFSL No. 515887 for Wholesale Clients only as an indicative record of the performance of an investment in the Level 18 Fund. No recommendation is made or advice given in respect of any entity in which the Level 18 Fund has, is or may in the future be, invested. The contents of this report are confidential, and the client may only disclose such contents to its officers, employees or advisers on a need to know basis, or with the prior written consent of Centennial Asset Management. Centennial Asset Management does not guarantee the performance of the Level 18 Fund or the return of any investor's capital in the Level 18 Fund. This investment report contains historical information, and does not imply any indication of future performance, recommendation or advice. Past performance is not a reliable indicator of future performance. Any investment needs to be made in accordance with and after reading any relevant offer document. This material has been prepared based on information believed to be accurate at the time of publication. Assumptions and estimates may have been made which may prove not to be accurate. Centennial Asset Management accepts no responsibility to correct any such inaccuracy. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information. To the full extent permitted by law, none of Centennial Asset Management, or any related body corporate or any officer or employee of any of them makes any warranty as to the accuracy or completeness of the information in this report and disclaims all liability that may arise due to any information contained in this newsletter being inaccurate, unreliable or incomplete. *Prior to launch of the Level 18 Fund on 1 September 2014, Centennial Asset Management had established a separately managed account (“SMA”) and performance prior to 1 September 2014 is illustrated on a gross pro-forma basis, that invests with the same mandate as the Level 18 Fund and is included in the tables above, for comparative purposes only. The returns assume reinvestment of distributions.