Investor Outlook Newsletter - FY27

Dear Investors,

As we approach the end of FY26, we would like to provide investors with an update regarding Funds Under Management (FUM) capacity at the Centennial Level 18 Fund and some outlook commentary for the Australian equity market over the next 12 to 18 months.

Consistent long-term outperformance

Since inception (Aug 2012), the Fund has delivered a performance after all fees of +388.7 per cent compared to +143.2 per cent for the S&P/ASX Small Ordinaries Accumulation Index and +258.5 per cent for the All-Ordinaries Accumulation Index respectively. A $100,000 invested at inception would be worth $488,678 today.

Level 18 Fund approaching capacity of $300M

Investors will be aware that we believe limiting the size of the Centennial Level 18 Fund optimises liquidity and contributes to long-term outperformance. As a result, once FUM reaches $300M, we plan to close the Fund to additional investments and allow it to grow organically with performance. With Funds Under Management (FUM) of approximately $260M, we expect to hit our $300M target by August 31, 2026.

Please contact Michael Carmody (mcarmody@centennialfunds.com.au or +61 414 952 985) if you would like to invest in the Fund prior to it reaching capacity.

July remains the Level 18 Fund’s seasonally strongest month

It is important to note that July is traditionally the strongest performance month for the Fund. The table below outlines the Level 18 Fund’s monthly performance post fees since inception and records the Fund’s performance in July of each year.

Monthly Net Returns Since Inception

Consistent with previous years, the Fund’s distribution paid in cash or reinvested (unit holder’s election) for FY26 is expected to approximate the annual return. Performance in the last two months of the year will determine the final distribution but if nothing were to change during that period, a distribution of approximately +8.0 per cent would be recorded in FY26.   

If you would like to make any adjustments to your current distribution election (reinvestment or cash payment) please contact us.

Australian equity market outlook commentary – ‘Some headwinds’

Markets have been volatile and eventful since the beginning of 2026. During March, headlines associated with the conflict in the Middle East dominated global equity markets delivering a sell-off as investors lowered risk and allocated capital to defensive exposures. However, markets have subsequently rallied following the announcement of a ceasefire and the start of peace negotiations between the US and Iran. 

The outlook for the Australian equity market is less “bullish” than it was six months ago due primarily to the increase in local interest rates. The move higher is in response to rising inflation which risks being exacerbated by the increased energy costs associated with the conflict in the Middle East. Inflation continues to sit at 3.8 per cent, above the target range of 2 to 3 per cent. Higher rates are expected to slow household spending and consumer demand within the Australia economy and corporate earnings risk disappointing investor expectations. 

As a result, the portfolio has a more defensive structure compared to six months ago. Exposure to interest rate sensitive (property trusts, debt providers & banks) and consumer discretionary (retail) sectors have been lowered and companies with lower-risk capex exposed earnings growth (mining services, engineering contractors and data centres) have been prioritised.

Notwithstanding the more challenging macroeconomic back drop, we continue to believe that several key growth sectors are likely to support stock price performance and positioning within the portfolio.

Data centre construction growth

As a result of artificial intelligence and cloud infrastructure demand, data centres are now the fastest growing non-residential construction sector in Australia. A recent Macromonitor report estimates the value of data centre commencements increased by 52 per cent in the year to June 2025 and a further 10 per cent in forecast for 2025/26. Our analysis suggests that consensus is potentially underestimating the magnitude and speed of cloud and AI computing demand over the medium-term.  Industry estimates suggest that more than $50B to $60B of total data centre build cost will be required to meet demand over the next 5 years.

Forecast data centre construction demand is expected drive outperformance for construction/engineering and speciality service companies exposed to the sector. 

Defence Industry sector growth

A combination of geopolitical drivers, recent commitments to long-term government funding, and technological innovation have led to significant expenditure upgrades in the outlook for defence industry growth. Specifically, Federal government military expenditure is forecast to increase by $53B over the next 10 years. 

Within the domestic ASX listed universe, engineering, construction and infrastructure facilities management groups are well positioned to benefit from the forecast growth in defence sector expenditure. 

Brisbane Olympics / infrastructure investments

Construction plans for new and upgraded venues, accommodation and transport infrastructure associated with the Brisbane Olympics are expected to contribute to economic growth and construction sector demand within southeast Queensland between now and 2032. An estimated $7.0B is forecast to be invested in Olympic venue construction alone.  Ancillary investments are expected to lift the total expenditure meaningfully higher.

Listed building materials, civil construction and engineering groups are all expected to benefit from exposure to the forecast regional growth. Major construction contracts associated with the main stadium, aquatic centre, athletes’ village and several other regional competition venues are expected to be awarded in the next 12 months.

Upcoming FY26 reporting season

In the upcoming FY26 reporting season, elevated inflation and energy costs are generally expected to adversely impact corporate pricing power, operating margins and profitability. In addition, the recent RBA interest rate increases are also expected to adversely drag on consumer demand and top line growth. As a result, we expect share price volatility associated with earnings disappointment to increase. 

The Level 18 Fund’s flexible mandate and managed FUM capacity optimises liquidity, provides capital protection and defensive portfolio positioning in correcting markets. Notwithstanding the anticipated earnings disappointment, our bottom-up investment valuation process and portfolio positioning are expected to deliver ongoing low volatility long-term capital growth and outperformance for unit holders. 

The table below summaries the Level 18 Fund’s annualised performance after all fees (April 30, 2026).

The Level 18 Fund Information Memorandum (IM) and application form are available on the Centennial Asset Management website. Please note existing unit holders are only required to compete a one-page additional application form.  The following link (https://www.centennialfunds.com.au/) provides access to the IM and application documents.

The Centennial Team

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.