July 2026 Newsletter

The Level 18 Fund decreased by -6.8 per cent net of fees for the month.

Commentary

The Level 18 Fund decreased by -6.8 per cent net of fees for the month.

The Fund’s performance in the month was negatively impacted by the portfolio’s exposure to several Capex infrastructure and data centre construction companies. In response to the AI-related selloff that took place in the US, local investors also reduced exposure to engineering and electrical contracting groups in Australia. Despite the poor short-term performance, we continue to expect the sector to benefit from additional construction contract wins and the associated increase in forecast earnings. We believe investors are underestimating the scale of construction expenditure required (civil and data centre) to meet long-term forecast demand in Australia.     

July was a difficult month for US equity markets. Investors took profits in semiconductor stocks as shareholders questioned the long-term sustainability of AI related expenditure. Having been responsible for the strong performance of the US market over the last year, the sector declined as investors became concerned about whether AI-related spending would generate sufficient returns in the future. 

The re-escalation of the US-Iran conflict and declining optimism regarding a potential peace deal also contributed to the US market’s overall performance.

Despite a relatively strong US earning season where approximately 86 per cent of S&P 500 companies delivered results ahead of expectations, the S&P 500 and the Nasdaq Composite Index finished the month down -0.1 per cent and -3.2 per cent respectively. 

The Australian market delivered a mixed performance in July. The S&P/ASX Small Ordinaries Accumulation Index was down by -3.2 per cent and the All-Ordinaries Accumulation Index increased by +1.7 per cent in the month respectively.

The positive large cap performance was primarily driven a sector rotation into liquid large cap banks, healthcare and consumer stocks. In contrast, the small cap sector delivered a negative performance in July. During July 2026, small cap Resources were down -3.7 per cent and small cap Industrials were down -3.0 per cent respectively.

Ahead of the scheduled Reserve Bank of Australia (RBA) meeting in August 2026, the bank’s preferred measure for CPI (trimmed mean) came in slightly below forecasts at 3.6 per cent for the year to June 30. Inflation remains elevated and above the RBA’s target range of 2-3 per cent. Post the recent CPI result, consensus expects the RBA to remain on hold at the upcoming August meeting.

It is important to note that Governor Bullock’s June statement confirmed the Board “will do what it considers necessary” to achieve a return to the target range. The RBA’s “hiking bias” is unchanged.

In July, the US Federal Reserve, under the new leadership of Kevin Warsh, left rates unchanged at 3.50% to 3.75%. The Fed emphasized that inflation remains above target and reiterated its commitment to restoring price stability.

During the month, Fletcher Building (FBU) increased its earnings guidance for the financial year. The improved outlook reflects better raw material procurement, improved operational productivity and increased customer demand. In addition, SKS Technologies (SKS) was awarded an additional $28M of works for a hyperscale data centre in Melbourne. Post the month close, the company upgraded FY26 earnings guidance by +15.6 per cent as the increased scale delivers margin expansion and improved profitability.

During the month several new exposures were added to the portfolio including Aristocrat Leisure (ALL), Fletcher Building (FBU), FDC Consolidated Holdings (FDC), Lycopodium (LYL) and Supply Network (SNL).

Reporting season provides us with the opportunity to meet with management teams, to update our view on the operating environment for the investments within the portfolio and to identify new investment opportunities for the Fund.  We expect increased share price volatility during the month as has increasingly been the case in recent result periods. Our normal practice ahead of the reporting season is to build cash levels to allow for new portfolio investments opportunities.

Positive contributors to the Fund’s performance in July include cryopreservation solution device provider Vitrafy Life Sciences (VFY), global banking and financial services group Macquarie Group (MQG), gaming content and technology company Aristocrat Leisure (ALL) and metal production and marketing company BlueScope Steel (BSL).

Construction and maintenance group GenusPlus (GNP), electrical and telecommunications infrastructure product & services group Mayfield Group (MYG) and audio-visual & electrical contractor SKS Technologies (SKS) made negative contributions to performance in the month.

Level 18 Fund closing on August 31, 2026 at $300M of FUM

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 $275M, 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.

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.

Thank you as always for your continued support and please contact Michael Carmody (mcarmody@centennialfunds.com.au or +61 2 8071-9215) if you would like any further details.

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.