May 2026 Newsletter

The Level 18 Fund increased by +1.9 per cent net of fees for the month.

Commentary

The Level 18 Fund increased by +2.8 per cent net of fees for the month. For the 12 months to May 31, 2026, the Fund increased by +12.1 per cent. 

May was a positive month for most major equity markets globally. The de-escalation of the US-Iran conflict and ongoing optimism regarding a potential peace deal contributed to the rally. In the US, technology shares continued to drive gains, supported by enthusiasm surrounding artificial intelligence-related investments. A strong earning season where approximately 85 per cent of S&P 500 companies delivered results ahead of expectations also contributed to US investor confidence. 

While the US market is trading at all-time highs, it is important to note that the rally has been largely driven by a small number of stocks. In May, the US Information Technology Index contributed to the narrow rally with a performance of +15.9 per cent in the period. 

In Australia, May was a positive month for both large and small caps. The S&P/ASX Small Ordinaries Accumulation Index and the All-Ordinaries Accumulation Index increased by +2.0 per cent and +1.2 per cent in the month respectively. Consistent with the previous month, small caps continued to outperform. During the period, Small Cap Resources were up +2.6 per cent versus Small Cap Industrials at +1.7 per cent.

The Australian market lagged the US in the month due primarily to ASX’s structurally lower exposure to growth/tech companies and the ongoing dominance of banks, resources and yield-sensitive industrials.

Locally, Resources, Capital Goods and selective small-caps made the most significant contribution to the market’s performance in May. Mining was the best performer, up +10 per cent. The Capital Goods sector (construction & engineering) was a close second at +9 per cent. Gold was lower, down -2.5 per cent. Healthcare continues to perform poorly at -8.9 per cent.

The Fund continues to be defensively positioned to protect capital and optimise performance against a backdrop of elevated energy costs, higher inflation and corporate earnings risk. We have maintained a structurally higher level of cash at approximately 25 per cent during the period. The cash holding provides downside protection but also flexibility to act on new opportunities. Outperformance during May was in part driven by the Fund’s exposure to capex-driven earnings growth in mining services, engineering and construction, electrification and data-centre infrastructure. 

For Large Cap investors, mining has become the local AI proxy trade. Small Cap investors in contrast have a larger universe of AI-exposed investment opportunities. 

Importantly, several portfolio holdings announced additional contract wins during the period. Ventia (VNT) was awarded a contract valued at NZD $125M over a five-year period for road maintenance services in New Zealand. NRW Holdings (NWH) announced several contracts for its Fredon subsidiary with a combined valued of $120M. Monadelphous (MND) announced the award of new construction and maintenance contracts in the resources and renewable energy sectors valued at approximately $120M. 

On the policy front, in early May the Reserve Bank of Australia raised the cash rate by 25 basis points to 4.35 per cent. The third increase this cycle effectively unwinds the cuts delivered in 2025. The move was in response to underlying inflation that remains above the 2 to 3 per cent target band, with energy-driven price pressures linked to the conflict in the Middle East influencing the RBA’s decision. The Board reiterated that it remains focused on returning inflation to the target range while assessing the impact of the conflict on households and businesses. As expected, the US Federal Reserve again kept rates on hold.

The Centennial Level 18 Fund continues to actively manage the portfolio. During the month we increased the Fund’s exposure to digital and resources infrastructure, initiating and adding positions in data-centre interconnection provider Megaport (MP1), telecommunications and field services group Service Stream (SSM), engineering services group SRG Global (SRG) and commercial explosives group Orica (ORI). 

Positive contributors to the Fund’s performance in May include civil, resource and infrastructure services engineering group NRW Holdings (NWH), infrastructure and asset management services group Ventia Services (VNT), global metal recycling group Sims (SGM) and Audio-visual & electrical contractor SKS Technologies (SKS).

Payments and finance provider Zip Co (ZIP), petroleum product and retail convenience company Ampol (ALD) and debt ledger purchasing, collection & consumer lending group Credit Corp (CCP) made negative contributions to performance in the month.

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. 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 month 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 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.