Category: Stock Market

Every Monday I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Webjet Limited (ASX: WEB) remains the most shorted share on the Australian share market despite its short interest sliding to 14.6%. Short sellers won’t have enjoyed last week. The online travel agent’s shares rocketed higher following news of a promising COVID-19 vaccine.
• InvoCare Limited (ASX: IVC) has short interest of 9.5%, which is down slightly week on week once again. There are concerns that this funerals company is losing market share to competitors.
• Speedcast International Ltd (ASX: SDA) still has short interest of 9.4%. This communications satellite technology provider’s shares remain suspended whilst it undertakes a recapitalisation.
• Western Areas Ltd (ASX: WSA) has seen its short interest rise again to 9.2%. Short sellers have been going after the nickel producer due to production issues at its Flying Fox operation.
• Myer Holdings Ltd (ASX: MYR) has seen its short interest fall to 9.2%. In FY 2020, this department store operator posted a statutory loss of $172.4 million. Short sellers don’t appear to be expecting a big improvement in FY 2021.
• Mesoblast Limited (ASX: MSB) has seen its short interest rise again to 9.1%. The biotech company’s shares have come under pressure after the US FDA decided against approving its remestemcel-L product last month.
• Inghams Group Ltd (ASX: ING) has 8.7% of its shares held short, which is down slightly week on week. Short sellers have been closing positions after the poultry company revealed an improvement in its performance in FY 2021.
• A2 Milk Company Ltd (ASX: A2M) has re-entered the top ten with short interest of 7.6%. Weakness in the daigou channel is weighing heavily on the infant formula company’s performance this year.
• Galaxy Resources Limited (ASX: GXY) has seen its short interest slide to 7.5%. Galaxy and other lithium miners have fallen heavily this year because of a collapse in lithium prices due to oversupply and lower demand.
• Metcash Limited (ASX: MTS) is back in the top ten with 7.5% of its shares held short. Given the favourable trading conditions its businesses are experiencing, it remains unclear why short sellers are going after Metcash.

More reading

• The Webjet (ASX:WEB) share price raced 18% higher last week
• Top brokers name 3 ASX shares to sell next week
• 2 great ASX growth shares to buy
• 5 things to watch on the ASX 200 next week
• Brokers name 3 ASX shares to buy right now

Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia owns shares of and has recommended A2 Milk and Webjet Ltd. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Respected fund manager Wilson Asset Management (WAM) has recently identified two small cap ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).

There’s also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.

WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.

The WAM Microcap portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 21.3% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 7.2%.

These are the two small cap ASX shares that WAM outlined in its most recent monthly update:

Damstra Holdings Ltd (ASX: DTC)

WAM explained that Damstra provides integrated workplace management solutions to help companies with safety and regulatory compliance.

The fund manager said in October the small cap ASX share reported record first quarter revenue of $5.2 million, representing 34% growth on the prior corresponding period. WAM also said the company successfully acquired Vault Intelligence Limited, a workforce performance and protection technology company, a strategic step that allow Damstra to scale, diversify and fast track global growth.

Damstra also reported that its cash receipts was $7.1 million for the quarter, up 61% compared to the prior corresponding period. Operating cash flow was $2.4 million, which was up 25% compared to last year. The company finished with a cash balance of $9.6 million.

The small cap ASX share’s gross margin was 72%, up from 69% in FY20. Damstra said that this showed strong operating leverage.

User numbers increased to 418,000 with 47 clients added during the quarter. Its client churn was less than 0.5% in the first quarter of FY21.

The Damstra share price has risen by 280% since the market bottom on 23 March 2020.

Serko Ltd (ASX: SKO)

WAM said that Serko is a New Zealand based online travel booking and expense management company for the business travel market.

The small cap ASX share has benefitted from an uplift in travel and the state by state reopening of borders between New Zealand and Australia. The company announced a capital raising in October, with an oversubscribed share purchase plan and placement raising a combined NZ$67.5 million at NZ$4.55 per share. WAM said that Serko is expected to report its result this week.

In the capital raising update, Serko said that the lifting of travel restrictions in New Zealand resulted in transactions rebounding to approximately 70% of pre-COVID transaction volumes (measured against equivalent days in 2019) following the adoption of alert level 1 in mid-June, before declining again when further travel restrictions were imposed in August 2020.

Seko revealed that travel transaction volumes are currently running at approximately 30% of last year’s corresponding period volumes for Australasia as at 20 September 2020.

In North America, Serko invested heavily in its platform for expansion into the region.

Current booking volumes are low, however, management believe that this market provides a significant growth opportunity over time and has continued to expand its reseller base in this market.

Serko said that it has added four new TMC resellers since 31 March 2020, bringing the total to nine resellers, and is in the process of activating these partners.

The small cap ASX share is in advanced stages of negotiation for a large direct contract with a US fortune 500 company.

More reading

• 3 exciting small cap ASX tech shares to watch
• 4 top ASX share picks to buy
• 3 100% franked ASX dividend shares going ex-dividend in November
• Takeovers will continue to rock ASX shares
• Why market crashes are useful for buying ASX dividend shares

Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Damstra Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia has recommended Damstra Holdings Ltd and Serko Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With interest rates continuing to slide, the yields on offer with traditional interest-bearing assets are at lower than imaginable levels now.

The good news is that the Australian share market is home to a good number of shares offering significantly better yields.

Two ASX dividend shares that offer above average yields are listed below:

Coles Group Ltd (ASX: COL)

This leading supermarket operator has been one of only a handful of companies that have been able to grow their dividends in 2020. This was driven by its very strong performance in FY 2020 following favourable changes to consumer behaviour during the pandemic. Coles reported a 6.9% increase in sales to $37.4 billion and a 7.1% lift in net profit after tax to $951 million. This positive form has continued into FY 2021, with Coles reporting very strong sales growth during the first quarter.

This has left many brokers expecting another strong result for the current financial year. One of those is Goldman Sachs. It believes Coles is well-positioned to increase its fully franked dividend to 64 cents per share in FY 2021. Based on the current Coles share price, this equates to a 3.6% dividend yield.

Rural Funds Group (ASX: RFF)

Another company that looks set to increase its dividend in FY 2021 is Rural Funds. It is an agriculture-focused property company that owns a portfolio of properties across five agricultural sectors. These properties are leased on ultra-long-term agreements to some of the biggest operators in the industry. At the last count, Rural Funds’ weighted average lease expiry (WALE) stood at a very lengthy 10.9 years.

It is because of this long WALE, that management can accurately predict its long term cash flows. This also means that it is able to set itself an achievable target of growing its distribution by an average of 4% per annum over the long term. This year the company intends to do exactly that and has provided guidance for an 11.28 cents per share distribution. Based on the current Rural Funds share price, this equates to a 4.5% yield.

More reading

• 2 ASX dividend shares growing their dividend every year
• Brickworks (ASX:BKW) hasn’t cut its dividend for over 40 years
• These ASX dividend shares smash term deposits
• 2 ASX dividend shares analysts rate as a ‘buy’
• 3 compelling ASX shares rated as buys by brokers

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Friday the S&P/ASX 200 Index (ASX: XJO) finished a very positive week in a subdued manner. The benchmark index fell 0.2% to 6,405.2 points.

Will the market be able to bounce back from this on Monday? Here are five things to watch:

ASX 200 expected to rise.

It looks set to be a positive start to the week for the Australian share market after a strong finish to the week on Wall Street. According to the latest SPI futures, the ASX 200 is expected to rise 16 points or 0.25% at the open. On Friday night in the United States, the Dow Jones rose 1.4%, the S&P 500 climbed 1.4%, and the Nasdaq pushed 1% higher. The S&P 500 hit a record high on Friday.

Oil prices drop lower.

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could have a soft start to the week after oil prices dropped lower. According to Bloomberg, the WTI crude oil price fell 2.4% to US$40.13 a barrel and the Brent crude oil price dropped 1.7% to US$42.78 a barrel. This didn’t stop oil prices gaining around 8% for the week.

Elders FY 2020 result.

The Elders Ltd (ASX: ELD) share price will be on watch today when it releases its full year results. Goldman Sachs is tipping the agribusiness company to deliver a better than expected result. It commented: “We are 5%/8% above Bloomberg EBIT/EPS consensus and expect a strong result.” It is forecasting EBIT of $116 million and earnings per share of 71 cents. Goldman has a conviction buy rating and $13.65 price target on its shares.

Gold price pushes higher.

Gold miners including Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch today after the gold price pushed higher on Friday night. According to CNBC, the spot gold price climbed 0.7% to US$1,886.20 an ounce. This was driven by mounting pandemic and vaccine worries.

GrainCorp upgraded.

The GrainCorp Ltd (ASX: GNC) share price could be heading higher according to analysts at Goldman Sachs. The broker has upgraded the company’s shares to a buy rating with a $5.34 price target. Goldman commented: “We view GNC as providing an attractive combination of near-term cyclical tailwinds and long-term structural benefits.”

More reading

• 5 things to watch on the ASX 200 next week
• These were the worst performing ASX 200 shares last week
• These were the best performing ASX 200 shares last week
• Top fund manager tells investors to ‘go long’ in 2021
• ASX 200 drops 0.2% on Friday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Elders Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Buying and holding cheap dividend stocks could provide more than just a generous passive income over the long run. A low interest rate environment may mean that demand for companies with high yields and dividend growth potential increases over the medium term.

Furthermore, the recent market crash means that many income shares currently trade at low prices. This suggests that they could benefit from a likely improving economic outlook over the next decade. As such, now could be the right time to buy a diverse range of dividend shares.

Increasing demand for dividend stocks

Dividend stocks may not currently be particularly popular. The uncertain economic outlook means that many investors are cautious when it comes to investing money in the stock market. They may fear experiencing losses in the short run if risks such as Brexit and the coronavirus pandemic prompt a weakening in investor sentiment.

However, over the long run, the appeal of income shares could increase. Interest rates are currently at a low level and may fail to rise rapidly even if the economic outlook improves. As such, income-seeking investors may be drawn into dividend shares by their relatively high yields at a time when other mainstream assets such as cash and bonds offer relatively unattractive returns. This may help to push the share prices of income stocks higher, thereby providing capital returns for investors alongside their generous yields.

Dividend growth opportunities

Dividend stocks may also offer high long-term returns due to their potential to increase shareholder payouts in the coming years. The current global economic outlook is relatively challenging. However, its track record shows that it has always returned to positive growth following periods of decline. And, with major fiscal and monetary policy stimulus having been enacted in major economies, the outlook for many companies could improve. This could allow them to pay a larger amount in dividends to their shareholders.

Companies that can produce impressive rates of dividend growth may become more appealing to investors. Rising dividends can often highlight improving profitability, as well as management confidence in the company’s outlook. This may act as a buying signal for investors that pushes the share prices of dividend growth stocks higher.

Low current valuations

Another reason to buy dividend stocks today is that they are priced at cheap levels in many cases. Weak investor sentiment towards the stock market means that many high-quality companies currently have yields that are significantly higher than their long-term averages. This suggests that they have wide margins of safety and may offer capital return potential as investor sentiment improves in the coming years.

As such, now could be the right time for an investor to buy and hold dividend shares. Their passive income potential and the prospect of capital returns may lead to impressive total returns as the world economy recovers.

More reading

• 2 exciting small cap ASX shares for your watchlist
• The Webjet (ASX:WEB) share price raced 18% higher last week
• 2 fast-growing ASX tech shares to buy
• These ASX dividend shares offer yields 8 times greater than term deposits
• 1 top ASX share according to this fundie

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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As well as being home to countless blue chip shares, the Australian share market is home to a good number of promising small caps.

Two small cap shares that could be deserving of a spot on your watchlist are listed below. Here’s what you need to know about them:

MNF Group Ltd (ASX: MNF)

MNF Group is a leading provider of Voice over Internet Protocol (VoIP) technology to businesses and consumers. This technology essentially allows telephone calls to be made over the internet. Due to the NBN rollout and the work from home initiative, demand for MNF’s VoIP services has been growing strongly this year. This led to the company recording a 27% increase in recurring revenue to $101.5 million in FY 2020.

Another positive was that it reported a 17% increase in phone numbers on its network to 4.5 million. Management notes that this metric is a key performance indicator for future growth, which bodes well for its performance in FY 2021.

One broker that is confident in the company’s prospects is Morgan Stanley. Late last month its analysts put an overweight rating and $6.30 price target on its shares. This compares to its last close price of $4.96.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is the New Zealand-based healthcare technology company behind the VolparaEnterprise software solution. This product is a cost-effective, mission-critical tool that helps clinics deliver the highest-quality breast imaging services. In addition to this, the company has a growing number of add-on solutions that work with VolparaEnterprise. These include VolparaDensity, VolparaDose, VolparaPressure, VolparaLive, and VolparaPositioning.

Management expects these add-ons to drive material average revenue per user (ARPU) growth in the future. At the end of the second quarter, its ARPU stood at US$1.16. But management is aiming to grow it to US$10 in the future for its full product suite. Together with market share gains and potential geographic expansion, management appears confident that it is well-placed for growth.

One broker that agrees is Morgans. At the end of last month it put an add rating and $1.71 price target on the company’s shares. The Volpara share price ended the week at $1.32.

More reading

• 2 little-known ASX small cap shares rated as buys by fundie
• Volpara (ASX:VHT) share price on watch after Q2 trading update
• These exciting small cap ASX shares could smash the market in the 2020s

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of VOLPARA FPO NZ. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended VOLPARA FPO NZ. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One of the best performers on the S&P/ASX 200 Index (ASX: XJO) last week was the Webjet Limited (ASX: WEB) share price.

The online travel agent’s shares raced an incredible 18% higher over the five days to end the week at $4.95.

Why did the Webjet share price race higher last week?

Investors were fighting to get hold of travel shares last week after news broke of a potentially effective COVID-19 vaccine.

On Monday US biotech giant Pfizer released the first set of results from a phase 3 COVID-19 vaccine trial. Those results appear to show the initial evidence of its vaccine’s ability to prevent COVID-19 infections.

According to the update, in the first interim efficacy analysis, the vaccine candidate was found to be more than 90% effective in preventing COVID-19 in participants with no evidence of prior SARS-CoV-2 infection.

This is significantly better than even Pfizer was hoping and would be notably more effective than traditional flu vaccines. According to the US Centers for Disease Control and Prevention, the overall estimated effectiveness of seasonal influenza vaccines is currently 45%.

Pfizer expects to produce up to 50 million vaccine doses globally in 2020 and then up to 1.3 billion doses in 2021.

This has sparked hopes that global travel markets could rebound much quicker than many had expected, which would be great news for Webjet.

Although it has cut its costs materially this year to combat the sizeable decline in ticket volumes, it is still burning through its cash reserves.

The sooner the recovery takes place, the less damage is done to its balance sheet and the stronger the company will be when trading conditions return to normal.

Buoyant travel sector.

Webjet wasn’t the only travel share zooming higher last week. Flight Centre Travel Group Ltd (ASX: FLT) and Sydney Airport Holdings Pty Ltd (ASX: SYD) were also strong performers.

The Sydney Airport share price jumped 13.3% and the Flight Centre share price stormed 11.8% higher.

More reading

• Why Orocobre, Ramsay, Webjet, & Xero shares are dropping lower
• Vaccine hopes cause ASX 200 to rise on Tuesday
• Why the Sydney Airport (ASX:SYD) share price rocketed 24% higher today
• Why Fletcher Building, Santos, Vitalharvest, & Webjet shares are storming higher
• Flight Centre (ASX:FLT) and Webjet (ASX:WEB) shares surge higher on vaccine news

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There are a lot of growth shares for investors to choose from on the Australian share market.

Two in the tech sector that come highly rated are listed below. Here’s why they have been named as ones to buy:

Afterpay Ltd (ASX: APT)

Afterpay is a leading payments company with a focus on the buy now pay later (BNPL) market. It is also planning to launch savings accounts and cash flow tools through a partnership with Westpac Banking Corp (ASX: WBC) in the near future. It has been growing at an extraordinary rate over the last few  years thanks to the increasing popularity of the BNPL payment method with both consumers and retailers. So much so, during the first quarter of FY 2021, Afterpay recorded underlying sales growth of 115% to $4.1 billion.

One broker that was pleased with this performance was Morgan Stanley. In response to its quarterly update, the broker retained its overweight rating and $115.00 price target. The Afterpay share price is currently fetching $101.85, which means potential upside of approximately 13% based on this price target.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is a fast-growing donor management and community engagement provider to the church market. Thanks to the quality of its platform, its leadership position, and the shift to a cashless society, it has been growing at a very strong rate. In fact, earlier this month the company released its half year results and revealed a 48% increase in total processing volume to US$3.2 billion and a 53% increase in operating revenue to US$85.6 million. And thanks to the further widening of its margins, EBITDAF grew 177% to US$26.7 million.

This caught the eye of analysts at Goldman Sachs, who have put a conviction buy rating and $10.35 price target on the company’s shares. Based on the current Pushpay share price of $7.07, this price target implies potential upside of over 46%.

More reading

• 5 things to watch on the ASX 200 next week
• Why are ASX tech shares all over the place today?
• Why the Aristocrat (ASX:ALL) share price could jump next week
• Top brokers name 3 ASX shares to buy today
• ASX 200 up 1.3%: CBA Q1 update, tech shares rebound, JB Hi-Fi sinks

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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At present, Commonwealth Bank of Australia (ASX: CBA) is offering term deposits with interest rates of 0.60% per annum on amounts over $50,000 for five years.

This is broadly in line with what you’ll find from the rest of the big four banks right now.

Luckily for income investors, the Australian share market is home to a number of shares that offer yields many times greater than this.

Two ASX dividend shares which provide investors with yields eight times larger are listed below. Here’s what you need to know about them:

Aventus Group (ASX: AVN)

Aventus is the owner and operator of 20 large format retail parks across Australia. It counts major retailers such as ALDI, Bunnings, Officeworks, and The Good Guys as tenants. This is good for two reasons. Not only does this mean it has a high occupancy level, these tenancies give the company’s centres a high weighting towards everyday needs. This has proven to be a real blessing during the pandemic and allowed Aventus to collect the majority of its rent as normal in FY 2020.

Analysts at Goldman Sachs have just reiterated their buy rating and $2.76 price target on its shares. It notes that Aventus has a quality portfolio with opportunities outside the box with its land bank. Based on the latest Aventus share price, the broker estimates it offers a forward 5% dividend yield.

Telstra Corporation Ltd (ASX: TLS)

The 2010s were a difficult decade for this telco giant because of the NBN rollout. The good news for shareholders is that the NBN rollout is close to complete and the headwinds from this are easing notably. So much so, last week the company revealed that it is aiming to return to growth in FY 2022. It is also planning to split into three separate entities, with the aim of taking advantage of potential monetisation opportunities for its infrastructure assets.

In light of this, a number of brokers, such as Goldman Sachs and UBS, are now convinced Telstra will pay a 16 cents per share dividend in FY 2021 and FY 2022. Based on the current Telstra share price, this equates to a fully franked 5.1% dividend yield.

More reading

• Top brokers name 3 ASX shares to sell next week
• Top brokers name 3 ASX shares to buy next week
• AGL Energy (ASX:AGL) ventures into broadband business
• Brokers name 3 ASX shares to buy right now
• Why this broker is calling Telstra (ASX:TLS) shares a buy today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended AVENTUS RE UNIT. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A leading fund manager, being the Eley Griffiths, has revealed one top ASX share that it thinks is worth owning.

Eley Griffiths is one of the fund managers that is taking part of the Future Generation initiative. This is where two listed investment companies (LICs) have been set up for philanthropic purposes.

Future Generation Investment Company Ltd (ASX: FGX) donates 1% of its net assets each year to youth charities, whilst Future Generation Global Invstmnt Co Ltd (ASX: FGG) donates 1% of its net assets each year to youth mental health charities.

The Future Generation LICs invest in the funds of fund managers, like Eley Griffiths, who work for free so that the donations can be made. There are no management fees or performance fees.

How does Eley Griffiths invest?

It has a number of different funds. One of those funds is the Eley Griffiths Group Emerging Companies Fund. This fund has a consistent record of outperformance of the S&P/ASX Small Ordinaries Accumulation Index.

At 30 September 2020, over the prior year the fund (which invests in ASX shares) had outperformed the index by 15.2%, over the past two years it had outperformed by an average of 12.5% per annum and over the past three years it has outperformed by 12.2% per annum. Since inception in March 2017, it has delivered average returns per annum of 20.5%, outperforming the index by an average of 13.1% per annum.

Eley Griffiths Group says that it has a disciplined investment process and a belief that portfolios are built from bottom-up stock picking whilst being influenced by top-down considerations.

The backbone to the investment philosophy combines a price-for-growth valuation metric with a formal assessment of management and industry structure. The fund manager says this process generates buy and sell signals.

Fund manager’s thoughts on the share market

Eley Griffiths believes the global economy has moved to a recovery phase, commencing in China and spreading outward as consumers normalise in a coronavirus world and businesses begin to invest again. In the short term, passage of the US stimulus bill and the US presidential election may weigh on sentiment.

The fundie also thinks that stock market valuations are full but not excessive and prevailing equity risk premiums continue to reinforce the case for enlarged equity allocations versus that of bonds and fixed interest.

What’s the ASX share idea?

One high conviction holding of Eley Griffiths’ is Reject Shop Ltd (ASX: TRS). The fund manager said: “the ASX share sits at the early stages of a planned multi-year turnaround. New management have a reset balance sheet, strong brand and an operating model awaiting refinement. We have identified several levers where value for shareholders should be unlocked.”

The Reject Shop share price has gone up by 176% since the price bottomed on 27 March 2020 due to COVID-19.

In FY20 the ASX share reported that its FY20 saes grew by 3.4% with comparable store sales growth of 3.5%. In the first half comparable sales rose 0.5% and in the second half it rose 7.1%.

Before AASB 16, FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 30.1% to $23.7 million. It generated $4.5 million of earnings before interest and tax (EBIT), up from a loss of $23.3 million in FY19, and it made $2.7 million of net profit after tax (NPAT), up from a $16.9 million loss in FY19.

At the end of FY20 it had $92.5 million of cash on the balance sheet and no drawn debt. It generated free cashflow of $61.6 million, up from a $1.9 million outflow in the prior corresponding period.

In FY21 the company will be focused on EBIT growth with cost reductions through business simplification and operational efficiency.

More reading

• Reject Shop (ASX:TRS) share price tumbles but it’s property stocks that should be worried

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO and Future Generational Global Investment Company Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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