Mirrabooka delivered an improved half-year portfolio return and interim dividend despite the challenging economic and market conditions. Buying activity was driven by seeking better value in new portfolio additions as well as opportunistically topping up existing holdings, particularly in the interest-rate driven market weakness seen in October.
For H1 FY24 the Mirrabooka portfolio return including the benefit of ranking was 10.7 per cent, compared to the return from the combined Small Ordinaries and Mid Cap 50 sector benchmark of 5.1 per cent including franking.
Our 12-month ending 31 December portfolio return including franking was 22.2 per cent, surpassing the benchmark's 8.6 per cent return, also including franking.
Importantly for our shareholders, the interim dividend was 4.0 cents per share fully franked representing a 0.5 cents increase.
The strong outperformance of the portfolio can be attributed to longer-term holdings such as James Hardie Industries, Reece, ARB Corporation, Audinate Group, Breville Group, and CAR Group, and relatively new holdings Gentrack and IPD Group. Our decision to be underweight mid-sized resource companies that underperformed the market also contributed to our relative performance over the 12-month period.
Profit for the half-year to 31 December was $4.6 million - down 18.7 per cent compared to the profit of $5.7 million a year earlier. This can be attributed to the absence of gains from the trading portfolio and option activity that were realised in the prior corresponding period, which saw a profit reduction of over $2 million. Dividends and distributions received increased by 9.3 per cent.
Over our preferred long-term investment horizon of three, five and 10 years, the portfolio return including franking has outperformed the benchmark despite volatility in recent returns.
Strategic investments in early-stage growth companies
Despite the challenging economic and market conditions, we are pleased with our portfolio returns. This success is attributed to the consistent operating performance of our core long-term holdings and the value generated through our investment activities in 2022 and 2023.
Recent additions to our portfolio have also strongly contributed to our success. Gentrack, a software provider serving utility and airport customers, and IPD Group, an electrical components distributor, have both exhibited exceptional share price performance since their acquisition approximately two years ago. Their sustained strong underlying results have led to compounding share price appreciation, elevating these initially smaller positions into our top 20 portfolio holdings.
We also saw notable positive performance in previously identified early-stage growth companies such as Audinate, specialising in audio and visual networking technology, and Chrysos, a provider of mineral assay technology, further underscoring the value of strategi investments in our portfolio.
As a long-term investor with a focus on high-quality stocks, we view current market conditions as an opportunity to adjust our portfolio. We established new positions in IGO, Lunas Rare Earths, Region Group and added Telix pharmaceuticals and Lindsay Australia.
We sold our holdings in Santos and Medibank, as well as trimming holdings in companies like REA Group, Eagers Automotive, Netwealth, Auckland Airport and Reece where valuations had gone up and their portfolio sizes were too large for the current value on offer.
Outlook: Balancing cautious optimism and long-term value
As we enter the 2024 calendar year, the global economy appears robust with inflation and stabilising and recent market optimism driven by the belief that interest rates have peaked. We also saw a "soft landing" narrative driving markets, particularly through November and December.
That said, there are potential risks and we remain cautious. If inflation falls short of central bank target or economic activity declines from past interest rate hikes, there could be downside risks to current market pricing.
We approach some of the current stock valuations in our portfolio with caution after a strong performance in 2023. If market buoyancy continues, we plan to assess holdings for overevaluations, and seek alternative opportunities that present a stronger long-term value. Our priorities remain on maintaining the quality of our investments to navigate potential economic challenges.
Taking a longer-term perspective, we continue to take very significant comfort from the quality of companies and management teams that we are invested in.