Dear Investor,

 DMXASF’s NAV declined 6.2% (after fees and expenses) for the month of February, in what was a generally weak market environment with the ASX 200 Total Return Index declining 2.5%. We fared worse than the market through what turned out to be a very rough reporting season with companies suffering for higher costs, lower margins, and deteriorating outlooks for the periods ahead. With investor sentiment much more cautious, any good news received fairly muted responses, while bad news carried punishment that was seemingly disproportionate to the crime.

Commentary

Most of our companies reported in February, and some with disappointing results or guiding toward continued challenges ahead. The common theme being ongoing cost inflation, weaker economic conditions, and deteriorating margins. The expectation of worse to come has certainly been very broadly discounted into share prices, with 2/3^rd of our 45 companies falling over the month, the average decline for that group was 12% while the five largest decliners fell 20-34% each. Among the big decliners were some of our larger holdings, including Academies Australia (down 27%), Kip McGrath (down 34%), and Pureprofile (down 20%).

Bright spots on the other side of the ledger enjoyed only very muted positive share price performances, with the likes of Laserbond up 8% on a very solid result, and Sky-Fii being the only ‘double-digit’ return at up 17% though on an inconsequential position size. With bad news dominating, and little to mitigate the damage, our NAV declined over 6% on a net basis for the month.

We don’t feel too strongly one way or the other in terms of short-term price action, but we do feel the fundamentals for some of our companies have deteriorated. With that, we are being particularly cautious with how we manage through this environment, including where and how we add to increasingly attractive opportunities, and where and how we should recognise the adverse outcomes and potentially cut losses.

On the whole though, we do believe price declines reflect an overreaction, and the broadly negative market sentiment of the day. We’re enthusiastic about the medium to long-term prospects, with an eye to capitalising on perceived mispricing in favoured individual names.

For further discussion on a number of our positions, we highlight the detailed commentary from the DMX Capital Partners report on its Top 10 holdings, included in the Appendix, below. These companies are all owned by the DMX Australian Shares Fund, with many also among our Top 10. The updates give a good sense for the value, growth and opportunity in front of us across our diverse portfolio.