ICE Fund update – September Quarter 2026

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Transcript:

ICE Fund performance for the quarter

The portfolio returned -3.3% for the September quarter, and although the fund is benchmark unaware, we would highlight that the S&P Small Cap Industrials, the fund’s closest comparator, returned -4% for the period. There were many reasons for investment markets to be cautious during the period.

But from the ICE Fund’s perspective, there were various green shoots for the funds in terms of business performance and share price performance for multiple holdings in the fund. What are we talking about here? What has us excited? Profit growth for the fund. ICE measure the median earnings growth, profit growth for stocks in the fund.

This was really impressive. In fact, it was super impressive. Against a challenging global backdrop, the median earnings per share, how we measure profit growth, came in at 11%. It’s actually the third-highest since the fund began more than twenty years ago. The threat of AI disruption has certainly impacted the quality end of the market globally.

Those stocks that have a real moat considered most at risk. Reporting season in August refuted the threat on many fronts. Businesses like Life360, Light & Wonder, The Insurance Brokers, Steadfast and Austbrokers, delivered positive results. But also these businesses, really clear evidence of how they’re actually using AI to make their businesses better, improve profits, and build the moat around their business.

We saw positive returns from recent IPOs in which the fund has participated. Koala, SkinKandy, and the high-profile Firmus as it moves towards IPO. As a real proof point for value that sits in the portfolio, we saw three portfolio holdings each receive takeover offers in recent months. Notably, Steadfast, one of the fund’s larger holdings, has moved to an agreed scheme implementation agreement with the Dragoneer led consortium.

This drove the shares higher in August and across September. And perhaps just to summarise the September quarter, it was one of the most consistent reporting periods we had witnessed in August for the reporting period. In many instances, however, we’ve seen profit growth and yet share prices go backwards.

That’s the clear disconnect and of course, the opportunity that we see from here.

Key drivers of performance for the ICE Fund

As I mentioned August reporting season was a key driver where we saw really strong performance for the stocks held in the ICE Fund. Let’s discuss what drove performance in the quarter and what were the top contributors to start.

The recently listed Koala company delivered its maiden profit result as a public company. Investors responded well. Strong sales execution across key geographies drove the result. In the US, revenue grew 68%. In Japan, revenue rose 23%, and Koala’s foundation market of Australia grew 11%.

Overall, double-digit profit growth for Koala. The business was founded in 2015, still founder-led, and is a distinctive retailer of premium direct-to-consumer furniture. All products are designed in-house, and they sell primarily online with a global focus. They do furniture, sofas, sofa beds, armchairs is the core of the range. It’s capital light. They outsource manufacturing and logistics, but they remain key controller of their brand, including their own, bespoke and, AI-focused advertising process.

Count Financial also delivered a pleasing result. This is a business that’s been, rebuilt from the ground up with a sharp focus on productivity across its three business segments. The current management team have rebuilt credibility, restored the business focus, and added new segments. The service segment serves both Count or CUP-owned operations and external businesses, offering subscription CBD, SMSFs, actuarial, tax, and other knowledge services, along with offshoring of repetitive tasks and tailored IT services. It’s a really scalable offering that offers further advances from AI and adds genuine value for, its members of the CUP network and also critically for its shareholders.

Finally, Skellerup, a classic ICE franchise, a little bit under the radar, solid, culture focused on both innovation, R&D, and selling.But what does it do? Look, it’s a leading niche manufacturing specialist rubber technology. Sounds interesting. They do dairy, roofing, boats, boots. All of their equipment and services are designed to operate under extreme conditions, melding rubber with non-rubber components. Really sticky customer base. Last year, they grew profits at 18%, and this is despite the headwinds of US tariffs, which is a key market for them.

Childcare landlord Arena REIT was the Fund’s largest detractor in the September quarter. While the vast majority of childcare centres under, Arena’s umbrella continue to trade profitably and pay rent, financial difficulties at the Affinity Childcare Group have affected, a meaningful portion of Arena’s tenant base.

This really challenged our original thesis around tenant stickiness. And while replacement tenants will likely be found in good time with only a modest short-term disruption, we believe earning certainty, a key tenant for our investment, is now less assured, so we exited the position entirely.

The current fund positioning for the ICE Fund

Look, we’re really excited about the Fund’s positioning, the franchise investments, and what we see is the clear value on offer.

The Fund’s positioned in a collection of high-quality franchise businesses. When we look at the portfolio’s PE or price-to-earnings measures, we see a whole swathe, the vast majority of the portfolio holdings trading at a material discount to their long-run price earnings multiple for stocks in the market.

What are some of these investments? They’re market leaders. They’re key participants in their industries. Let’s start with SkinKandy, a recent IPO. It’s Australia’s largest body-piercing retailer in an industry with strong growing demand. We think of SkinKandy as a toll road servicing this demand, while, industrialising and professionalising what has been historically a cottage industry.

It’s led by the former Lovisa COO, Dain Friis, and it’s embarking on an ambitious store rollout. In Australia, doubling the store footprint in the next five years, and they will be expanding internationally. We expect into South Africa as the first port of call. The CEO has, execution credibility from his time in Lovisa, nearly doubling its store footprint and tenure while he was there. It ticks a lot of the boxes as a ICE franchise, and we look forward to the period ahead.

Baby Bunting, another retailer. It’s a category killer in the childcare centre making material progress under new management. At present, yeah, headwinds, including the macro, have weighed on the share price. But, under the roof, under the bonnet, you’re seeing material progress being made there.

Light & Wonder, a global compounder which trades at less than ten times price-to-earnings ratio, despite continuing to deliver double-digit EPS growth, de-gear the balance sheet, and consolidate its position in the industry.

AUB, as mentioned earlier in relation to Steadfast, we’ve recycled some of the profits into AUB Group, and that business continues to grow at a healthy clip, supported by its own AI measures.

We mentioned Count Financial earlier, where we see really strong compounding growth in the years ahead. Similarly, Supply Network a business that operates in, the replacement of, OEM or original truck manufacturing parts, continues to grow revenue at double digits, has done for many years, and continues to grow market share in that segment.

Again, we’re really positive about the multiple years of growth that lie ahead for many of these businesses.

New positions for the fund in the quarter included Vista Group. Vista’s a dominant provider of end-to-end software for cinema operations. It’s a global operation where it dominates the industry.

As the consumer moves more to purchasing everyday items like cinema tickets, booking restaurants, and more using their agents, such as Muse, we expect the front-end technology that Vista provides to become even more sticky with its customers. It’ll link the consumer to their customer, the owner of the cinema.

We also purchased and increased a position in Channel Infrastructure. It’s a monopoly fuel storage and supply chain operation based in New Zealand. We’ve added a small position in Megaport. Like Firmus, which is set to IPO shortly, Megaport’s really providing, the picks and shovels, the infrastructure, the key ingredients that are fueling the AI surge that’s currently a key part of the world economy.

We’ve added to many positions earlier in the year, which we considered AI-threatened. These included Steadfast, Light & Wonder, and Life360, and it’s been pleasing to see, our conviction in their investments deliver share price returns. To fund these, as discussed, we exited our position in Arena REIT.

We sold our highly successful investment in SRG Global, an essential services contractor with very high recurring revenue and customer stickiness. And we took profits in several of our key holdings, including Ventia, Port of Tauranga, and very early in the quarter, we took some profits in Life360. I hope you’re getting a flavour for what we expect is that, the opportunity is still very much ahead for the ICE Fund, with the Fund stocks trading at historically low valuations.

Reasons to invest in the ICE Fund

There’s two key reasons we see to invest.

The first, as highlighted, is that valuation on offer. We see compelling opportunity in the Fund in aggregate, and I’ve called out various key holdings and positions we’ve added to. We see a real valuation disconnect between the profit growth of stocks in the Fund and, in many instances, the share price returns. We know that won’t last. If you look at the performance numbers, which are depressed, either the process of investing in companies with a sustainable competitive advantage is broken or the Fund is set to have the mother of all rebounds

A second reason, given the Fund has 20 years plus of track record to draw on, we can point to periods in the Fund’s history where we’ve seen, an underperformance versus the small industrials. In fact, there were three previous periods where the ICE rolling one-year return was more than 9% below the small industrials. The positive precedent is that from that low, the one-year excess return versus the small industrials moved into positive territory within 14, 4, or 9 months for each period.

And then after that, the peak in one-year excess return was really strong following that low, peaking at 4.7, 17.6, and 8.6 respectively. That’s what we’re focused on, and that’s what, we’re excited about as we sit today.

*The text has been edited for clarity.

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Disclaimer

This fund update has been prepared by SGHiscock Investment Management (SGHiscock) to provide general information only and is not intended to take the place of professional advice. It does not take into account the investment objectives, financial situation or particular needs of any particular person.

Equity Trustees is the responsible entity for the ICE Fund. Neither SGHiscock, Equity Trustees nor any of its related parties provide any warranty of accuracy. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product. Follow the link for the full disclaimer: https://sghiscock.com.au/podcast-disclosures-and-disclaimers/.