Microequities Value Income Fund — January 2026 Letter

Monthly performance as at 31 January 2026

Download the PDF update (January 2026)

About the fund

The Microequities Value Income Fund (“VIF”) (ARSN 629 674 175) is a retail fund investing in high dividend paying, undervalued, ASX smaller companies. This fund is appropriate for investors with “High” risk and return profiles. A suitable investor for this fund is prepared to accept high risk in the pursuit of capital growth with a medium to long investment timeframe. Investors should refer to the TMD for further information.

Performance

Past performance is not indicative of future performance.

Value of $100,000 invested at inception

Market update and commentary

In last month’s report, we noted that the RBA’s February policy decision was finely balanced. Rising core inflation and a stubbornly strong labour market, underpinned by tight labour supply, were complicating the RBA’s dovish policy stance. The two data prints released in January (quarterly inflation and employment numbers) have now decisively tilted the balance towards a rate increase at this week’s meeting. We expect the RBA will yield to the data and take the prudent step of lifting rates by 25 basis points. In the United States, the economy is likely to surprise on the upside in 2026. Tariff revenues provide a potential pathway to income tax cuts, while rising real wages and household wealth are creating a supportive backdrop for the consumption-led economy. The US economy appears on track to deliver above-trend growth of around the mid-2% range. Also likely to surprise on the upside is the Chinese economy, which has demonstrated resilience in the face of US tariffs. Rising technological innovation, with R&D spending now accounting for approximately 2.8% of GDP (above the OECD average), is gradually shifting the structure of the Chinese economy. That said, China continues to face some formidable structural challenges.

Microequities Value Income Fund returned -0.47% net of fees in January; this brings the total return net of fees to 126.90% for the Fund since inception in February 2019.

During the month, we sold our holding in Humm Group (ASX:HUM), noting deteriorating corporate governance concerns. We are closely following the battle between largest shareholder/chairman and a couple of activist shareholders, the latter if successful could be a catalyst for us to revisit the company.

Our 3rd largest holding, which is a financial services company provided a trading update noting NPAT growth for 2025 of circa 48% on the back of strong investment performance, fund inflows and overall growth in assets under management by circa 16% over the year.

Mining services company with exposure to gold, base metals and met coal end clients provided a 1H26 update showing 3% revenue growth and 69% EBITDA growth. The company had a poor FY25 results and FY26 so far has been a period of strong operating productivity and generally a lack of weather interruptions in its operations. Margins have been restored for the group to over 20% at the EBITDA level, free cash flow generation has been strong with the company moving from a $8.4m net debt position to $7.2m net cash position in just 6 months. We would expect the board to prioritise dividend payments at the upcoming results given the company’s franking credit balance, self-sufficiency in terms of capex requirements for the operating business and rock bottom market valuation of 2.1x EBITDA or 3.8x EBIT multiple.

Finally, our holding in a real estate company upgraded guidance for FY26 EBIT of between $80-$84m (previously $72-76m), an upgrade in free cash flow and expected dividends. The strong operating performance has been driven by increased occupancies in existing sites. The company holds a significant unencumbered cash balance equivalent to 20% of its market cap. We have steadily increased our weighting in this company over the past quarter, and it remains on a very undemanding multiple and off the radar of most investors.

Portfolio breakdown

Percentages are of fund net asset value and may not sum to exactly 100% due to rounding.

Portfolio

Disclaimer: This communication has been prepared and issued by Microequities Asset Management Pty Ltd ABN 96 134 984 768 AFS Licence No 287 526, as investment manager of the Microequities Value Income Fund ARSN 629 674 175. The Trust Company (RE Services) Limited (ACN 003 278 831) (AFSL 235150) is the responsible entity. This communication contains general information only and does not take into account investment objectives, financial situation or needs of any particular individual or entity. It does not constitute financial, tax or legal advice, nor is it an offer, invitation or recommendation to subscribe or purchase a unit in the Fund or any other financial product. Before acting on any information contained in this communication, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs. While every effort has been made to ensure the information in this communication is accurate; its accuracy, reliability or completeness is not guaranteed and none of The Trust Company (RE Services) Limited (ACN 003 278 831), Microequities Asset Management Pty Ltd or any of their related entities or their respective directors or officers are liable to you in respect of this communication. A Product Disclosure Statement (PDS) issued in June 2024 is available for the Fund on the following website: http://microequities.com.au/valueincomefund You should obtain the PDS for the Fund and consider the risks and disclosures for your circumstances before deciding whether to acquire, or continue to hold, an interest in the Fund. Initial Applications for units in the Fund can only be made pursuant to the application form attached to the PDS. Past performance is not a reliable indicator of future performance. The PDS and target market determination can be obtained by calling 02 9009 2900 or visiting our website https://microequities.com.au/our-funds/value-income-fund/