Monthly Performance Report – September 2017

Monash Absolute Investment Fund
Lonsec
SQM

Fund Strategy

The Monash Absolute Investment Fund ARSN 606 855 501 (Fund) seeks to implement the investment strategy by investing in a diversified portfolio of predominantly Australian equities (long and short), with overseas assets expected to average no more than 5% over time.

The investment strategy is Benchmark Unaware and there is no predetermined asset allocation; rather, the Fund only invests when suitable opportunities are identified. As such, asset exposures may vary significantly over time and without notice.

The Fund seeks to only invest in compelling opportunities. To identify these investment ideas, Monash Investors primarily employs fundamental, bottom-up company research and the judgement of its experienced portfolio managers.

Monthly Performance Report: September 2017

Monthly Update

The portfolio increased by  3.53% (after fees) for the month of September, during which the S&P/ASX200 fell 0.02% and the Small Ords rose 1.31%.

In somewhat of a delayed response to the reporting season, a number of our stocks that had good financial results in August had their share prices kick on in September.

For example, Lovisa (ASX: LOV) continued to re-rate, rising a further 14% in September after 10% in August, when it beat full year expectations at its result by 7%. We note that Lovisa has advertised on line for employees in Los Angeles, which would be its first USA based store.  Despite Lovisa’s rally, the market is not yet pricing in a US store rollout.

Monthly Portfolio Metrics

Outlook Stocks (Long)19 Position: 72%
Outlook Stocks (Short)2 Positions: -5%
Event, Pair and Group (Long)4 Positions: 14%
Event, Pair and Group (Short)0 Positions: 0%
Cash19%
Gross Exposure91%
Net Exposure81%
Beta0.54

Return Summary Since Inception1(after all fees)

Since Inception (p.a.)9.69%
1 Month3.53%
3 Months5.19%
6 Months3.49%
FYTD5.19%
1 Year-5.49%
3 Years3.36%
Cumulative62.52%

1Inception date of Fund is 2 July 2012.

Portfolio Analytics Since Inception

Sharpe Ratio0.80
Sortino Ratio1.56
Standard Deviation (p.a.)9.11%
Positive Months63%
Maximum Drawdown-15.21%
Avg Gross Exposure90.5%
Avg Net Exposure80.7%
Avg Beta0.59
Avg VAR1.20%

Stock Review

Sky Dive the Beach (ASX: SKB)

Another stock that did well for the portfolio in September was SKB rising 16% in September following a result that was in line with expectations in August.

SKB is named after its original sky diving site on a beach at Wollongong.  It has 70% of the tandem sky diving business in Australia and New Zealand. SKB has also expanded into other adventure experiences like white water rafting and ballooning, and as a result it is changing its name to Experience Co.

SKB is experiencing double digit like for like revenue growth as it satisfies strong demand for sky-diving, while also growing through acquisitions, and expanding its margins through increasing efficiency.

Despite jump completion rates being impacted last year by poor weather, organic revenue growth was about 12%. They are guiding for a similar amount this year but, if they get normal jump completions, it would likely be about 6% higher. Analysts are not including this higher number in their forecasts.

One way it is increasing efficiency is by upgrading its fleet with new engines and larger planes.  The new planes are able to increase jump throughput and lower the cost per jump to SKB as demonstrated by the table below. It is also increasing its margins through acquisition cost synergies and scale benefits.

 

We believe that there is significant international growth ahead of SKB as well as domestically in other areas of adventure experiences. SKB targets earning accretive smaller acquisitions with a multiple of 3-5times EBITDA, but with the larger ones up to 7-8 times EBITDA, and those would require a capital raise.

On current analyst consensus forecasts for FY18, SKB is trading on an EBITDA multiple of 11x and a P/E of 20x. Given the upside earnings surprise that we expect this year, and due to the substantial growth that the company should achieve in future years, our price target is at much higher levels.

Key Fund Information

FUM$42m
Minimum Investment$20,000
Management Fee1.53% p.a.
Performance Fee20.5% above the RBA Cash Rate with High Water Mark
Pricing FrequencyDaily
Distributions Annually
APIR CodeMON0001AU
Morningstar CategoryAlternatives Strategies

For all business development enquiries, please contact

Andrew Fairweather
Winston Capital partners (Acting on behalf of Monash Investors)

P. +61 401 716 043
E. Andrew@winstoncapital.com.au

For all investor enquiries, please contact

Link Fund Solutions Pty Ltd (Acting on behalf of the Fund)

P. +61 2 9547 4311
E. LFS_registry@linkgroup.com

Monash Absolute Investment Fund Unitholder Services, GPO Box 5482, Sydney NSW 2001

For all other enquiries

E. contactus@monashinvestors.com

Cumulative Return Since Inception

Gross/Net Exposure Since Inception

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Important Information

This document is issued by Monash Investors Pty Limited ABN 67 153 180 333, AFSL 417 201 (“Monash Investors”) as authorised representatives of Winston Capital Partners Pty Ltd ABN 29 159 382 813, AFSL 469 556 (“Winston Capital”) for the provision of general financial product advice in relation to the Monash Absolute Investment Fund ARSN 606 855 501 (“Fund”). Monash Investors is the investment manager of the Fund. The Trust Company (RE Services) Limited ABN 45 003 278 831, AFSL 235 150 (“Perpetual”) is responsible entity of, and issuer of units in, the Fund. The inception date of the Fund is 2nd July 2012.
The information provided in this document is general information only and does not constitute investment or other advice. The content of this document does not constitute an offer or solicitation to subscribe for units in the Fund or an offer to buy or sell any financial product. Accordingly, reliance should not be placed on this document as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation. Monash Investors, Winston Capital and Perpetual do not accept liability for any inaccurate, incomplete or omitted information of any kind or any losses caused by using this information. Any investment decision in connection with the Fund should only be made based on the information contained in the disclosure document for the Fund. A product disclosure statement (“PDS”) issued by Perpetual dated 12 September 2017 is available for the Fund. You should obtain and consider the PDS for the Fund 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.
Performance figures assume reinvestment of income. Past performance is not a reliable indicator of future performance. Comparisons are provided for information purposes only and are not a direct comparison against benchmarks or indices that have the same characteristics as the Fund.
Monash Investors, Winston Capital and Perpetual do not guarantee repayment of capital or any particular rate of return from the Fund and do not give any representation or warranty as to the reliability, completeness or accuracy of the information contained in this document. All opinions and estimates included in this document constitute judgments of Monash Investors as at the date of this document are subject to change without notice. Perpetual is not responsible for this document.

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