Monthly Performance Report – July 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: July 2017

The portfolio increased by 0.29% (after fees) for the month of July, during which the S&P/ASX200 fell 0.01% and the Small Ords rose 0.34%. The portfolio had a small increase in value despite weakness in a couple of our Outlook stocks , but this was offset by modest rises across most of the portfolio.

There was little news in July, as the market waits for the August “reporting season”. We are optimistic going into August given the lack of major downgrades pre August (the “confession season”) from stocks we hold.
The positive trend that started in May, where our stocks seem to be recovering from the severe sector rotation of the previous six months, seems to be continuing.

In this month’s update, we are focussing on two of the portfolio’s Outlook shorts (see below). These are stocks that we have borrowed in order to sell, so as to profit from a fall in their share price, which is a key feature of our strategy. We set price targets based on our fundamental research and then look to buy them back at a lower prices than what we sold them for.

Monthly Portfolio Metrics

Outlook Stocks (Long)20 Position: 69%
Outlook Stocks (Short)2 Positions: -5%
Event, Pair and Group (Long)5 Positions: 16%
Event, Pair and Group (Short)2 Positions: -3%
Cash23%
Gross Exposure92%
Net Exposure77%
Beta0.52

Return Summary Since Inception1(after all fees)

Since Inception (p.a.)9.00%
1 Month0.29%
3 Months1.45%
6 Months-2.14%
FYTD0.29%
1 Year-10.24%
3 Years1.02%
Cumulative54.95%

1Inception date of Fund is 2 July 2012.

Portfolio Analytics Since Inception

Sharpe Ratio0.72
Sortino Ratio1.39
Standard Deviation (p.a.)9.17%
Positive Months62%
Maximum Drawdown-15.21%
Avg Gross Exposure88.4%
Avg Net Exposure76.5%
Avg Beta0.59
Avg VAR1.20%

Stock Focus – Coca Cola (ASX:CCL) and Sky Network Television (ASX:SKT)

Outlook Short – Coca Cola Amatil (ASX:CCL) share price fell 12% in July.

We shorted the stock in April 2017, following a downgrade, because analysts were not adequately forecasting the move away from sugary drinks by Australians, and were still pricing the company like a reliable growth stock, which it is no longer. The two charts below tell the story. Per capita soft drink consumption has been falling in Australia for years, and now prices are falling too. In the past, this weakness was offset by CCL’s bottled water brand Mount Franklin, which is now facing strong price competition from other suppliers and the home brands of supermarkets. Similarly, growth from Indonesia & PNG (23% of EBIT) has failed to offset the decline in their major Australian division.

The bad news keeps coming for CCL.  On 7 July 2017 it was announced that Woolworths would not stock their new No Sugar drink, and that Domino’s would not be renewing their supply arrangement with CCL at all – they are switching to Pepsi . On 25 July 2017 it was confirmed by a Woolworths spokesman that they are also pulling all but two of Mount Franklin’s water products. Since we shorted CCL on 21 April 2017 at $9.68, the stock has fallen to $8.24 (31 July 2017) a decline of 15%.

Outlook Short – Sky Network Television (ASX: SKT) share price fell 5% in July.

Sky is New Zealand’s incumbent Pay TV provider and also owns Prime, a Free to Air (FTA) TV channel. We started shorting Sky in February 2015, following two halves of disappointing  Pay TV subscriber numbers. The fall in subscribers really attracted our attention (see the first chart, below) because Sky has a monopoly on rugby in NZ, so it was widely believed by analysts that it was protected from competition and had strong pricing power. NZ analysts have been slow to accept that the impact of competition from Netflix and other streaming services.  Like CCL, it has historically been priced as a growth utility.  This competition is not just fragmenting the market and resulting in a loss of subscribers and advertisers (see the second chart) but also putting downward pressure on the prices Sky can charge, so its total revenue is actually going backwards (it fell 6% last year). At the same time, costs are going up due to increased competition for content. As a result, its profit margin has fallen from 18% in 2015 to about 12% for 2017.  We expect that it is only going to get worse, given the viewing habits of Generation Y (those born after 2000) and with Amazon entering the market.  Last week Amazon paid a reported 25% more than Sky UK (no longer related to Sky NZ) to win the exclusive global rights for the ATP tennis as an example of the price competition for content.

Since the Fund first shorted Sky on 29 September 2015 at $4.32, the stock has fallen to $3.11 (31 July 2017) a decline of 28%.

i Outlook stocks are securities, in the Investment Manager’s view, whose current valuation does not reflect the future earnings potential of the business.

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

Cumulative Return Since Inception

Gross/Net Exposure Since Inception

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

Invest with us

We would welcome you as a co-investor in the Fund.

Invest

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 9 January 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.

Share This

Sign up for Monash Insights

To keep up to date with what is happening at Monash, to get stock stories about our portfolio, as well as investment videos, please subscribe here

You have successfully subscribed to Monash Insights - please check your email to confirm

Terms and Conditions
The following information is only available to Wholesale Clients. By clicking the Agree button below you are confirming that you are a Wholesale Investor as defined by the Australian Corporations Act.
TERMS & CONDITIONS
What is a financial services licensee? A person or entity is a financial services licensee if they hold an Australia financial services licence issued pursuant to the Corporations Act 2001
BY CLICKING ON 'I AGREE', I DECLARE I AM A FINANCIAL SERVICES LICENSEE AS DEFINED IN THE CORPORATION ACT 2001.
  We hate spam and never share your details.
The following information is only available to Sophisticated or Wholesale Investors. By submitting your details you are confirming that you are a Wholesale Investor as defined by the Australian Corporations Act.

Once you have submitted the form you will be able to download the PDS
Terms and Conditions