Cyan C3G Fund Newsletter – 30 September 2015

08 Oct 2015

The Cyan C3G Fund had a watershed month, rising 11.4% after all fees, its best monthly return since inception.

Already in the 9mths of this calendar year, the Cyan C3G Fund has returned 33.0%, compared to the 2.7% fall in the All Ords Accumulation Index; highlighting the outstanding returns that can be generated from selective small cap equity investment.

Again we would like to spotlight the modest risk we have taken in generating excess Fund returns; as a result of both our conservative investment style, selective investment inclusion criteria and often defensive cash balances. Quantitatively, the Fund’s volatility (at 12.3%) remains below all market indices.

Full Report available here: Cyan C3G Monthly Sept 15




It was a case of almost everything going right for the Fund this month.

The largest performance contribution came from a small IPO in which we invested, CV Check (CV1). Whilst our initial investment was only modest, the performance of the stock significantly exceeded our short-term expectations, rising from 20c to 73c. An incredible return of 265%. Not wanting to look a gift horse in the mouth, we have already locked-in capital gains well in excess of our initial investment in CV Check.

Longstanding fund holding AMA Group (AMA) +62% made a major acquisition in the smash repairs space, buying the WA-based Gemini Group, doubling the company’s revenue and solidifying its position as a major consolidator in the sector. AMA up 62% in the month.

Bellamy’s (BAL) rose 42% after investors digested (pun intended) the company’s strong first year result which saw the company report FY15 revenue and NPAT, respectively, 55% and 82% ahead of its 2014 prospectus forecasts.

Our investment in the Vitaco (VIT) float rose 20% on listing, a manufacturer and distributor of branded nutritional products;

BlueSky (BLA) +24%, sparked following the company announcing solid FUM growth and a profitable exit from early venture capital investment, Hatchtech;

New fund holding Sealink (SLK) up 32% in the month, a SA-based ferry operator that announced the purchase of the private Qld based ferry company, Transit Systems Marine;

LiveTiles (LVT) float up 17%, a subscription based software provider of integrated Microsoft Office solutions;

Paragon Health Care (PGC) made three complementary acquisitions and raised $42m in fresh capital, up 30% on the placement price, and;

Other long-term fund holding, M2 Telecommunications (MTU) +9%, after announcing a merger with Vocus (VOC), continuing the ongoing theme of consolidation in the domestic telco space.

As always there will be some negative contributors.

This month we saw a retracement in jewellery retailer Lovisa (LOV) -15% after the market was disappointed in the sale of a large parcel of shares by its Managing Director, Shane Falscheer, totalling 3.4m shares or 42% of his total holding in the company.

Capitol Health (CAJ),-12% also remained under pressure as the market looked to the listing of a competitor, Integral Diagnostics (IDX) and reassessed the valuation comparisons of the competing businesses.



Clearly the fund has had in incredible run and whilst we are always looking closely at attractive investment opportunities, we remain laser-focussed on investment risk. We are relentless in implementing our cautious and conservative investment framework in respect to the quality of the Fund’s holdings.

This message is particularly important to reinforce as our positive returns might otherwise indicate a bias towards risk.

In reality, the mathematics work in favour of long-only, small-cap funds. In that, in any one investment, returns of greater than 100% can be achieved (and far in excess of this in the right environment), yet the risk of capital loss is limited to 100%. Although we would clearly like to think our investment universe explicitly excludes business that have any chance of going bust.

Even more so, because of the recent gains, the Fund is positioned conservatively. We have little desire to hand back our gains. The Fund holds a cash balance of ~35% accompanied by a well-diversified portfolio of companies. The profile of the companies is skewed towards growth, but they are generally cash generative with relatively strong rates of return on equity and still in the lifecycle phase of reinvesting.

Looking forward, we reiterate our current investment strategy, based on the following key themes:

Invest in companies not markets

Focus on quality

Avoid high risk and volatile sectors

Target companies that earn through the cycle

Look for companies with specific growth drivers and catalysts

Deploy a portion of our high cash balance to build opportunistic positions as we identify them


Full Report available here: Cyan C3G Monthly Sept 15