14 Jan 2016
The Cyan C3G Fund topped off an excellent 2015 with a positive return of 4.5% for the month of December; taking the return for the year to 48.0% after all fees and charges.
In 2015, the C3G Fund outperformed the All Ordinaries Accumulation Index by 44.2% and the Small Industrials Accumulation Index by 33.0%.
It is worth noting that the Fund’s monthly volatility was comfortably below both the large cap and small cap indices, highlighting our conservative investment style and belying the significant excess return achieved.
Full Report here: Cyan C3G Monthly Dec 2015
The C3G Fund again had a strong month, both in absolute and relative terms. The majority of companies in the portfolio delivered positive performance, the most notable contributors including:
Vita Group (VTG) – This successful telecommunications retailer (VTG manages over 100 Telstra branded stores) is presently our largest portfolio position. During the month it released earnings guidance, stating EBITDA (Dec 15 half year) forecast 30% ahead of the same period last year, and well ahead of market expectations. Unsurprisingly, this resulted in the VTG share price rising 38% by month’s end. We expect the recent demise of Dick Smith will only be of benefit to VTG.
Touchcorp (TCH) – This profitable and debt-free cloud-based payments system provider has a number of blue-chip clients and continues to grow strongly. The share price increased steadily over the month to close 20% higher as the market anticipated a solid February result and optimism around further new contracts.
Millennium Group (MIL) – This cleaning and security contractor recently listed but was unloved in its first few weeks of trading. At that time we increased our stake and have been rewarded with a 10% share price rise in December.
Bellamy’s (BAL) – We have recently reduced our position due its incredible share price run and aggressive valuation. That said, we have retained some exposure and benefited from continued share price strength through December (+18%).
We added a few positions this month, including:
Adacel (ADA) – A developer of control systems for the civil aviation and defence sectors, which after many years of development, is now truly commercialised and delivering strong growth in earnings.
OneVue Holdings (OVH) – OneVue is a services provider of superannuation and investment management solutions through its platform services and fund services businesses. We took our initial position in the business through a recent capital raising.
PSC Insurance (PSI) – PSC predominantly owns various forms of insurance broking businesses. We participated in the IPO with the company listing at a ~40% premium in mid-December. We have since added to our position as we believe the earnings profile of the businesses looks attractive and will likely be complemented by further growth through acquisition.
2015 YEAR IN REVIEW
The C3G Fund delivered a 48% gain after all fees over the 2015 year. The portfolio generally holds between 20 and 30 positions at any time, but it has been our long-term key portfolio holdings that have delivered the strongest returns. Our top 10 performers, in order of relative contribution, have been:
Bellamy’s (BAL) – After a successful IPO in 2014, and a well -executed strategy domestically, positive sentiment around Chinese demand for infant baby formula provided a strong tailwind for the share price of Bellamy’s and a new region to generate potentially huge earnings growth.
AMA Group (AMA) – The smash repair consolidator executed its stated growth plans well and has positioned itself for ongoing growth in an industry which is now changing rapidly.
Vita Group (VTG) – Management has done an excellent job in optimising returns from its network of Telstra stores and identifying, and positioning for, new areas of growth for the business. Investors have benefited from good capital management and high rates of return on equity.
BlueSky Alternatives (BLA) – We view the alternative asset class investment as an area of sustained growth in the Australian market. BlueSky has been a believer of that trend for a long time and has now reached critical mass in terms of funds under management. A great example of a 10-year overnight success story.
Freelancer (FLN) – We are also believers in the global trend towards a growing workforce of freelancers. FLN is well managed and has built a strong global network of over 16m clients and freelancers.
M2 Telecommunications (MTU) – Another high return on equity business that has consistently delivered organic and acquisitive growth. The large end of the telco services industry now looks to be consolidated in the Australian market when M2 is expected to complete its merger with Vocus next month.
Throughout the year we obviously also made a few mistakes. In some cases we misread situations, realised the catalyst we were looking wasn’t eventuating or that the risk profile of the company had changed. Our worst performers were Capitol Health (CAJ) and Money 3 (MNY).We no longer hold a position in either company.
At the beginning of this calendar year the portfolio is positioned relatively conservatively and this presently is reassuring given the wobbly start to the 2016 year.
We have a cash balance of ~35% accompanied by a well-diversified portfolio of ~25 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.
In terms of size, more than half of our holdings are in companies with a market capitalisation between $200m and $500m. This is not by specific design, as we are index unaware in our investment philosophy, but seems to be the size of company where we are finding the desired mix of an established business model that is still immature enough to offer strong growth prospects.
We are proud of how the C3G Fund has performed since inception and we look forward to keeping our investors updated with the Fund’s progress.
Full Report here: Cyan C3G Monthly Dec 2015
Dean Fergie & Graeme Carson