Cyan C3G Fund Newsletter – 29 February 2016

10 Mar 2016

The Cyan C3G Fund had a disappointing February, retracing 3.6% amid a challenging environment of extreme market volatility. That said, our performance across all other timeframes, including the past quarter, remains strongly ahead of comparable indices as detailed in the table below.


(Full Report available: Cyan C3G Monthly Feb 2016)

The companies in which the Fund has invested broadly delivered strong earnings results, although many of our growth focussed stocks were sold down by investors after having posted strong gains in many of the preceding months.

Highlighting our conservative investment style, February 2016 represented the only month since the Fund’s inception in which the Fund underperformed in a falling market.

Notably, small mining and energy stocks rebounded strongly in February, as illustrated by the Small Resources Index (below), which was up 19% for the month. Keep in mind that the resources sector is coming off a very low base having fallen 30% since the inception of our Fund and 76% over the past 5 years.



Most companies delivered their earnings results for the 6 months to December with the majority of companies meeting or exceeding somewhat tempered expectations. Generally speaking we were pleased with the results and optimistic about the outlook for our portfolio. Notable mentions within the C3G portfolio included:

Vita Group (VTG) -This successful telecommunications retailer (VTG manages over 100 Telstra branded stores) delivered earnings (EBITDA) growth of 46%, which was 10% above the top end of the management’s (already strong) guidance range. Logically, this resulted in the VTG share price rising 13% by month’s end.

Blue Sky Alternative Investments (BLA) – Strong growth in Funds Under Management (now at $1.7bn) contributed to interim net profit growth of 69% for BLA. We continue to believe that ongoing investor demand for alternative assets will see Blue Sky at the leading edge of this growth industry in Australia, resulting in the creation of a business many times larger than it is today. The share price was up 7% in February.

Speedcast (SDA) – Earnings momentum also continued in the satellite services provider through a combination of organic and acquisitive growth accompanied by extraction of synergies from businesses bought over the previous year. All three areas are expected to driver further double-digit earnings growth in 2016, albeit with some funding capacity constraints for further acquisitions in the short-term. SDA rose 13% in Feb.

Adacel (ADA) – ADA (up 8% in the month) develops control systems for the civil aviation and defence sectors. The interim result illustrated the traction the business is getting and the company displays a number of key characteristics that we look for, including:
• a dominant position in a niche and growing market;
• increasing recurring revenue, high return on equity;
• low dividend payout ratio;
• strengthening cashflow, and;
• is under-researched by brokers.

A number of other holdings in our portfolio delivered numbers either ahead of, or in line with, expectation but share prices retracted, either due to lack of strong guidance statements, general volatility or profit taking. These included:
• AMA Group (AMA) – down 15%
• Bellamy’s Organic (BAL) – down 21%
• Freelancer (FLN) – down 25%
• PSC Insurance (PSI) – down 6%
• Opus Group (OPG) – down 8%
• Touchcorp (TCH) – down 3%

FUND PERFORMANCE (after all fees)

Cyan C3G Fund monthly returns (Blue) typically show great resilience in the months in which the market falls (Red)


Cyan C3G Fund Return since inception (July 2014)



We remain comfortable with the position of our portfolio and the underlying company exposures. We continue to focus on growth and note that 7 of our top 10 holdings generate what we believe to be maintainable return on equity above 20% and are reinvesting at least half of their earnings back into the business.

By definition, this results in strong incremental earnings growth, and when combined with some of the other business characteristics these companies display, ongoing share price outperformance.

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.

(Full Report available: Cyan C3G Monthly Feb 2016)
Dean Fergie & Graeme Carson