07 Jun 2016
The Cyan C3G Fund delivered another good month, rising 5.7% after all fees in May. Despite the Fund’s conservative investment style, it still managed to outperform strong returns from both the Small Industrials Accumulation Index (+4.8%) and the All Ordinaries Accumulation Index (+3.1%).
The broader markets were somewhat surprised by the 0.25% rate cut in early May, to a record low of 1.75%. Clearly the relative attractiveness of equity investments improves significantly and hence it was not surprising to see investors supporting the stock market in the following weeks.
This was also reflected in the continuation of corporate activity with a number of new companies lodging prospectuses, including some larger well-known retail businesses such Kogan and Shaver Shop. After some detailed research and careful consideration we decided to pass on both opportunities.
There were a number of significant earnings downgrades from the likes of Beacon Lighting, Covermore, Flight Centre, Pulse Health, SMS Technology and Surfstich, none of which the Fund had invested in.
Full report: Cyan Monthly May 2016
FUND PERFORMANCE
Despite the excellent positive returns, it is worth highlighting the Fund’s defensive framework, which has resulted in its low volatility. The Fund holds 28 individual stocks with the largest holding not exceeding 7% of the total value and cash weighting of approximately 25%.
The Fund presently has a growth focus with an average forward PE of ~18x. Often the follow saying holds true that:
“Good companies aren’t cheap; and cheap companies, aren’t good”.
Happily, the majority of companies in the Cyan C3G Fund delivered positive performances, the most notable contributors including:
Afterpay (AFY) +50% www.afterpay.com.au is a company we had previously written about in our March 2016 report. It listed in early May at a 25% premium and continued to trade higher through the remainder of the month. AFY allows customers to “Buy now – pay later” for retail products online. The company’s product has already been implemented across online stores such as General Pants, House, Optus, and Surfstich and is enjoying incredible demand and customer take-up. We expect the positive news-flow and stock performance to continue, even taking into account the recent share price rise.
BlueSky (BLA) +14% http://www.blueskyfunds.com.au/ This alternative asset manager raised $45m at $6.50 through a demand-led institutional placement and shareholder entitlement offer. The funds are being used to provide additional capital for ongoing co-investment in Blue Sky Funds and provide balance sheet support for new Funds. The new capital was well received with the stock closing the month at $7.55.
Abundant Produce (ABT) +33% http://abundantproduce.com/ ABT remained a market darling with the stock continuing its incredible run, finishing the month at 78c up 33% in May and up 290% since listing on the 25 April. With an eye on managing overall portfolio risk, the Cyan C3G Fund has continued to take profits as the stock has enjoyed its sharp rise.
As always there will be negative performers each month. May saw a retracement in Animoca Brands (-12%) www.animocabrands.com and Speedcast (-13%) www.speedcast.com although the impact in the overall Fund was not material given both the modest size of the retracement and smaller size of the holdings.
OUTLOOK
As we’ve reiterated previously, rather than getting carried away with the Fund’s recent performance, we are always looking for new opportunities, reassessing the valuations and evaluating the financial risk of the Fund’s current investments.
As can been seen in the following chart table, the Fund has performed historically better (relatively) in down markets than it has in up markets.
Not only has the Fund experienced fewer negative months than comparable indices; when it does fall, it falls significantly less than the market average.
As fellow unitholders, we are pleased with how the C3G Fund has performed since inception and we look forward to keeping our investors updated with the Fund’s progress.
Full report: Cyan Monthly May 2016
Dean Fergie & Graeme Carson
Cyan Investment Management
AFSL No. 453209
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