Cyan C3G Fund Newsletter – 31 August 2016

12 Sep 2016

The Cyan C3G Fund delivered a solid result in August, rising 1.6%, in a market that fell 1.3%.

Since inception just over two years ago, the C3G Fund has delivered a return of 89% (34% p.a.) after all fees with monthly volatility significantly below both the large and small cap indices.

Full report here: cyan-monthly-august-2016

PRESS

We were delighted to have been featured in the Australian Financial Review during the month. The article on Cyan and the C3G Fund is linked: here

Cyan is also a regular contributor to investment websites Livewire
www.livewiremarkets.com and ResearchEx www.researchex.com.au

AUGUST PERFORMANCE

augcg

Company reporting season dominated news-flow through the month and, as always, contained a mixed bag of results. Within the Small Industrials Index, earnings downgrades outnumbered upgrades to the tune of 38 versus 23 which was reflected in the overall decline in the indices.

The more notable price movements on the back of poor results or negative outlook commentary included G8 Education (-20%), Seven West Media (-25%), The Reject Shop (-15%), Estia Health (-33%) and APN Outdoor (-35%). Unfortunately we had a minor exposure to APN Outdoor which we sold immediately on the day the result was released.

Pleasingly the C3G Fund also had many strong performers in July.

Afterpay (AFY) – Even though the share price has risen aggressively, (up over 100%) we remain of the view that this continues to be a stellar growth stock. To us, this is a business that makes complete sense: it has a management team with laser like focus and the ability to execute on its strategy; the product is of benefit to all participants in the business model; it is proving itself and gaining traction at breathtaking speed. Admittedly we are now paying forward for the privilege of exposure to this growth, but we believe it will continue to be well and truly justified. AFY was up 7% in August.

Bellamy’s (BAL) – In last month’s report we noted that we had increased our position in this organic baby food producer. Within the investment communities this stock is, in some ways, polarising, mostly due to its incredible performance since listing and debate over whether it can maintain its growth momentum. The financial result and our subsequent meeting with management have given us further confidence that there is still a great deal of upside. It currently has less than 1% market share in China and in our view is well positioned to in fact benefit from rather than be restricted by the legislative changes in the operating environment in that market. BAL was up 12% for the month.

Additionally, all our other core positions reported solid results and performed accordingly, including: Skydive The Beach (up 17%), AMA Group (up 11%), Nick Scali (up 23%) and PSC Insurance (up 5%).

FUND PERFORMANCE (after all fees)

augperff

OUTLOOK

At a market-wide level, valuations look stretched and we have recently heard the term “priced for perfection” on more than one occasion.

One strategy we employ to protect capital is to not over-expose our Fund to any particular company or sector and to hold a level of cash to protect the downside and take opportunities as they arise. We believe our Fund is currently well positioned to find some sort of balance between growth and conservatism. We hold a high cash balance accompanied by a well-diversified portfolio as shown below.

gics

At Cyan, we continue to meet with management teams post reporting season and conclude that although the underlying economic environment will throw up some challenges, there are still a number of emerging businesses well positioned to continue their strong performances.

We look forward to keeping our investors updated with the Fund’s progress.

Dean Fergie & Graeme Carson

Cyan Investment Management

AFSL No. 453209