13 Jun 2017
The Cyan C3G Fund posted a small 0.2% gain in May, contributing to the Fund’s almost 25% p.a. return since inception (after all fees).
More recently we have been pleased to avoid the significant losses (in many cases) experienced across a myriad of ASX listed stocks.
The emerging companies sector for instance, where the C3G Fund does focus some of its attention, has been particularly damaged, falling almost 9% in the past quarter.
Again this highlights the divergence in returns that can be produced through the effective implementation of the foundations of our investment process; specifically the three C’s that we incorporate in the naming of our C3G Fund.
• Comprehensive Research;
• Considered Perspective; and
• Clear Discipline.
All of which, we expect over time, will generate considerable Growth for our investors.
We have been extremely active in our company visitation program during May and have attended 4 conferences and met with more than 40 companies. Interestingly, and perhaps given the benign economic backdrop, we have not been of the mind to presently invest in any new businesses.
May Review
The Cyan C3G Fund benefitted from price strength in a few of our key long-term holdings through April:
We spoke about Getswift (GSW) last month and the company continued its run, rising another 21% in May. We would reiterate that it is a smaller position in our Fund due to the early stage of its growth lifecycle. However GSW is positioning itself to deliver a commercialised software platform, potentially on a global scale and this would appear to be one of the reasons it is capturing the market’s attention.
Afterpay (AFY) and Touchcorp (TCH): The merger of these two fintech businesses announced in February looks more likely to be completed by the end of June which has helped push both these stocks higher. Additionally, AFY updated the market at the end of May with confirmation that its extraordinary growth is continuing ($1bn in annualised sales and over 700t customers). AFY and TCH both +15%.
With all the talk of Amazon entering the Australian market, retail stocks have been especially hard hit with a plethora of domestic companies including JB HiFi, RCG Corp, Super Cheap, The Reject Shop, Adairs, Godfreys, and Vita Group all sold down sharply.
Whilst we don’t expect furniture to be a department that Amazon effectively targets with its drone delivery technology, our small holding in Nick Scali was caught up in the storm and drifted 10% lower in May.
Cyan was recently featured in this Livewire segment discussing the domestic implications of Amazon’s entry into Australia.
Further pain was felt across the automotive sector with AP Eagers, Automotive Holdings, Automotive Solutions and Supercheap Auto all downgrading earning forecasts. The Cyan C3G Fund does not own any of these companies. We wrote an article for Livewire here about the longer-term challenges for the automotive industry.
Outlook
If anything, the nearer-term outlook has worsened in the last month. Certainly market sentiment has deteriorated but, with that, prices have fallen and, potentially, value has improved.
As new investors and new capital have been entering the Fund we have been ‘nibbling away’ on a couple of companies we already own and that appear to be flourishing, however this has all been at the margin.
We have not yet found it timely or indeed prudent to ‘pull the trigger’ and deploy significant amounts of the Fund’s defensive cash capital.
However we think we are extremely well positioned for any further pull-back in the market and will act, if and when, the opportunity presents itself. We continue to hold a diversified portfolio containing what we believe to be high quality growth companies.
We thank all our investors for their support and look forward to keeping you updated with the Fund’s progress.
As always we are contactable in person if investors wish to discuss any aspect of their investment in the Cyan C3G Fund.
Dean Fergie & Graeme Carson