Cyan Newsletter – 31 October 2017

17 Nov 2017

The Cyan C3G Fund posted an outstanding return of 6.1% in October (after all fees). This latest result continues the excellent start to the FY17/18 year with the Fund already having produced a 16.0% gain for investors (after all fees) in just four months.

Full report: Cyan Monthly Oct17

Again we would like to reiterate that the Fund’s returns to date cannot be considered normal or regularly repeatable. But they do indicate that carefully picking some of the better performing businesses at the smaller end of the market will produce investment results far in excess of what can be achieved by investing in traditional ‘Blue Chip’ stocks.

Importantly for investors in the Cyan C3G Fund, many of the businesses that the Fund has profited from have had (at the time of our initial investment) a market capitalisation below $200m. As such these companies can only make a meaningful contribution to a fund when the size of a fund remains small. This is why investors do not enjoy the quantum of returns that the Cyan C3G Fund has generated from the myriad of larger funds promoted in the Australian market.

This ‘smaller is better’ philosophy underpins our decision to cap the Cyan C3G Fund at $100m. This will give us the best framework to ensure excellent ongoing investment outcomes for our investors.

October highlights included:

Our investment in Afterpay Touch (APT) kicked along nicely again (+25%) after the market factored in the significance of the Jetstar deal that we wrote about last month here.

BlueSky Alternative Investments (BLA) is a company the Fund first bought in October 2014 at $2.80 and which performed strongly again this month, rising 28% to close at just over $14. We wrote about BLA earlier this year “Five reasons to consider BlueSky for the portfolio” and these fundamentals remain relevant as to why BLA is likely to push higher in the medium-term, despite its recent share-price gains.

Equipment financier Axsesstoday (AXL) upgraded its FY18 earnings yet again (to $6.5m) and strengthened its balance sheet with a $12m oversubscribed equity raising and share purchase plan (SPP) that will see its bank debt facilities increasing to $175m. AXL gained 11% in October.

One of the more recent additions to the Fund, motorcycle retailer Motorcycle Holdings (MTO) gained 15% in October after announcing its $123m purchase of Cassons,, a wholesaler and retailer of motorcycle parts and accessories. Pleasingly the acquisition has been substantially funded through a renounceable rights issue allowing existing investors (such as the Cyan C3G Fund) to lift their investment in the company.


When asked about the likely performance of the Fund over the next year, we honestly say that we cannot confidently predict how the shares prices of the Fund’s investee companies are going to move over the next 12 months.

However what we are incredibly confident about is that, in 12 months time, all the Fund’s investee businesses will have higher revenues, more customers, more clients and will be generating greater profitability for their shareholders. Overall, we don’t know how the market will react to these outcomes, but we think they are pretty good reasons to remain invested, regardless of the ‘overall market outlook’.