Cyan Newsletter – 31 December 2019

13 Jan 2020

The Cyan C3G Fund had a tough last quarter of 2019, with December producing a return of -4.2% and the quarter pulling back 8.8%.

However, given the first 9 months of 2019 produced an unbroken run of positive returns (including September’s 8.6% gain) the overall return for calendar 2019 was a solid 19.5% (after all fees).

It appears the Cyan C3G Fund has not been alone of late in struggling to post positive numbers. Whilst volatility can always be expected in equity markets, it is typically more pronounced at the smaller end and is more susceptible to fund flows.

What we believe we have experienced over the past few months is a combination of two factors:

  1. The market has had a prolonged positive run and clearly this cannot continue indefinitely. When momentum does cease, smaller stocks can get sold off aggressively and often not for any particular fundamental reason. (We won’t shy away from the fact this happens on the upside too. One of the more dangerous emotional investing pitfalls is to believe rising stock prices are always a reflection of your wise investing).
  2. There has been, in some cases, widespread forced selling of smaller cap ASX stocks due to a number of bigger institutional funds pulling large mandates from our competitors and, in some cases, forcing these funds to close. It is worth highlighting that Cyan does not manage any institutional mandates. The Fund has an extremely diversified unitholder base of more than 200 clients with no external client accounting for more than 5% of the Fund.

Month in Review

There was a reasonable diversity of performances in the month of December.

The Fund generated some strong positive performance from three recent IPO’s in which it participated. Carbon fibre wheel manufacturer Carbon Revolution (CBR), aerial mapping and photography business Aerometrix (AMX) and the US and Melbourne based 3D printer Amearo (3DA) ended the month up 50%, 100% and 75% respectively on their issue prices.

We did however have less successful listings in online learning platform Open Learning (OLL) and AI based security analytics company iCetana(ICE) which both closed December trading 20% below their issue prices. However, we are pleased to report, both these stocks have punched through their issue prices in January.

As alluded to earlier, we had a cohort of stocks that pulled back despite there being no apparent fundamental concerns including: Alcidion (ALC), Atomos (AMS), Quickstep (QHL), Oventus (OVN) and Readcloud (RCL) which all posted returns of between -15% and -20%. We remain confident about the exciting growth paths that lie ahead for all these companies.

Co-working space Victory Offices (VOL) declined 17% after the company reported at their AGM some softness in occupancy rates on account of losing some larger corporate tenants. This was disappointing although occupancy rates remain within our targeted ranges.

The biggest impact on the Fund during the month was the performance of music metadata provider Jaxsta (JXT) which fell a winching 45% in the month. For some context, JXT was floated at 20c, has traded as high as 35c recently and closed December at 15.5c. The company was looking for additional capital to help fund the roll-out of its subscription model. The company came to the market to raise $2.7m in early December at 18c (we understand a previous funder fell through) which put pressure on the stock price. We did not participate due to the price dynamics currently playing out but, despite the recent price action, we continue to be attracted to the business model and the company’s 2020 outlook.


We are pleased to report that, to date, the Fund has already pared back more than half its December losses. Long-term followers of the Cyan C3G Fund will be aware that volatility is, increasingly, a factor in the performance of the ASX and the Fund. As it’s notoriously difficult to predict short-term price movements we continue to encourage a longer-term outlook. Which, by definition, means unitholders should not become too glum when performance is slipping, nor get too enthusiastic when performance is strong.

However, given the pull back in share prices in recent months, on the whole due to little negative underlying news, we believe the new year is starting from an attractive base and we hold good hopes for another profitable year in 2020.

We thank all our investors for their support and look forward to keeping you all updated with the Fund’s progress.