13 Jan 2022
The Cyan C3G Fund closed out 2021 with a modest gain of 0.2% in December 2021, taking the return for the first 6 months of FY22 to 7.2%. This puts us well on track to deliver on our stated benchmark of 10-15% p.a, and sees us currently outperforming the All Ords, Small Ords and Small Industrials Indices for the period. Our annual performance since the inception of the Fund seven years ago is above our long-term target at 15.4% p.a.
The smaller end of the Australian market continued to face the ongoing challenges of the past few months with growth stocks, particularly, remaining in the firing line as speculation around inflation, government response, the yield curve (and its potential impact on equities) continued to drive sentiment and volatility. As an indication of the intra-month volatility, the S&P/ASX Small Industrials was down around 5% in the first week of December before clawing its way back to end the month in positive territory (although still slightly lower over 3 months).
In October we wrote:
…“we have taken profits in some existing holdings … to direct the proceeds to upcoming opportunities. … we invested in BirdDog on a pre-IPO basis earlier this year and will invest further into its imminent IPO round. … This will be partially funded by some profits taken in City Chic (CCX) and other portfolio rebalancing to ensure that our cash position remains strong for other opportunities which may arise”.
Our timing was fortuitous as CCX has dropped ~30% from its highs due, it appears, to rotation away from growth stocks.
Pleasingly the two IPOs that we had invested in – BirdDog (BDT) and XPON Technologies (XPN) both ended December at decent premiums of 11% and 8% respectively. We’d say this was particularly rewarding given how swamped the market became towards the end of the year. Indeed just 10 of the 26 IPOs in December ended the month trading above their issue price.
We also had some strong performances within the portfolio through the month:
Other strong performers included ReadCloud (RCL: +18%), Universal Biosensors (UBI: +12%) and XPON Technologies (XPN: +8%).
There were two companies specifically that dragged on performance in the month.
Dean Fergie was invited to participate in Livewire’s 2022 Outlook Series and number 1 stock picks.
As we look into 2022, we continue to discuss the same issues that have plagued society, economies and markets over the past 18 months, Namely, the impact of Covid, Government responses, inflationary impact, central back policies and geopolitical risks.
The seemingly never-ending debate around portfolio positioning to capture short-term market alpha during this volatility continues. At various points over the past 2 years we have seen “Covid tailwind” stocks rise strongly and then come to earth just as strongly, general growth stocks come into favour due to low interest rates then fall out of favour for cyclical recovery stocks. At Cyan, we have stuck to what we know and believe in, which is:
The identification of, and investment in, emerging businesses that we believe will grow strongly over the next 4 to 5 years, in industries that we understand and believe in, with management teams that can execute on a stated sensible strategy.
Outcomes are never in a straight line. Yes, we will see inflation and yes there will at some stage be interest rate rises on the back of it. But we are coming off a very low base and there will still be significant opportunity for emerging companies to build strong businesses in economic environments that are conducive to positive outcomes.
Some of the portfolio positions that we are excited about over the next 12 months include; BirdDog (BDT), Raiz (RZI), Alcidion (ALC), Playside Studios (PLY), Mighty Craft (MCL), Maggie Beer (MBH), Zoom2U (Z2U) and Universal Biosensors (UBI).
We look forward to keeping our investors informed of their progress. We wish everyone a safe and prosperous 2022.
Dean Fergie and Graeme Carson
Cyan Investment Management
AFSL No. 453209
An investment in the Cyan C3G Fund can be made by clicking here