Monash Absolute Investment Fund

Fund Strategy

The Monash Absolute Investment Fund ARSN 606 855 501 (Fund) seeks to implement the investment strategy by investing in a diversified portfolio of predominantly Australian equities (long and short), with overseas assets expected to average no more than 5% over time.

The investment strategy is Benchmark Unaware and there is no predetermined asset allocation; rather, the Fund only invests when suitable opportunities are identified. As such, asset exposures may vary significantly over time and without notice.

The Fund seeks to only invest in compelling opportunities. To identify these investment ideas, Monash Investors primarily employs fundamental, bottom-up company research and the judgement of its experienced portfolio managers.

Monthly Performance Report: March 2020

Monthly Update

For the month of March, the portfolio was down -20.04% (after fees) compared to the S&P/ASX200 down by -20.65% and the Small Ords, which was down by -22.38%.

This brings the financial year performance for the portfolio to -18.94% (after fees) compared to  S&P/ASX200 down -20.74%, and the Small Ords, which is down by -23.87%.

Every crash is different. This one wasn’t caused by high interest rates, market exuberance, the end of a capex boom, or lending gone bad, but rather by a government decreed shutdown in order to stop the spread of a disease.

A once in one hundred year infectious disease? Perhaps, but the immediate and extreme response by government is a product of our times, driven by modern technology and communication, and the much higher value placed on human life by contemporary society.

Monthly Portfolio Metrics

Outlook Stocks (Long)19 Position: 75%
Outlook Stocks (Short)1 Positions: -2%
Event, Pair and Group (Long)3 Positions: 9%
Event, Pair and Group (Short)1 Positions: -14%
Cash35%
Gross Exposure97%
Net Exposure65%
Beta0.47

Return Summary Since Inception1(after all fees)

Since Inception (p.a.)5.78%
1 Month-20.4%
3 Months-26.12%
6 Months-26.95%
FYTD-18.94%
1 Year-11.41%
3 Years-0.52%
5 Years0.26%
Cumulative54.58%

1Inception date of Fund is 2 July 2012.

Portfolio Analytics Since Inception

Sharpe Ratio0.28
Sortino Ratio0.40
Standard Deviation (p.a.)13.26%
Positive Months62%
Maximum Drawdown-15.21%
Avg Gross Exposure89.80%
Avg Net Exposure77.90%
Avg Beta0.58
Avg VAR1.20%

At some stage, the world will get on top of Covid-19, hopefully sooner rather than later. At its core, this is a healthcare problem, specifically the capacity of the hospital system to handle the sick.  In order to solve this problem, never seen before social distancing measures are in effect, that have effectively shut down large parts of the economy. 

Critically, the productive capacity of the economy has hardly changed at all due to this crisis.  Yes, it will take time for capacity to ramp back up, for retailers to rehire staff etc post the shutdowns.  But unlike genuine economic recessions there is no economic healing that will be required, unless too many businesses are bankrupted, and the government is doing its best to stop that from happening.  That said, government deficits and debt levels will take a long, long time to recover, and for this reason alone the current level of interest rates may well be the new normal. 

In ordinary market conditions, in order to find a stock with significant upside you either have to find it early, just as its business prospects are starting to improve dramatically (this is where Monash Investors spends most of its analytical power) or move up the risk curve and invest in an early stage business (e.g. biotech, pre-revenue businesses).  Now however, with the dramatic pull back in share prices, the equity market is a target-rich environment where we can find opportunities in any number of stocks with established operations where the risk return equation is so far in investors’ favour it is almost unbelievable.  

There are a wide range of stocks that have fallen 50% across the equity market since this crisis started and we have had a handful in our portfolio as well.  Prior to the crisis, our analysis indicated that they were materially undervalued.  As readers would know, we only invest when we believe there is greater than 60% upside.  Following a 50% decline, for a stock to get back to pre covid-19 levels it then has to rise 100%.  To then go further and reach our 60% price target it has to rise a total of 220%.  Let’s bring this to life with some examples: EOS, SSM and JIN, our 3 largest positions. 

Electro Optic Systems (EOS-ASX) –  60% off its pre Covid-19 levels.  We have written about this stock extensively, but to quickly recap it is a genuine world leader in laser targeting systems and its major product line application is remote weapons systems, with developing commercialisation in communications and space debris management.  Its operations have been virtually unaffected by Covid-19, apart from some social distancing measures in the production facilities reducing productivity at the margin.  Its supply chain is unaffected.  It has a cash balance in excess of $80m and yet the share price at its worst was down 72% . It is expanding its productive capacity in remote weapons systems to be able to generate $900m of revenues up from $250m currently, but more importantly, the maintenance contracts associated with this business are creating a large and rapidly growing annuity steam.  Its communication division has a $620m revenue backlog and growing, and then there is the space debris division.  We have been adding to our holdings in weakness.

Service Stream (SSM-ASX) –  35% off its pre Covid-19 levels. A network services provider, specifically for telecommunications and water infrastructure.  Its operations would be unaffected by Covid-19, in fact it would be considered an essential service, as with all the people working at home and home schooling the upkeep of the telecommunications system is absolutely critical.  It has a strong liquidity and balance sheet position, very strong management and a transparent medium term earnings outlook and now is trading on just 11x PE. We have been adding to our holdings in weakness.

Jumbo Interactive (JIN-ASX) –  39% off its pre Covid-19 levels.  This is a new addition to the portfolio which was added recently following the share price fallout from Covid-19.  As an online provider of Lottery tickets its operations are unaffected by Covid-19.  While it is likely that overall lottery sales will decline as discretionary expenditure is pulled in, social distancing means that its ability to sign up new online customers is greatly enhanced.  We have been tracking JIN for a while now and the selloff in the share price provided an opportunity, and we are up 20% from our entry point.

Importantly we have a long list of new stock opportunities that we are investigating, and as mentioned above the equity market is a target-rich environment right now. 

Currently we have around 33% cash, and are looking to deploy this cash progressively as we gain confidence that the worst is behind us.  For example, when we can see the daily count of new cases starting to flatten out globally.  At a stock specific level, it is when a valuation reaches a point that is irrational, as long as we have confidence that it will not face a balance sheet or liquidity issues.  Demand will come back, debt servicing will be resumed, but if liquidity runs out then the business will need a cash injection or fail.

Key Fund Information

FUM$21m
Minimum Investment$20,000
Management Fee1.5375% p.a.
Performance Fee20.5% above the RBA Cash Rate with High Water Mark
Pricing FrequencyDaily
Distributions Annually
APIR CodeMON0001AU
Morningstar CategoryAlternatives Strategies

For all business development enquiries, please contact

QLD, SA,WA,NT: Andrew Fairweather
Winston Capital partners (Acting on behalf of Monash Investors)

P. +61 401 716 043
E. Andrew@winstoncapital.com.au

NSW, ACT, VIC, TAS: Stephen Robertson
Winston Capital partners (Acting on behalf of Monash Investors)

P. +61 418 387 427
E. stephen@winstoncapital.com.au

For all investor enquiries, please contact

Link Fund Solutions Pty Ltd (Acting on behalf of the Fund)

P. +61 2 9547 4311
E. LFS_registry@linkgroup.com

Monash Absolute Investment Fund Unitholder Services, GPO Box 5482, Sydney NSW 2001

For all other enquiries

E. contactus@monashinvestors.com

Cumulative Return Since Inception

Gross/Net Exposure Since Inception

Invest with us

We would welcome you as a co-investor in the Fund.

Important Information

This document is issued by Monash Investors Pty Limited ABN 67 153 180 333, AFSL 417 201 (“Monash Investors”) as authorised representatives of Winston Capital Partners Pty Ltd ABN 29 159 382 813, AFSL 469 556 (“Winston Capital”) for the provision of general financial product advice in relation to the Monash Absolute Investment Fund ARSN 606 855 501 (“Fund”). Monash Investors is the investment manager of the Fund. The Trust Company (RE Services) Limited ABN 45 003 278 831, AFSL 235 150 (“Perpetual”) is responsible entity of, and issuer of units in, the Fund. The inception date of the Fund is 2nd July 2012.
The information provided in this document is general information only and does not constitute investment or other advice. The content of this document does not constitute an offer or solicitation to subscribe for units in the Fund or an offer to buy or sell any financial product. Accordingly, reliance should not be placed on this document as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation. Monash Investors, Winston Capital and Perpetual do not accept liability for any inaccurate, incomplete or omitted information of any kind or any losses caused by using this information. Any investment decision in connection with the Fund should only be made based on the information contained in the disclosure document for the Fund. A product disclosure statement (“PDS”) issued by Perpetual dated 12 September 2017 is available for the Fund. You should obtain and consider the PDS for the Fund before deciding whether to acquire, or continue to hold, an interest in the Fund. Initial Applications for units in the Fund can only be made pursuant to the application form attached to the PDS.
Performance figures assume reinvestment of income. Past performance is not a reliable indicator of future performance. Comparisons are provided for information purposes only and are not a direct comparison against benchmarks or indices that have the same characteristics as the Fund.
Monash Investors, Winston Capital and Perpetual do not guarantee repayment of capital or any particular rate of return from the Fund and do not give any representation or warranty as to the reliability, completeness or accuracy of the information contained in this document. All opinions and estimates included in this document constitute judgments of Monash Investors as at the date of this document are subject to change without notice. Perpetual is not responsible for this document.

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