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: August 2019

Monthly Update

For the month of August, the portfolio was up by 0.77% (after fees) compared to the S&P/ASX200 down -2.36% and the Small Ords which was down -3.85%.

It has been a good start to the financial year, the portfolio was up 5.64% (after fees) compared to the S&P/ASX200 up 0.52% and the Small Ords, up only 0.49%.

For the calendar year to date, the portfolio was up 31.90% (after fees) compared to the S&P/ASX200 up 20.34% and the Small Ords, which was up 17.38%

August is the financial year reporting month for most companies, and media coverage has quoted fund managers saying it was disappointing. Recent broker summaries have shown 14% of companies beating forecasts versus 30% missing.

We are happy to report that the portfolio had a good reporting season, with 20% of the holdings beating expectations and only 5% missing. Despite holding a number of retail exposed stocks in the portfolio at time when many retailers are struggling we didn’t find the reporting season disappointing, with Lovisa (ASX: LOV) and AfterPay (ASX: APT) among our top contributors.

 

Monthly Portfolio Metrics

Outlook Stocks (Long)19 Position: 82%
Outlook Stocks (Short)2 Positions: -4%
Event, Pair and Group (Long)1 Positions: 11%
Event, Pair and Group (Short)0 Positions: 0%
Cash12%
Gross Exposure97%
Net Exposure88%
Beta0.57

Return Summary Since Inception1(after all fees)

Since Inception (p.a.)10.28%
1 Month0.77%
3 Months6.84%
6 Months18.01%
FYTD5.64%
1 Year13.62%
3 Years5.68%
5 Years5.55%
Cumulative101.45%

1Inception date of Fund is 2 July 2012.

Portfolio Analytics Since Inception

Sharpe Ratio0.79
Sortino Ratio1.45
Standard Deviation (p.a.)10.23%
Positive Months63%
Maximum Drawdown-15.21%
Avg Gross Exposure89.60%
Avg Net Exposure77.70%
Avg Beta0.57
Avg VAR1.20%

Click here for Glossary

Electro Optic Systems (ASX: EOS)

This month we review the EOS result.  EOS is one of the portfolio’s larger holdings.

 Conservative Management + Conservative Guidance + Enormous Opportunities = Superior Shareholder Returns

There were three major pieces of information coming out of the EOS result[1]:

  1. Management is moving into the next phase of its capacity expansion
  2. Some details on the tenders in the Space division, and
  3. EOS will still achieve its earnings guidance of CY19 EBIT of $20m and revenues of $230m and CY20 EBIT of $28m and revenues of $350m (representing EBIT growth of 170% and 40% respectively) despite extra Capex being required.

Capacity Expansion and Future Earnings Potential

EOS has provided guidance not only for this year but also for the following year.  It is able to do this because it has already won the tenders to achieve its guidance.  Just like any company involved in tendering, it needs to be in a position to win more work to replace the tenders it is currently delivering.

In this regard, EOS is in a very strong position as its earnings guidance is based on the $800m order book it has already won, but it is currently tendering for $2.0bn of work with around $300m per quarter expected to be awarded from early 2020. There are also many billions in additional work that EOS is working on (2 $1bn turret contracts, numerous counter-drone contracts etc.).

It should be noted that with EOS’s current generation of remote weapons systems (RWS) it has not lost a single tender.  Management believe that over the long term they will win 40% of tenders.  However at this point in time, with EOS’s technically superior RWS we would not be surprised to see a much higher win rate and management is simply being conservative.

Demonstrating management’s confidence in its outlook, it is now moving ahead with plans to expand its production capacity from the current $300m in revenue to over $900m over the next 3 to 4 years.  To be clear, management believe that they will in the future have a business generating up to $900m in revenues.  As such, the pace of EOS’s tender pipeline is such that it will drive significant earnings growth over and above the guidance it has already provided.

The other implication of the significant growth that EOS is experiencing is the steadily increasing number of RWS that EOS will also be doing the maintenance work on.  The margins on maintenance work are higher than tendering and are long term in nature.  Based on our modelling, in the future when the pace of tendering works drops off the earnings from maintenance will have grown to a point where they can offset the drop-off.

Space – a free option

We believe that the market places zero value on the Space Division, however, after many years of development, it is now participating in over $200m in potential procurements globally, which if successful will lead to significantly larger opportunities.  EOS space technology has already demonstrated its capacities in space debris mitigation, space traffic management and space situation awareness.  Management has indicated that by the end of September it expects to announce a major technical development.

The shareholder value that can be created by the Space division is material in our view, given the significantly higher margins in this division and the scale of the problems/issue that it is able to resolve.

Earnings Guidance

EOS has reiterated its earnings guidance of CY19 EBIT of $20m and revenue of $230m and CY20 EBIT of $28m and revenues of $350m (representing EBIT growth of 170% and 40% respectively).  However, with this result it has indicated that this guidance now includes the extra expenses resulting from the plans to increase capacity, increase marketing and increase the number of tenders it is competing on.  Obviously, the underlying performance of the business is better than what the headline numbers suggest.

 

[1] https://www.asx.com.au/asxpdf/20190830/pdf/448281z8c6vqt2.pdf

 

Key Fund Information

FUM$31m
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.

Sign up for Monash Insights

To keep up to date with what is happening at Monash, to get stock stories about our portfolio, as well as investment videos, please subscribe here

You have successfully subscribed to Monash Insights - please check your email to confirm

Share This
Terms and Conditions
The following information is only available to Wholesale Clients. By clicking the Agree button below you are confirming that you are a Wholesale Investor as defined by the Australian Corporations Act.
TERMS & CONDITIONS
What is a financial services licensee? A person or entity is a financial services licensee if they hold an Australia financial services licence issued pursuant to the Corporations Act 2001
BY CLICKING ON 'I AGREE', I DECLARE I AM A FINANCIAL SERVICES LICENSEE AS DEFINED IN THE CORPORATION ACT 2001.
  We hate spam and never share your details.
The following information is only available to Sophisticated or Wholesale Investors. By submitting your details you are confirming that you are a Wholesale Investor as defined by the Australian Corporations Act.

Once you have submitted the form you will be able to download the PDS
Terms and Conditions