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: June 2019
For the month of June, the portfolio was up by 1.14% (after fees) compared to the S&P/ASX200 up 3.70% and the Small Ords which was up 0.92%. For the Financial year, the portfolio was up 10.96% (after fees) compared to the S&P/ASX200 up 11.55% and the Small Ords, which was up only 1.92%.
The best contributors this month were Telix (ASX: TLX) which was up 18% and EML Payments (ASX: EML) up 13%. These two were also decent contributors over the year being up 88% and 115% respectively. Portfolio returns were quite volatile over the course of the last 12 months.
The December quarter was particularly poor, with world markets concerned about trade wars, slowing growth, and in Australia the property market and retail sales: the portfolio fell -14%. However the portfolio roared back in the second half of the year, with global concerns receding and in Australia, the federal election resolved and interest rate cuts and the portfolio return jumped by 25%.
Monthly Portfolio Metrics
|Outlook Stocks (Long)||20 Position: 84%|
|Outlook Stocks (Short)||1 Positions: -2%|
|Event, Pair and Group (Long)||1 Positions: 10%|
|Event, Pair and Group (Short)||1 Positions: -2%|
Return Summary Since Inception1(after all fees)
|Since Inception (p.a.)||9.67%|
1Inception date of Fund is 2 July 2012.
Portfolio Analytics Since Inception
|Standard Deviation (p.a.)||10.24%|
|Avg Gross Exposure||89.40%|
|Avg Net Exposure||77.60%|
Click here for Glossary
The stock with the most news flow this month was AfterPay (ASX: APT) which, through good news and bad, ended up 4% for the month, having started at $24.15.
- In the first week of June, AfterPay mishandled a US media release on its sales which necessitated it disclosing an 11 month business update and the share price was flat, the market being happy that it was progressing as expected.
- In the second week, it raised equity on the Monday and had a partial sell down by its founders all at $23, about a 5% discount to the market price. When it came back on the following day, it rallied to $25.60.
- But it fell sharply on the Wednesday, due to a “Notice from AUSTRAC” investigating its payment systems, reaching a low of $19.98 during the week. The market soon worked out that the likelihood of an existential risk to AfterPay from this review was pretty small, and the stock rallied up to a high of $27.90 by the second last day of June.
- Then on the last day of the month, Visa made an announcement and Forbes wrote an article, disclosing that Visa would be trialling its own point of sale (POS) instalment payment solution. This sent the stock back down to a low of $22.50 before rallying to close at $25.07 to be up 4% for the month.
Our view on this latest drama is that there is little competitive threat to AfterPay from Visa, at this stage. The Visa approach relates only to credit cards, and is a catch up to “MasterCard Instalments” (January 2016) and even Westpac getting into credit card instalment lending.
These credit card instalment plans differ considerably from AfterPay, in that they still expose the customers’ to account fees and interest charges, and they need to be customised by each card-issuing bank. They are unlikely to get much traction with AfterPay’s customer base, 80% of whom do not use a credit card.
This month we include a note on one of the smaller portfolio exposures Fluence Corporation (ASX: FLC). It provides decentralised water and waste-water treatment equipment and consumables, and is experiencing rapid growth.
In 2018, Cape Town was set to become the first developed city to run out of water. The city staved off “Day Zero” (the day on which all taps run dry) by only weeks when rain finally arrived. The city’s desalination projects are still years away from completion. Cape Town is by no means unique. From Murray-Darling Basin issues and East Coast Australian droughts to California’s dustbowl and Chennai in India (see below), water scarcity and contamination is a global and growing challenge. This also makes it a market opportunity.
Much like Cape Town, many countries are inadequately prepared for these emerging crises. Coupled with diminishing supply and rising demand, water shortages affect 2.7 bn people, today. It is estimated that water demand for food production and manufacturing will increase 60% and 400% by 2050, respectively. Overall global water consumption is forecast to double by 2050. McKinsey estimates a global water supply shortfall of 40% by 2030, a mere 10 years away.
So why are these cities getting caught out to dry?
Constructing traditional desalination / water treatment facilities is capital intensive, complex and slow to deploy. Centralised water treatment plants tend to be landlocked with aging infrastructure that cannot be expanded easily and upgrades are costly. However, there is a viable alternative. Global Water Intelligence estimates by 2021 USD$22bn per annum will be spent on decentralised solutions, which are cost efficient, quick to deploy and scalable. As investors, how can we participate in such significant tailwinds?
Fluence Corporation (ASX:FLC) is a leading global provider of decentralised water treatment and waste-water management solutions. It is a pure-play on the water thematic and winner of Global Decentralised Water & Wastewater Treatment Company of the Year by Frost & Sullivan in 2018. Fluence has a market capitalisation of A$202m, generated US$101.1m in revenue in FY18 with a US$200m order-book and operates in 70 countries across the Americas, Africa, Middle East and China.
Fluence has a multi-channel revenue model. One revenue channel is through the sale of modular units called “Smart Product Solutions”, usually within containers which are ideal for decentralised water treatment. These containers can be packaged together to rapidly expand capacity on-demand (see “Aspiral”, “Nirobox” below). It also undertakes larger “Build-Own-Operate-Transfer” projects and “Custom Engineered Solutions” largely financed with non-recourse debt financing. Fluence also has a healthy aftermarket and recurring revenue model that enables higher margin accretion over time as the revenue mix evolves. Fluence is focused on driving growth in its Smart Product Solutions and Recurring Revenue segments which earn higher gross margins and have a key competitive advantage: proprietary technology.
So why do we like it?
Fluence uses its patented-protected membrane aerated biofilm reactor (“MABR”) to tap into a significant total addressable market through a full suite of water treatment solutions from waste-water treatment to desalination that caters for diverse customer requirements and situations. Incumbent water treatment technology is over 100 years old and ripe for disruption. Fluence’s solutions have 90% lower energy consumption and 60-70% lower operating costs than competing technologies. Fluence has an experienced Management team skilfully executing its product roll out, achieving 74% YoY organic revenue growth (December FY18).
Even with modest assumptions, Fluence’s revenue and earnings potential is sizeable. In particular, China’s has allocated US$15 bn to treat rural water sources, an opportunity Fluence is leveraging with current partnership agreements.The balance sheet is strong with US$40.8m net cash (December FY18) and Management is guiding to be EBITDA positive by 4Q 2019 which we see as a key change in its risk profile and a potential signal to the market for a re-rating. Lastly, with over US$4 bn of flows into ESG-orientated funds during the first quarter of 2019, we anticipate a strong investor appetite for Fluence once it achieves de-risking milestones (e.g. EBITDA-positive).
 EBITDA is earnings before interest, tax, depreciation and amortization and is a measure of a company’s operating performance.
Key Fund Information
|Management Fee||1.5375% p.a.|
|Performance Fee||20.5% above the RBA Cash Rate with High Water Mark|
|Morningstar Category||Alternatives 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
NSW, ACT, VIC, TAS: Stephen Robertson
Winston Capital partners (Acting on behalf of Monash Investors)
P. +61 418 387 427
For all investor enquiries, please contact
Link Fund Solutions Pty Ltd (Acting on behalf of the Fund)
P. +61 2 9547 4311
Monash Absolute Investment Fund Unitholder Services, GPO Box 5482, Sydney NSW 2001
For all other enquiries
Invest with us
We would welcome you as a co-investor in the Fund.
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.