Monash Absolute Investment Fund

Lonsec

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: April 2019

Monthly Update

For the month of April, the portfolio was up by 6.28% (after fees) compared to the S&P/ASX200 up 2.37% and the Small Ords which was up 4.11%.  It continues to be a strong start to the calendar year with the portfolio up 21.41% (after fees) compared to up 13.51% and up 17.22% for the two indices respectively.

In general, the portfolio stocks’ businesses continue to progress well, and the portfolio has not suffered any significant set backs on the Fund stocks this year.

In particular, it has been the higher growth stocks such as Afterpay (ASX: APT), EML Payments (ASX: EML) Kogan (ASX: KGN), Lovisa (ASX: LOV) and Nearmap (ASX: NEA) that have driven the recent good numbers.

In this month’s update we revisit Kogan, which performed strongly following its quarterly sales announcement. It is a stock that the Fund has been variously long or short at times, and has made money in both directions.

Monthly Portfolio Metrics

Outlook Stocks (Long)22 Position: 83%
Outlook Stocks (Short)1 Positions: -2%
Event, Pair and Group (Long)3 Positions: 11%
Event, Pair and Group (Short)1 Positions: 0%
Cash8%
Gross Exposure97%
Net Exposure92%
Beta0.57

Return Summary Since Inception1(after all fees)

Since Inception (p.a.)9.46%
1 Month6.28%
3 Months12.42%
6 Months11.21%
FYTD7.90%
1 Year11.95%
3 Years2.53%
5 Years4.59%
Cumulative85.43%

1Inception date of Fund is 2 July 2012.

Portfolio Analytics Since Inception

Sharpe Ratio0.70
Sortino Ratio1.28
Standard Deviation (p.a.)10.36%
Positive Months61%
Maximum Drawdown-15.21%
Avg Gross Exposure89.20%
Avg Net Exposure77.10%
Avg Beta0.57
Avg VAR1.20%

Click here for Glossary

Kogan is Australia’s largest internet-only retailer, with 1,589,000 customers active in the last 12 months, up 23% from a year ago[1]. As the chart[2] shows, there has been a relentless growth in customers over time.

It has a growing number of “Verticals.” It is not just a retailer of its own private label goods and those of third parties. It also sells for third party retailers on a commission basis through its marketplace service, and it sells services such as mobiles, travel and insurance on a commission basis too.  

[1] April 2019 business update https://www.asx.com.au/asxpdf/20190418/pdf/444dyb0fj7kmm4.pdf

[2] 1 HFY19 Results Presentation  https://www.asx.com.au/asxpdf/20190222/pdf/442vvcwj7km8p3.pdf

It continues to add initiatives/verticals such as Kogan Energy Compare (an initial entry into the utilities market), Kogan Cars (to allow customers to secure cars from dealers across Australia) and Kogan First (free shipping for members)

.Despite the steady growth in its customer numbers, the Kogan share price has been far from steady. In the last 2 years it’s gone from less than $2 to more than $10.  As recently as November it was down to $3 again and now 5 months later, it has doubled to almost $6. doubled to almost $6.

Kogan has been a great case study in the stock market over emphasising short term trends, and passing extreme verdicts. A nimble investor that is able to look through such noise and pick sensible entry and exit points, can do well from the volatility.

The most recent rally in the Kogan share price is a recovery from

  • a badly handled series of sell downs by its founders,
  • a short term concern for the Australian retail outlook that existed towards the end of 2018,
  • the impact of changes to the way the Australian government collected GST on overseas sourced purchases, and
  • short term cycles in the business from mobile phone plan promotions

As a result of all of the above the market had become quite pessimistic on the outlook for its earnings, with analyst consensus forecasting no growth in profit for FY19.

On the other hand, our detailed modelling of the Kogan business led us to forecast that it was very unlikely that the business could possibly have flat earnings, and that there was good reason to believe that despite a weak December half (the six months to December 2018) its FY19 growth should be back on track.

In particular, the pattern of its mobile phone plan promotions gave us cause for optimism. Despite a steady rise in customers, the growth in Kogan mobile phone gross profit typically appears to stall on a quarter-by-quarter basis every second quarter. See the Kogan mobile charts below.

Now, the reason why we see this pattern in the mobile phone gross profit is because Kogan alternates between promoting short term plans (30-90 day plans) and long term plans (365 day plans).  It may well sell the same number of plans each time, but it makes a lot more money in a quarter where it sells a 365 day plan, than when it sells a 90 day plan.

This is because the plans are paid for by customers in advance and Kogan gets paid its commission when the customer pays. The commission Kogan makes on a 365 day plan is much greater than the commission that it gets paid for selling a single 90 day plan.  It is true that Kogan will also get paid additional commission if the plan is renewed, but that is revenue it earns over time, not in the quarter when the initial plan is sold. This gives rise to the gross profit pattern seen in the chart.

As a result of the resumption of the 365 day promotions in the New Year, the result to 30 March 2019 was much stronger.  Overall for Kogan, 9 month EBITDA was 15% higher than the prior corresponding period[1]. This led to consensus earnings increasing by about 20%.  This flowed on to an exaggerated move in the share price which benefitted not just from the earnings upgrades, but from a re-rating. Over the month the stock price jumped 58%.

Based on our analysis, the portfolio was well positioned for this positive surprise, with a 5% portfolio weight heading into the quarterly sales announcement. The Fund has since reduced it’s holdings somewhat.

[1] April 2019 business update https://www.asx.com.au/asxpdf/20190418/pdf/444dyb0fj7kmm4.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.

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