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: June 2018

Monthly Update

The portfolio decreased -0.04% (after fees) for the month of June, during which the S&P/ASX200 rose 3.27% and the Small Ords rose 1.06%.

Looking back over the 12 months to 30 June it was a good financial year, with the portfolio returning 11.24% after fees, whilst holding 27% in cash, and delivering lower volatility compared to the market and a average beta of 0.57.

As it is the end of the financial year, a full annual review of the portfolio will be also be published later in July. The annual update, will discuss the portfolio’s highs and lows over the last financial year, and discuss the portfolio’s positioning for the financial year ahead.

Monthly Portfolio Metrics

Outlook Stocks (Long)17 Position: 63%
Outlook Stocks (Short)2 Positions: -5%
Event, Pair and Group (Long)4 Positions: 16%
Event, Pair and Group (Short)0 Positions: 0%
Cash27%
Gross Exposure84%
Net Exposure73%
Beta0.57

Return Summary Since Inception1(after all fees)

Since Inception (p.a.)9.46%
1 Month-0.04%
3 Months-0.64%
6 Months-3.76%
FYTD11.24%
1 Year11.24%
3 Years4.86%
5 Years7.72%
Cumulative71.86%

1Inception date of Fund is 2 July 2012.

Portfolio Analytics Since Inception

Sharpe Ratio0.78
Sortino Ratio1.51
Standard Deviation (p.a.)9.23%
Positive Months63%
Maximum Drawdown-15.21%
Avg Gross Exposure88.10%
Avg Net Exposure76.40%
Avg Beta0.57
Avg VAR1.20%

The biggest contributor to the portfolio in June was Afterpay (ASX: APT) which was acquired in May (for the second time) following the stock’s entry into the US market.  Progress in the US appears to be at the upper end of expectations, with 241 retailers signed up by 4 July. Afterpay rose 19% over the month.

While there were a few notable winners in June, the rest of the portfolio was mixed and the short positions – with the exception of Kogan (ASX: KGN) – tended to go against us, with the overall result being a relatively flat outcome.

The portfolio was highly active in Kogan, and the position was initially held as a long, which was then sold in early June, shorted, and finally, covered before the month was over.

An overview of Kogan (ASX: KGN)

Kogan -25% for June (positive contributor as a short position)

Kogan is a retailer that operates only via the internet.  Founded in 2006, its first product was Kogan branded televisions, which it imported directly from a manufacturer. It listed on the ASX in 2016 and its current level of sales is more than $400m p.a.

It now sells many different types of products under the Kogan brand and various private labels as well as distributing the products of numerous well-known third party brands such as Nike, Samsung etc. It also sells its own brands on other websites, such as ebay and Amazon.

In the last few years, it has expanded into other “verticals” such as Travel, Mobiles and Insurance.

Why Kogan Works

Kogan’s business model was designed from the outset to profitably sell popular products at low prices:

  • Using data analytics to identify products that are in demand, to manage their inventory/pricing, and optimise their end to end logistics
  • For their private label brands they source directly from the lowest cost manufacturer
  • For their third party brands from the lowest cost distributor, and
  • And they use technology to automate the process

Kogan Mobile: Transformed the business

In 2016 Kogan began acting as an agent for Vodafone. Unlike other mobile phone resellers, Kogan is retaining its own brand and customer relationship, without being responsible for service delivery in any way. In return for signing up customers, Kogan keeps a fixed percentage of every customer payment.

The mobile phone business has grown surprisingly quickly. The key is Kogan’s low cost of customer acquisition, communicating to its active customers (more than 1.1m) its email database (more than 8.5m addresses) and via paid searches. All leveraging off the brand awareness built from its retail.

Kogan’s Competitive Advantage – and what the market is not yet pricing

Kogan’s two growth drivers are well understood by the market

  1. Kogan Kinetics
    • Growth in customers
    • Allows scale efficiencies
    • Allows more products, verticals
    • Attracts more customers
  2. Low Customer Acquisition Cost (CAC)
    • More than 8m email addresses
    • More than 1m active customers
    • Traffic to the website is mostly free
    • CAC $25 per new customer

Kogan’s increasing scale and low CAC is now allowing Kogan to enter markets where the incumbents suffer from high acquisition costs. As demonstrated by its entry into Mobiles.

Analysts are not yet assuming that they will continue to enter such verticals, but it’s very likely that they will, given the high returns available to them if they do. Companies with high returning opportunities within their skill set, will almost always attempt to exploit them.  It is a pattern of behaviour we see time and again. Consistent with that, they recently announced entering the broadband market. Potential future verticals are gas, electricity, and credit.

So looking to the medium to longer term, we can see the business become much greater in scale, and this is not being assumed in analyst forecasts.

Kogan – a Long Term Buy but a Short Term Sell

The portfolio was holding about a 3% weight in Kogan at the beginning of June on the basis that it was fairly priced at the time on analyst forecasts, but the analysts were not including likely future verticals, so there was still a large pay off ahead.

However, in early June the management of Kogan presented a very strong behavioural signal and we decided to sell the holding, and then short the stock to a -2.5% weight.

The two founders owned 60% of the company and attempted unsuccessfully to sell about 1/6th of their holdings when the share price had closed at $9.80.  This was following two positive announcements made by the company in 2 days which had driven the share price up from $9.09. As they were attempting to sell only one month before the end of the financial year the market was highly suspicious.

We see management selling large amounts of stock as having a track record correlated with future earnings disappointment for a company, versus the expectations of the market. So we sold out over the next day, and then shorted the stock the following day, for an average price of $8.47.  We then covered (bought back the stock) at $6.99 and by the end of the month the stock closed at $6.82.

Key Fund Information

FUM$42m
Minimum Investment$20,000
Management Fee1.53% 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

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

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

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

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

NSW,ACT,QLD: Rory MacIntyre
Winston Capital partners (Acting on behalf of Monash Investors)

P. +61 434 669 524
E. rory@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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