The Monash Investors Small Companies Fund (Fund) is an unlisted retail unit trust offering investors an Australian equity exposure with a strategy of outperforming the S&P ASX Small Ordinaries Total Return Index over the medium term (5yrs).

The Fund has been in operation since July 2012, and over this timeframe has generated strong returns to investors of approximately 10% per annum. Returns have outperformed the Index over time, and have been generated in a way that has often been significantly differentiated from other Australian share funds, helping clients to mitigate risk by blending with other assets within their broader portfolios.

This fund is appropriate for investors with “High” and “Very High” risk and return profiles. A suitable investor for this fund is prepared to accept high risk in the pursuit of capital growth with a medium to long investment timeframe. Investors should refer to the TMD for further information.

Dear Investor,

The Monash Investors Small Companies Fund was flat for the month, down 0.4% in a market that continued to edge higher, with the Small Ordinaries Index rising 1.9% largely on the back of a booming gold sector as well as continued strength in the hot stocks that have driven the market over the past year or so.

Commentary

Key contributors included Pilbara Minerals which rose 36% and contributed 1% to performance. The lithium sector has enjoyed renewed investor enthusiasm, and perhaps something of a short squeeze. Our original thesis had previously been materially impaired, with lithium pricing failing to perform as expected. We had retained our position, and even added near the lows back in June as our perceived value gap widened notwithstanding the impairment to our valuation. However, the recent rally together with our moderated expectations have given us an opportunity to exit this investment, which we did near month-end. AIC Mines also performed well, up 28% and contributing 0.8% to the fund. AIC is a copper developer and producer, and having completed a capital raising earlier in the year (through which we invested in the business), is well funded for the period ahead. The company is significantly profitable now, with this expected to ramp meaningfully as production is expanded over the next 2-3 years. Outside of resources, each of Austco Healthcare and Pureprofile rose 17-20%, contributing 0.7% a piece to the portfolio. Along with Credit Clear and Kinatico, these are unique tech-enabled businesses that are now profitable, are all growing, reasonably priced, relatively small with market capitalisations of $50-200m, and each expanding their market opportunities growing into prospective adjacencies and/or new markets globally. As they grow and capture the attention of a wider investor audience, the potential for further material pricing re-rate is significant.

Detractors this month included Findi which nearly halved, costing us 1%. Findi is an ASX-listed holding company of an Indian ATM and fintech business which has been working toward a local market IPO for 2026. Recent results have fallen short of expectations, and comparable company valuations have come off significantly, raising doubts about their ability to list at their targeted valuation level. We have reduced our position recently and will continue to monitor progress here. Austin Engineering fell 17%, costing us nearly 1% on what was a fairly full position. Moving into November, the company announced a material earnings downgrade and highlighted a number of operational issues they’re working to address. The shares had been discounting the potential for a downgrade, but the magnitude has been greater than expected with its shares falling further on the back of this. We’re retaining our position at a moderated size and note that the shares presently trade around book value and despite current operational issues, hold the potential for meaningful upside if and as they restore profitability in the periods ahead. Metro Mining also cost us nearly 1% as its shares fell 23%. Metro Mining has performed strongly over the past year, roughly doubling to its recent highs on the back of a strengthening balance sheet as the company starts to generate significant free cashflows from its North Queensland bauxite mining operation. Recent production hiccups and reduced expectations for volumes and net margins moving forward have weighed more recently. Having performed well for us previously, we had materially reduced our position from what had reached a high of around 7% of the portfolio, bringing this back to ~4% and helping soften the blow from its recent de-rate. At its current ~3% weight, we’re comfortable with our continued exposure here with downside contained, but potential for meaningful contribution if Metro’s story plays out as we anticipate over the next year or two.

New position: SDI Limited

SDI is a long-established Melbourne-based manufacturer of dental materials, distributing and selling its products around the world. It’s a relatively small company with a market value of around $120m, and is tightly held with its founder owning 43% and the register otherwise being tightly held with very low institutional participation. Daily liquidity is low, but we took advantage of a window of opportunity this month to establish a position for the Monash Fund, and re-establish a position for our other fund, DMX Australian Shares Fund. At DMX, we’ve followed SDI for many years and have previously owned the company.

SDI has an extensive range of dental products including whitening and filling materials. The latter includes Amalgam product which is in structural decline, now representing a relatively small part of the business, but whose decline has masked growth achieved elsewhere. Mainly, the business is now focused on innovative and high-value dental solutions, with this increasingly reflected in gross margins which continue to creep up, now reaching 63%. A key characteristic that has appealed to us from a portfolio management perspective is SDI’s Australian manufacturing and general cost base, together with its global revenues. For an Australia-constrained equity portfolio, exposure to businesses like this provide valuable counter-cyclical properties. A domestic down-turn is typically associated with a lower AUD, which boosts the value of SDI’s foreign currency receipts. This is leveraged to the bottom-line considering its largely Australian cost base.

Our opportunity in SDI comes in the wake of a few factors weighing on its shares. SDI’s management have been proactive over the past couple of years in engaging with investors, with the market expecting a capital raise. SDI is boldly expanding and consolidating its manufacturing facilities which have been piecemeal stapled together over the year as the business has grown. Capacity has been constrained, and production has not been as efficient as it could be in a single purpose-built facility designed for current capacity together with room for meaningful growth. The company is mid-project, building its substantial new facility which will see its debt load expand. We believe investors may be nervous about this undertaking, with balance sheet and development risks to be contended with. Having been considering a capital raise to help bridge finance this expansion, the Board’s decision to not go ahead with this and to instead debt fund the project may be weighing on the shares. From our perspective, we believe SDI’s balance sheet previously had been over-capitalised given the nature and consistency of its revenue and earnings. We’re quite comfortable with the company utilising a little more debt than they have in recent years. And with the company trading for 10-11 times post-tax earnings, issuing equity would be a very expensive exercise. While we’ve been engaging with management over the past year or so, and awaiting a potential liquidity opportunity through a cap-raise, we’ve now pivoted and been able to acquire a position on-market.

At our purchase price of 89-89.5c, SDI was trading for just on 10 times earnings, a level of earnings which have the potential for a step-change in the next couple of years once its manufacturing transition is complete and anticipated efficiencies are realised. With significant headroom for growth in its new facility, a robust R&D programme driving new product development, and its global distribution footprint, the potential for growth in the years ahead is considerable. From these levels, and considering its capital-light model, we expect to enjoy a healthy dividend yield, together with what could become a meaningful P/E re-rate on earnings that could be much higher within a few short years. Together with its counter-cyclical qualities, SDI is an interesting recent addition to the portfolio, and a good example of the sorts of high quality, misunderstood, undervalued and idiosyncratic assets we’re looking to own on your behalf.

Summary & Repositioning into value within Smaller of the Small Caps

After a strong September, October was a month of consolidation for the portfolio. Price recoveries in areas have been utilised to exit older holdings whose thesis’s had been impaired or broken. As mentioned above, Pilbara Minerals was exited. But also, Paladin Energy was scaled down and exited into its recent bounce, and Telix Pharmaceuticals which had been previously reduced has also now been exited. These are all multi-billion dollar market cap companies, and their exit has freed up capital to concentrate more into smaller market capitalisation companies more in keeping with our small and micro-cap focus as a firm, but mainly because that’s where we’re seeing the obvious value in this market. Across the smaller companies sector, the larger of ‘smalls’ have benefited more over the past year from this wave of liquidity and renewed interest in the space. Higher quality, growth names have benefited the most, often reaching valuations that are disconnected from their admittedly positive reality. Resources, too, have enjoyed much investor enthusiasm in recent times with gold in particular booming. Underneath all these is a wide range of highly prospective and relatively undervalued smaller companies that continue to be neglected. Our focus is on having your hard-won capital exposed to a sensible portfolio of these. Differentiated, good quality, growing, undervalued smaller businesses with multiple ways to win across the portfolio. We believe this positions us well for performance through the full market cycle, and in particular, from where relative valuations fall today, we look forward to navigating into 2026 and beyond.

Thank you for your trust and support. We welcome your direct enquiry any time.