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 time after all fees has outperformed the Index by approximately 4% per annum and deliver an average total return of approximately 10% per annum.

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.

Monthly Performance Report: May2025

The Monash Investors Small Companies Fund had a strong month, up 5.7%, and keeping pace with a similarly strong broader market with the Small Ordinaries up 5.8%.

Considering how negative investor sentiment was just two months ago, we’re surprised at the strength with which the market has rallied back. As we’ve noted in recent updates, uncertainty remains elevated, and many stocks are now very much priced for perfection. As also noted, we remain fairly fully invested and wish for our capital to be exposed to a prudently constructed portfolio of good quality, differentiated, and attractively-priced companies. On shifts to their relative value propositions, we were fairly active in May, reintroducing Johns Lyng to the portfolio, continuing to re-build our EML Payments holding, and opportunistically adding on weakness to each of Metro Mining and RPMGlobal. To fund these, Lovisa has been reduced into its recent bounce, and we’ve commenced trimming Catapult Group at month-end. Refreshing and rebalancing the portfolio, we believe, improves its defensiveness while ensuring your hard-won capital is exposed to the most prospective of our opportunity set.

Commentary

Catapult Group continued its strong performance and was the stand-out contributor for May. As we noted last month, Catapult had grown from a relatively small position in the 1-2% range to a full 5% of the portfolio by April. Its 43% rise in May saw that weighting reach 7% by month-end from where we’ve started trimming, bringing the position back to 5% as we write. Catapult’s becoming a tricky one for us. The company is quite clearly a high-quality business, and it has a considerable growth runway ahead. But everyone’s seemingly catching on to this now, and its shares – at more than 10 times revenue – are reflecting these attributes. Catapult is a market leader in the provision of data analytics hardware and software to global professional sports teams. Having built out its global footprint, operating costs from here will be relatively contained, and revenue growth is expected to fall disproportionately to the bottom line. That growth is set to occur across three key lines:

1. Organic growth in its core business across pro-sport.
2. Expansion down into lower grade levels of sport. These don’t have the budgets of elite sports teams, but Catapult’s products are priced to work at these levels, and even the most amateur of teams and players want high quality data to drive performance and improvement.
3. Longer-term, there’s the pricing lever. While the market continues to grow, it makes sense to not push too hard on pricing and to instead focus on winning business. But longer-term, as the market matures and growth slows, Catapult could meaningfully increase prices without impacting demand. A typical client might spend tens of thousands annually with Catapult which is providing the tools, technology, and analytics to optimise a team whose payroll might be tens of millions. The cost of Catapult’s services for most of its customers are a trivial portion of their budgets, yet the insights and analytics provided are invaluable, and the costs and risks of switching significant.

Catapult exhibits many of the hallmarks of high quality businesses, and so considering that upside tail risk we believe is inherent with this business, we’re factoring this into our valuation framework. The upshot is we continue to believe Catapult is an attractive asset to own, and we continue to own it meaningfully at around 5% of the portfolio, but we will contain our exposure and expect to dynamically position over time as pricing moves around relative to our valuation assessment.

Other positive contributors include EML Payments, Metro Mining and SRG Global with each rising 15-17% and contributing ~0.6% each to performance. EML Payments agreed to a lucrative Long-Term Incentive package with its Executive Chairman who himself has invested ~$3.5m in late 2024 and early 2025 buying stock on-market. Over the past year we’ve witnessed a number of improvements with the business as it’s shed non-core assets and re-focused on growth. An abrupt CEO departure in December spooked the market, but strong results since, the Chair’s significant on-market purchases, an LTI structure that implies internal confidence in the potential with this business, and renewed broker interest in the company have all led to a re-rate to its shares. We too have increased our conviction level here as developments have unfolded and have added progressively to our holding, bringing the Fund’s weighting now to the 5% zone. While we’re pleased with developments generally speaking, and have increased our position as a result, we weren’t happy with aspects of the Chairman’s LTI including its quantum, low hurdle, and purely share-price-based structure. We’ve shared this view with other institutional investors, and provided our feedback to the company. In the overall scheme of things, and the context of our otherwise positive and constructive relationship with management, we’re satisfied with simply providing this feedback. But as a general concept, we note that it feels as though compensation – particular in the form of ‘performance rights’ does feel a little out of hand among some small caps. The level of our engagement and input on these is considered on a case-by-case basis and reflects the degree of our dissatisfaction, and our ability to effect change. Again, notwithstanding the cost of the LTI, the signalling inherent with it, together with other fundamental developments are all positive for the shares and we believe EML Payments is positioned to perform in the years ahead.

Detractors this month included our large holding in Austin Engineering. Austin’s shares fell 13% and cost us over 0.8%. The company has now shed ~40% of its value since its July 2024 highs and for what was at that time the Fund’s largest holding, has been a key contributor to our underperformance over the past year or so. Its shares have been under pressure for some time as investors weigh a mixed first half result, soft conditions affecting mining services in general, and uncertainty around its well-planned & well-telegraphed CEO transition, presently underway. While it’s been a painful detractor over the last little while, the fundamentals of the business remain intact. Our ongoing research process here has included meeting with management, a site visit to its North American facility in Wyoming, US, in April, and next week we will visit their facility in Perth. Our assessment is that the quality profile of this business is greater than ascribed by the market in terms of its share price. At 38cps, Austin trades on a single-digit multiple of sustainable net earnings, is growing, and has a strong balance sheet with capacity to fund its growth. Present management have driven meaningful business improvements over the past few years, and whilst short-term profitability may be subdued with a slowing economy and growth-oriented expenditure within the business, the medium to long-term profile here remains very attractive and Austin, we believe, is set to be a material contributor to the Fund in the periods ahead.

Takeover Activity: Spotlight on Value

One of the key risks and benefits of investing in smaller companies is the potential for takeover activity. The benefits included the potential for acquirers to see latent value either through synergy in merging with another business, providing new revenue opportunities, or simply financially re-engineering a balance sheet. A good takeover might see a nice premium accrue to shareholders, unlocking that latent value. But risks exist too, including that lazy, compliant institutional investors and boards too easily accept offers that might theoretically be ‘fair’ but which ultimately don’t fully capture that value. And of course the main risk being that good businesses are lost to private ownership, undercutting investors who otherwise may have enjoyed many years of value growth and compounding. The Fund currently has several companies subject to takeover and at various stages of progression. A very small position in ASX-listed US copper resource company, New World Resources, rose 88% in May and contributed nearly 0.5% to performance as that company agreed to an all-cash buyout. Our other remaining copper investment, Mac Copper, too agreed to an all-cash buyout, rising 29% and contributing 0.6%. We’re OK with letter New World Resources go, as alternatively to a buyout, it would need to raise significant cash in order to complete its mine development. With its shares so depressed, that carries the prospect of potential value destruction for those who don’t participate. But Mac Copper is well-funded and set to generate significant cashflow from here. The company has agreed to a buyout at a price reflective of where it’s traded for most of its short ASX-listed life, with the deal being opportunistically entered into at an unusual time of market weakness. We expect New World will go through without any major issue, but expect shareholders may hold out for more (and rightly so) for Mac Copper.

Another small holding, Smartpay, is in early discussions with parties interested in acquiring the company. The latest takeover proposal at NZ$1.20/share was much-improved on a prior offer, and its shares rose 23% in May, adding 0.5% to performance. We expect Smartpay will ultimately be sold, and believe this will be the right outcome for this business which we believe is more valuable to an acquirer than as an independent business.

Performance Update

We’re pleased with having kept pace with a strong May for markets, mainly on account of the continued re-rate to Catapult, but assisted by a number of other strong contributors including with companies subject to corporate activity. We last month highlighted the underperformance gap that was quickly emerging when looking at our 1-year performance figures. That gap has expanded this month to ~12% underperformance over that timeframe. This level of deviation from the market over short timeframes, we consider, is par for the course. But it’s nevertheless painful and disappointing, and as highlighted last month, warrants additional explanation and focus in terms of our monthly reporting. We’ve generated outperformance over all longer timeframes, but the past year has been particularly challenging. Key areas of underperformance are across the following:

1. Resource stocks. We had modest exposures to uranium stocks which did well in the first half of 2024. These contributed handsomely to performance over that period. With our continued positive view, we didn’t monetise those gains, and these were given up – and then some – when sentiment turned against the sector. Likewise our lithium positions. Our total exposure to these positions has reduced along with their share prices, and while we remain positive on the outlook for each, we’re taking a moderated view in terms of the portfolio. A tough year for these stocks, but we believe they’re good value down here and hold the potential to contribute meaningfully in the future.
2. Declines to key stocks. Austin Engineering, discussed above, was bought around current price levels, rose 50%+ but remained attractive and our position was maintained in anticipation of continued medium to long-term gains. With hindsight, we should have re-positioned, in effect locking in gains but also reducing the downside for the subsequent de-rate and positioning us better to capitalise on that volatility by again adding at these lower levels. Likewise Lovisa. Again, these are behind us, and we’re wholly focused on the current portfolio set-up and ensuring diversity of its constituents, valuation support on a position-by-position basis, and lots of upside potential over time.
3. Underweight positions in the market darlings, and gold miners. This has been a bifurcated market with unusual degrees of dispersion in terms of individual stock performances. The best performers have been those favoured growth stocks such as Life360 which we don’t own, but which have become very highly rated by the market. And from a sector perspective, the ASX Small Ordinaries has a heavy gold component, and while we’ve had some limited exposure to a number of small-cap names in this sector, our weighting over the past year has been much less than that of the market. We’re not bothered by underperforming through missing out, but are instead focused on ensuring a strong investment case for whatever we do own. Successfully identifying and owning good, growing, attractively priced businesses, we believe, will underwrite strong medium to long-term absolute returns, and absent outlier performances with the market’s hot-stock, or gold going to US$10k/ounce over the next 5 years, we’re confident of continued meaningful relative performance over time, too.

Summary

Aside from the unpleasantness of our underperformance gap over the past 12 months, we’re pleased with fundamental developments across the Fund, and its positioning moving forward. We’ve taken great care to ensure a strong valuation basis for the portfolio, and to build in lots of idiosyncratic positions with meaningful upside potential. Smaller companies remain highly attractive both in an absolute and relative sense. With the rise of passive investing, investor capital flows really globally are pushing the very largest companies to very rich valuations, and Australia is no exception. When we benchmark our companies against, as an example, Commonwealth Bank of Australia – the largest ASX-listed company – with its economic sensitivity, inherently leveraged balance sheet, low growth profile, and ~30 times earnings multiple, the value for money difference is stark. With this in mind, we’re very enthused about what we own and the potential for our portfolio to deliver for clients in the years ahead.

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