- Sean Rapley
March 2021 - Luke's Fund Performance Update
The ASX 200 was up 1.9% for the month of March, and Luke's Fund achieved a return of -7.1% over the same period, bringing the Fund’s current returns for FY2021 to 52.4%.
The top contributors over the month were:
Electro Optic Systems, which contributed 12.0% of the returns on no news.
Pushpay Holdings, which contributed 7.8% o the returns. During the month, the Huljich brothers sold the remainder of their holdings in Pushpay, which resolved the uncertainty concerning their ownership.
The top three detractors to the performance over the month were:
Cleanspace Holdings, which contributed -18.8% of the returns for the month. Cleanspace Holdings reported a significant slowdown in device sales in Q3, which was blamed on US hospitals prioritising the US vaccine rollout.
Pointerra, which contributed -18.1 % of the returns of the month. There was no news from the company this month.
AVA Risk Group, which contributed -11.2% of the returns for the month. AVA Risk announced a $1.8 M contract win during the month, which was not enough to negate concerns on the FFT business pipeline.
Our gold hedge portfolio returned -2.4% for the month (vs a gold price change of 0.3%). As at the end of March, the precious metals portfolio is 16.7% of the fund portfolio.
Notable changes to the portfolio included:
We continued trimming AVA Risk, which is now a 6% position size.
We added to Yandal Resources after some very promising shallow, high grade strikes at the Sims Find prospect.
We added to our positions in Talga Group, Novonix, after they were sold down during the month.
We added to our Cleanspace Holdings position after analysing what normalised, post-pandemic revenue may look like. We did not take sufficient care in this analysis, and Mr Market punished us later in the month. Upon a review of our consumables revenue estimates, we made an error in our estimates, overvaluing the business by 25% in the process. At this point though, we believe the current share price is below our normalised business valuation, but we will wait for further results to verify our analysis.
We opened a new position during the month, Sequoia Financial Group, after they upgraded their FY2021 outlook, on the back of strong organic growth rates. The Morrison Securities business in particular is growing particularly strong, and if management can execute on their medium term goals, Sequoia Financial Group is very cheap indeed at current prices. It is important to note, Sequoia experienced growing pains in FY2019, having overextended itself through an acquisition binge. They are now under new management, are in a much stronger financial position, and are benefitting from secular tailwinds driving financial planning and investment platforms.
We held 4.1% cash at the end of March.
KEY LEARNINGS FROM THIS MONTH
As mentioned above, some basic errors in our analysis of Cleanspace Holdings led us to overvalue the business by 25%. A simple error led to a bad decision on our part.
Clearly, our quality assurance processes need a review. Investing is difficult enough without unforced errors, and our priority for this month will be to address this issue.
If you have any opinions on the companies we hold, or what like to know more, we would love to hear your feedback.