• Sean Rapley

September 2020 - Luke's Fund Update

September was a difficult month, with the ASX 200 down approximately 3.4% for the month of September. Our portfolio, struggled as a whole, with 61% of the companies down over the period. However, despite the majority of companies experiencing share price falls, we are pleased to report Luke's Fund achieved a return of 10.2% over the month of September, bringing the Fund’s returns for Q1 FY2021 to 42.9%. We have enjoyed exceptional returns this quarter, with the top three contributors to the performance over quarter being:

  1. Pointerra, which contributed 44% of the returns over the quarter. Pointerra reached a multitude of inflection points over the quarter, notably reaching cashflow breakeven, Bevan Slattery’s strategic investment, and accelerating revenue growth reported over the month of July. We expect Pointerra’s share price to mean revert in the short term, and may weigh on next quarter’s returns. However, we are happy to maintain a position, given the unique opportunity Pointerra has before it.

  2. AVA Risk, which contributed 17.9 % of the returns over the quarter. AVA Risk announced its maiden annual profit, reported exceptional revenue growth, cost control, and a special dividend. With the majority of its high margin IMOD contract being delivered over FY21, along with continued strong performance in the Services Division, we believe AVA Risk’s tailwinds are set to continue. One thing to watch is the new management team, and how well they can execute future growth, and the possible sale of the Services Division.

  3. Selfwealth, which contributed 10.8% of the returns over the quarter. Selfwealth continues to benefit from the tailwinds of negative real interest rates, and increased saving rates. We expect Q1 2021 to show continued growth in active traders, with key milestones coming over the next 3-6 months, including the launch of the USA trading platform, improved mobile user interface, and increased gross margins beginning from Q3 2021.

The top two detractors for the quarter were:

  1. A2 Milk - which contributed -3.4% of the returns over the quarter. Disruptions to the Daigou channel is impacting revenue in H1 2021. We will watch the situation closely, but have high confidence in the long term prospects of the business.

  2. Advance Nanotech - which contributed -3.3% of the returns over the quarter. Forecast sales are significantly down, due to a combination of falling demand for sunscreen, and customers running down inventories. We expect sales will not improve until Q3 2021 at the earliest due to COVID-19 travel restrictions. We will monitor customer outlooks, for signs of improvement. However, we are confident of Advance Nanotech’s long term future.

Our gold hedge portfolio returned 4.5% for the month (vs a gold price change of -0.8%), with a total return of 2.6% for Q1 2021 (vs a gold price change of 3.3%. As at the end of September, the precious metals portfolio is 13.2% of the fund portfolio.

Notable changes to the portfolio included:

  1. We sold approximately 30% of our Pointerra holdings over the month.

  2. We closed our position in Paygroup, following their recent capital raise. They operate in a very competitive space, and we have formed the opinion they are not a market leader in their sector, and we have decided there are better opportunities elsewhere.

  3. We opened a new position in Talga Resources. We will provide a seperate blog on this business, and why we are quite excited by the opportunity before it.

If you have any opinions on the companies we hold, or what like to know more, we would love to hear your feedback.

Regards,

Sean

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