Totus Alpha Fund Performance Summary – April 2014

April was a difficult month for the Fund with founder’s series units down 2.1% (post fees), well shy of the overall ASX performance which was up 1.7% over the month.

The quote in the header of this newsletter sums up what happened pretty well. Many of the investment themes that had served us so well in 2013 have struggled so far in 2014 as they became “consensus” trades. This became abundantly clear to us during the month when we had the opportunity to attend a presentation from a multi-billion dollar global long short fund (with an excellent performance track record over 20+ years) and saw many of the themes that we had been researching pitched back at us. Now this doesn’t mean that those themes are” finished” or “wrong” but it did highlight to us that positioning in a number of areas was approaching extremes and that some caution was warranted.

The fund went into April with relatively large exposure to tech (bricks to clicks), high PE stocks (scarce growth) and US$ earners all of which were hit to varying degrees over the month by the aggressive rotation out of crowded “winners” into
cheaper “laggards” as well as the ongoing strength in the Aussie dollar. The market was unimpressed with the growth in costs reported by Google (our 2nd largest position) which cost the fund just over 0.5%. Adding to the pain was a takeover bid for one of our “structurally challenged” short positions Goodman Fielder and the cost of our index hedging which together cost the fund another 1%. One bright spot for the fund was corporate actions with new listings Burson Group and Beacon Lighting and a placement in Automotive Holdings all contributing positively to performance.

Our response to this turbulence has been to pare back the funds net and gross exposure and attempt to move even further up the quality chain in our key investment themes (e.g. adding to Google on weakness). With the US market at alltime
highs and the Aussie market at 5 years highs heading into the seasonally weak Northern Summer we are happy to keep our powder dry for now.

Top contributors to performance in March were long positions in Burson +0.90% (scarce growth), Automotive Holdings +0.57% (scarce growth) and a short position in Coca-Cola Amatil +0.62% (structural change). Biggest detractors from performance were our long positions in iBuy -1.02% and Google -0.53% (online) and a short position in Goodman Fielder -0.47% (structural change).

To read the full performance summary please download the document below.