june 2020 · 2020-06-16 · totus capital pty ltd (abn 151 2 772) afsl: 409468. june 2020
TRANSCRIPT
June 2020Totus Capital Pty Ltd (ABN 151 2 772) AFSL: 409468
Why Totus Capital? Totus is an independent investment firm managing funds on behalf of high net worth individuals,
platform unitholders and family offices
Totus manages the Totus Alpha Fund. A limited capacity ($500m soft close), absolute return offering concentrating on Long and Short equity ideas in Australia as well as the US
Diversified fundamental stock picking portfolio with emphasis on generating positive attribution fromlong book and short book
The Portfolio Manager and investors are highly aligned via significant personal investment in the fund
Experienced award winning team
Proven investment strategy that has delivered 15.8%* per annum net of fees since April 2012
Returns are uncorrelated to Australian and global share markets
*Past performance is not a reliable indicator of future performance 2
Recent Totus Developments
2018 Australian Market Neutral Fund Of The Year winner (Hedge Fund Rocks)
Over $250m of Assets Under Management (AUM)
Launched Cayman vehicle for non Australian domiciled investors
Highly experienced COO hire (Tony Hammond – started Feb 2019)
New analyst hire (Tim Warner – started June 2019)
Launched Totus Alpha Fund strategy in PDS format (April 2020)
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Award Winning Investment TeamBen McGarry (Portfolio Manager) has 19 years of financial markets experience on boththe buy and sell side of the industry. As an analyst at UBS Australia and Morgan Stanley inLondon, Ben covered a broad range of companies and sectors. Ben also qualified as aChartered Accountant with PricewaterhouseCoopers in Sydney.
Sam Granger (Portfolio Manager) joined Totus Capital in 2014, having previously workedat NAOS Asset Management as an emerging companies analyst. He holds a Bachelor ofCommerce (Liberal Studies) degree from the University of Sydney.
Tim Warner (Analyst) joined Totus Capital in 2019, having previously worked atCentennial Asset Management as an analyst for 2 years, focusing on ASX small and micro-cap companies. Tim holds a Bachelor of Chemical Engineering (Honours Class I and theUniversity Medal) degree from the University of Sydney.
4
Joanne CupplesClient Services
DistributionFinance and Operations
Investment Team
Ben McGarryCEO
Sam Granger Portfolio Manager
Ben McGarryPortfolio Manager
Tony Hammond Chief Operating
Officer
Andrew AitkenHead of
Distribution
Antonia Connolly* Bookkeeper
Organisational Chart
Kym Reynolds Executive Assistant
*Antonia works part-time
Tim WarnerAnalyst
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Superior Scalable Long-Term Returns (Since inception April 2012 to May 2020 – net of fees)
Rolling (pa) Totus Alpha Fund ASX300 Accum Index Outperformance
1 -3.6% -6.5% 3.0%
2 -1.8% 1.8% -3.6%
3 9.3% 4.5% 4.9%
4 6.1% 6.0% 0.1%
5 11.2% 4.3% 6.9%
6 11.4% 5.3% 6.1%
7 15.3% 6.7% 8.6%
8 16.1% 8.2% 8.0%
Since Inception 15.8% 8.0% 7.8% $-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
Totus Alpha Fund FUM
7
Performance Quality(Since inception April 2012)
Totus Alpha Fund ASX300 Accum. Index
Alpha (per annum) 7.8%
Beta -0.12
Correlation -0.12
Sharpe Ratio 0.92 0.44
Sortino Ratio 1.76 0.63
Avg monthly return 1.32% 0.73%
Avg return in ASX up month 1.51% 2.82%
Avg return in ASX down month 0.95% -3.41%
Up months 61% 66%
Down months 39% 34%
Totus materially outperforms in down markets Totus also delivers solid returns in up markets Short book has been a consistent source of alpha generation Combination has delivered superior uncorrelated risk adjusted returns over 8 years
What is the Totus Capital Edge?
8
1.51%0.95%
2.82%
-3.41%-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%Performance in Up Market Performance in Down Market
Average Performance in Up/Down Markets
Totus Alpha Fund ASX 300 Accum Index
Totus Alpha Fund rose in 10 out of 15 worst months since inception (April 2012)
Performance in the fifteen WORST ASX Months
9
10.4%
-1.4%
3.0%
4.1%
-4.2%
0.7% 1.0%
6.3%
1.8%
-1.0%
6.1%
-0.6%
6.1%
1.0%
-2.0%
2.1%
-20.8%
-7.8% -7.7%-6.7% -6.2%
-5.4% -5.4% -5.3%-4.5%
-3.7% -3.2% -3.0% -2.9% -2.7% -2.4%
-5.9%
Mar-20 Feb-20 Aug-15 May-12 Oct-18 Jan-16 Sep-14 Jun-15 May-13 Mar-18 Nov-14 Jan-14 Sep-15 May-17 Jun-16 Average
Totus Alpha Fund ASX 300 Index (incl. dividends)
Totus Alpha Fund rose in 10 out of 15 best months since inception (April 2012)
Performance in the fifteen BEST ASX Months
10
12.1%
2.7% 3.7%1.5%
-2.2%
-6.2%
2.7% 1.4% 1.1%
5.3%
-3.5%-1.4%
8.8%
-0.2%
-13.9%
0.8%
4.3% 4.3% 4.4% 4.4% 4.6% 4.8% 4.9% 4.9% 5.0% 5.3% 5.3%6.0% 6.4% 6.9%
9.0%
5.4%
Jul 15 Dec 16 Jul 14 Oct 15 May 20 Mar 16 Jan 20 Feb 14 Jan 13 Feb 13 Jul 13 Feb 19 Jul 16 Feb 15 Apr 20 Average
Totus Alpha Fund ASX 300 Index (incl. dividends)
Portfolio Exposure(% of net assets)
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-50%
0%
50%
100%
150%
200%
250%
300%
350%
Net exposure Gross exposure
Investment PhilosophyTotus = whole, all, entire, total, complete, every part
Markets are inefficient allowing opportunity for active stock pickers to add value In the long term prices of stocks will gravitate towards intrinsic business value, which is a function of
prospective free cash generation Bottom up, forensic analysis of financial statements (balance sheet, cashflow and profit & loss) will
identify opportunities on both the long and short side Analysing a company from the “entire, whole, complete” rather than being beholden to concepts of
“value” or “growth” generally results in optimal investment outcomes Portfolio’s designed to avoid gearing (at a net level), excessive concentration and illiquidity
This philosophy results in a portfolio of stocks with the following characteristics:
Long ShortTailwinds Headwinds
High quality earnings Low quality earnings
Cash Trash
Delivery Hype
Simple Complex
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Investment Process
Investible Universe:ASX300 + S&P 500 + select global mega caps
Screened Universe:+ Availability of borrow
Portfolio ConstructionThe bottom up research and Portfolio
construction process50-70 shorts
Researchable UniverseTotus themes then eliminates stocks
to a manageable universe of circa 300 stocks
n
Long
Screened Universe:Quant screening of market cap,
liquidity, earnings quality, Valuation
Researchable UniverseTotus themes then eliminates stocks
to a manageable universe of circa 300 stocks
Portfolio ConstructionThe bottom up research and Portfolio
construction process40- 60 longs
The investment process allows for widest universe of opportunities so that the portfolio can be protected through all market cycles
Initial Filtering
Structural Themes
Bottom Up Stock Selection
300 stocks
750 stocks
90-120 stocks
1000 stocks
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Short
ESG Considerations for Long Investments
14
Totus Investment
s
EnvironmentalSustainable long-term business
models
SocialRespect for key stakeholders
GovernanceShareholder alignmentStrong board oversight
Transparent disclosure/accounts
Totus Long Investments
Historic Shorts and Future Opportunities
Guildford Coal
Gunns
Maverick Drilling
Linc Energy
Buccaneer Energy
Coalspur Mines
Dicksmith
Quintis
Slater & Gordon
Liquefied Natural Gas
Valeant Pharmaceuticals
Australian Careers Network
Energy World
New Century Resources
Domino's Pizza
Syrah Resources
Vocus
Retail Food Group
GetSwift
Blue Sky
BWX
Speedcast
Pioneer Credit
TeslaUber
ASX Listed
WeWork
0.1
1
10
100
1000
2011 2012 2014 2015 2016 2018 2019 2021
Peak
Mar
ket C
ap ($
b)
Historic Opportunities 15
Portfolio Construction and Positions Weight themes in portfolio based on:
- level of conviction- maturity of the theme- number and liquidity of relevant companies exposed to the theme
Rebalance portfolio and modify targets based on market conditions
Buy dips on good companies with tailwinds
Sell rallies in poor companies facing headwinds
Typically 100+ positions – (this is a guide only as to the average number of positions)
15% (net) hard limit at cost long book
5% (net) hard limit at cost short side
Gross up to 325% (average 225%)
Net < 150% (average 34%)
Listed Australian and Developed Market equities (mainly US) 16
To further refine the research effort the team identify medium to long term investment themes
Attempt to identify 5 or 6 themes on the long side and 5 or 6 themes on the short side
Examine contrasting views on the industry i.e. understand the bull vs the bear case
Assess market positioning. Where are we in the lifecycle of the theme or trend?
Assess risks to our view. Ask the question, where could we be wrong?
Structural Themes
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Historical Portfolio examples
Theme Long/Short Long Stock Short Stock
Bricks to Clicks Long MicrosoftXero
Tech enabled cash burnersAustralian software
Global Pandemic Short Amazon Travel Agents
Structural Change Short Pizza franchisor
Traditional Media
RoyalCommission Short Netwealth Diversified financials
Fads Frauds & Failures Short
Ride shareElectric vehicle manufacturer
Unrolling roll-ups
Iron Ore Supply Disruption Long
Fortescue MetalsRio Tinto
BHP
* stocks are historical and may not represent the current portfolio
*
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Longs
Name ThemeMicrosoft Software
Smartgroup Value
Visa Cashless Society
CME Group Passive v Active
Objective Corp Owner Operator Culture
Alphabet Bricks to clicks
Facebook Bricks to clicks
Xero Software
Macquarie Group QE Beneficiary
Mastercard Cashless society
Shorts
ThemeFad Frauds & Failure
Structural Change
Balance Sheet Risk
Aggressive Accounting
Structural Change
Australian Housing
Aggressive Accounting
Earnings Risk
Royal Commission
Roll Ups
Portfolio Highlights
Disclaimer: Above represents the Totus Alpha Fund. This fund runs the same strategy and limits as the Totus Alpha Offshore Fund. *This is an indicative list and may not be in order of portfolio weighting.
*
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Short Example #1 – GetSwift
Meteoric share price rise lead to massive market capitalisation
Highly promotional ASX releases Untested management team
Internet investment chat room favourite
Customer feedback lukewarm at best
0.00
1.00
2.00
3.00
4.00
5.00
9-De
c-16
9-Ja
n-17
9-Fe
b-17
9-M
ar-1
7
9-Ap
r-17
9-M
ay-1
7
9-Ju
n-17
9-Ju
l-17
9-Au
g-17
9-Se
p-17
9-O
ct-1
7
9-N
ov-1
7
9-De
c-17
9-Ja
n-18
9-Fe
b-18
85% return
Australian Financial Review – 6 Jan 18
20
Short Example #2 - Quintis
Huge cash burn, high debt
Poor corporate governance
Opaque end markets
Promotional management
Conflicted sell side research 0.00
0.50
1.00
1.50
2.00
2.50
12-F
eb-1
3
12-Ju
n-13
12-O
ct-1
3
12-F
eb-1
4
12-Ju
n-14
12-O
ct-1
4
12-F
eb-1
5
12-Ju
n-15
12-O
ct-1
5
12-F
eb-1
6
12-Ju
n-16
12-O
ct-1
6
12-F
eb-1
7
86% return
21
Long Example #1 - Alphabet
Global leader in search
Significant un-monetised opportunities e.g. Al
Metronomic top-line and bottom-line growth
Net cash balance sheet
Material discount to Australian listed comparables 0
200
400
600
800
1000
1200
1400
1600
Oct
201
1
Jan
2012
Apr 2
012
Jul 2
012
Oct
201
2
Jan
2013
Apr 2
013
Jul 2
013
Oct
201
3
Jan
2014
Apr 2
014
Jul 2
014
Oct
201
4
Jan
2015
Apr 2
015
Jul 2
015
Oct
201
5
Jan
2016
Apr 2
016
Jul 2
016
Oct
201
6
Jan
2017
Apr 2
017
Jul 2
017
US $ AUD $
219% return24% IRR
22
Long Example #2 – Smartgroup
Trading below IPO issue price
40% discount to closest peer at entry point
The opportunity: Uncertainty around largest client renewal
Sticky customer base, significant recurring earnings
Significant insider buying from management and board0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
1-Ju
l-14
1-Se
p-14
1-N
ov-1
4
1-Ja
n-15
1-M
ar-1
5
1-M
ay-1
5
1-Ju
l-15
1-Se
p-15
1-N
ov-1
5
1-Ja
n-16
1-M
ar-1
6
1-M
ay-1
6
1-Ju
l-16
1-Se
p-16
1-N
ov-1
6
1-Ja
n-17
1-M
ar-1
7
1-M
ay-1
7
1-Ju
l-17
1-Se
p-17
1-N
ov-1
7
1-Ja
n-18
1-M
ar-1
8
702% return82% IRR
23
Performance(net of fees)
Return (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CYTD ASX300
2012 -0.08 4.13 4.07 -2.77 -1.04 -0.34 -1.92 1.02 1.26 4.17 10.28
2013 1.13 5.31 -1.06 9.21 1.84 7.21 -3.49 2.10 6.49 14.16 6.69 -0.39 60.14 19.68
2014 -0.59 1.44 1.43 -2.15 3.99 -3.02 3.70 2.02 1.02 0.87 6.14 -2.31 12.83 5.30
2015 4.60 -0.20 5.53 -4.53 -1.76 6.33 12.21 3.00 6.15 1.52 7.37 4.50 53.51 2.80
2016 0.67 -11.27 -6.15 -1.37 9.36 -1.98 8.82 2.58 -5.31 -7.08 -4.12 2.74 -14.26 11.79
2017 -2.00 -0.46 2.18 1.59 1.01 2.05 0.99 4.45 3.42 2.83 4.88 1.78 25.00 11.94
2018 3.68 4.61 -0.99 0.48 2.81 2.03 -0.02 0.40 -0.94 -4.21 0.41 -3.76 4.17 -3.06
2019 -1.10 -1.43 0.54 3.48 4.94 0.42 3.36 3.04 -1.18 -1.07 -0.14 -1.94 9.00 23.8
2020 2.71 -1.41 10.42 -13.88 -2.20 -5.83 -12.7
24
Annualised return (net of fees) 16.3%Annualised standard deviation 15.1%Reward to risk ratio 1.08
Long/Short Attribution
25*Attribution analysis is on a gross basis and does not include fees.
-100.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
Cumulative Gross Return - Long / Short / Futures Attribution*
Long Equities Short Equities Futures
Long/Short Attribution
26*Attribution analysis is on a gross basis and does not include fees. Net performance includes futures, currency and fees.
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%2Q
12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
Equity Long / Short Contribution to Quarterly Return*
Long (Gross) Short (Gross) Net Performance
Australia/Offshore Attribution
27*Attribution analysis is on a gross basis and does not include fees.
-100.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
Cumulative Gross Return - Onshore / Offshore / Futures Attribution*
Onshore Equities Offshore Equities Futures
Australia/Offshore Attribution
*Attribution analysis is on a gross basis and does not include fees. Net performance includes futures, currency and fees.28
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
Equity Onshore / Offshore Contribution to Quarterly Return*
Onshore (Gross) Offshore (Gross) Net Performance
29
Bear Market VolatilityS&P 500 High to Low Analysis
40.0
50.0
60.0
70.0
80.0
90.0
100.0
0 50 100 150 200 250 300 350 400 450 500 550 600
Perf
orm
ance
Sin
ce S
&P
500
High
(Bas
e: 1
00)
Days since S&P 500 High
GFC Dot Com 87 Crash Now
GFC Dot Com 87 Crash Average Now (1/5/20)Total Days - High to Low 356 638 72 355 24 to current lowTotal Decline -57% -49% -34% -46% Current low of -34%
Rally > 10% Fall > 10% Rally > 10% Fall > 10% Rally > 10% Fall > 10% Rally > 10% Fall > 10% Rally > 10% Fall > 10%Number 4 5 4 5 2 3 3 4 1 1Average % change 17% -25% 18% -23% 13% -19% 16% -22% 26% -34%Average days 22 54 68 73 4 22 31 50 28 24
30
Bear Market Recoveries
Drawdowns > 15%Total Return Annualised
Number Average % change Average daysGFC 2 -18% 79 103% 34.2%
Dot Com 1 -15% 69 53% 17.6%87 Crash 1 -20% 62 45% 14.9%
100
120
140
160
180
200
220
S&P
500
Perf
orm
ance
from
Bea
r Mar
ket L
ow (B
ase:
100
)
S&P 500 Index 3yr Peformance from Low of Bear Market
87 Crash GFC Dot Com
31
Bear Market Volatility
0
10
20
30
40
50
60
70
80
90
100
High to Low of Bear Market 3yr Recovery post Low VIX
Fund Summary
Fund Style Long Short Absolute Return
Domicile Australia
Manager Totus Alpha Management Pty Ltd
Functional Currency Australian Dollar
Inception 2 April 2012
Return since inception (net of fees) 230.8%
Prime Broker Morgan Stanley & Credit Suisse
Auditor Ernst & Young
Administrator CITCO Fund Services
Liquidity Monthly
Platforms Powerwrap, Ausmaq, Mason Stevens, Netwealth, HUB24
32
33
Currency exposure is hedged by funding foreign currency based stocks in their foreign currency: A short AUD stock will have a long AUD cash balance
A long AUD stock will have a short AUD debt balance
Foreign Currency exposure on P&L is monitored daily. Foreign currency exposures of >5% of NAV are flagged to the investment team to determine the exposure to be closed out.
The manager does have the ability to actively hedge currency but as currency forecasting is not a core competency the use of active hedging has been extremely limited since the inception of the fund.
Hedging Policy for Totus Alpha Offshore Fund
Disclaimer: Above represents the Australian Totus Alpha Fund. This fund runs the same strategy and limits as the Totus Alpha Offshore Fund
Address: Suite 1, Level 8, 139 Macquarie Street, Sydney NSW 2000
Telephone: +61 2 8072 9945Email: [email protected]: www.totuscapital.com.au
Disclaimer
This document is intended for general information of wholesale clients only. This document should not be passed on to any retail clients within the meaning of theCorporations Act 2001 (Cth). This document has been prepared by Totus Alpha Management Pty Ltd (ACN 155 266 734) Investment Manager of the Totus Alpha Fund(Fund). Totus Alpha Management is a Corporate Authorised Representative (CAR: 419151) of Totus Capital Pty Ltd (ABN 151 256 772) AFSL: 409468. Any information oradvice contained in this newsletter has been prepared without taking into consideration your objectives, financial situation or needs. All securities and financial productsor instruments involve risks. Past performance results are not necessarily indicative of future results and no guarantee is being made that similar returns will be achievedby the Fund. Investment in the Totus Alpha fund may not be suitable for all investors. No offer is being made hereby. Any offer relating to units in the Totus Alpha Fundshall be made only pursuant to the Information Memorandum and Constitution of the Totus Alpha Fund which outlines the risks associated with investing in the Fund aswell as other important information you must acknowledge prior to investing in the Fund.
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