Asymmetric Opportunities Fund December 2020 Quarterly Letter
Dear Investment Partner,
For the quarter ended 31 December 2020 the Asymmetric Opportunities Fund (AOF) returned 15.4% (net of fees and expenses and assuming the reinvestment of distributions).
By comparison, the fund’s benchmark the S&P/ASX Small Industrials Accumulation Index returned 12.2%.
At quarter end the fund reached the milestone of its second anniversary since launch. Pleasingly, as the table below shows, the AOF has outperformed since its inception.
| Returns to 31 December 2020 | 3 months | 1 year | Since inception (p.a)** | Since inception (Cumulative)** |
|---|---|---|---|---|
| Asymmetric Opportunities Fun (Net Return) | 15.4% | 16.9% | 18.7% | 40.8% |
| Benchmark* | 12.2% | 5.9% | 14.8% | 31.9% |
| Value Add (Net) | 3.3% | 11.0% | 3.8% | 8.9% |
*S&P/ASX Small Industrials Accumulation Index (XSIAI)
**Inception 1 January 2019
All performance figures are calculated net of fees & assume reinvestment of income distributions.
Portfolio Composition
At quarter end the portfolio comprised 15 stocks.
Cash accounted for only 1.4% of the portfolio but approximately 10% of the portfolio’s equities exposure was in what we categorise as “Special Situations” (mostly takeover arbitrage opportunities).
The average market capitalisation of portfolio holdings was $1.1 billion.
Contribution was broadly based with 20 positions (both opened and closed) providing gains and just 5 positions negatively impacting performance.
The largest positive contribution to overall portfolio gains was outdoor advertising business Ooh!Media. Fund manager Pengana Capital came in a close second in terms of attribution, while registry operator Link Administration also provided very meaningful attribution after attracting a buyout approach.
The largest detractor (negative attribution) was sports analytics business Catapult Group which gave up some ground after a very strong gain in the prior quarter that we noted in our September Quarterly letter.
The bulk of the portfolio remained the same over the period as we let our winners run. There were some portfolio moves at the edges to position the portfolio for the “reopening trade” which occurred in early October thanks to the Pfizer/BioNTech announcement regarding a successful covid19 vaccine.
Two Year Review
By and large we are pleased with the Asymmetric Opportunities Fund’s performance since inception however we continue to strive for better and are excited about refinements we are implementing into our investment framework.
Our focus on identifying growing, quality businesses that can be purchased (based on our analysis) with the asymmetrical characteristics of limited downside risk and attractive upside potential has to date produced reasonably pleasing results.
Looking back on the past two years if we had to boil our strategy down to one sentence it would be the following:
Every day we get up early and seek out investment opportunities which will not lose us money.
To some readers that may seem a strange approach – shouldn’t we be looking for ways to make money? Rest assured our reason for working hard every day is most definitely to make money for unit holders. However, we find that (and again we paraphrase Buffett) by focusing on the downside, the upside has an uncanny ability of taking care of itself.
Performance for the current quarter
The March quarter is always a busy time as many companies release their half yearly results during February. We are pleased to update readers that companies in the AOF’s portfolio generally reported results which were received positively both by the market and by us. The period also created attractive buying opportunities including a new addition for the fund which is now the fund’s largest position.
Based on our own calculations (the fund is only externally priced at the end of each quarter) quarter-to-date the fund is comfortably outperforming its benchmark.
Outlook
Our aim as manager of the Asymmetric Opportunities Fund is not to time the market. An ability to accurately predict the highs and lows of the stock market is not a skill we possess; so it is not the game we choose to play.
Rather, we know that in the long run the stock market grinds higher and even major corrections look minor in the fullness of time.
So, whilst we do share the concern of some of our peers regarding market frothiness, we also remain enthusiastic about the long-term potential of the AOF’s portfolio holdings, the opportunity set in front of us and new opportunities we hope to uncover as the year unfolds.
The possibility that we are now “late in the cycle” and that downside risks are growing does not lead us to move to a high cash weighting. Nonetheless, our process is such that we are starting to think more defensively in our portfolio positioning.
Fund Opening Update
We continue to progress towards securing the necessary licensing so that we can accept external funds.
We hope to be able to provide an update in the next few months and to begin meeting with any interested parties thereafter.
Kind regards,
Tim McArthur
Portfolio Manager
Disclaimer: The information contained in this document is general information only and does not constitute investment or other advice. The contents of this document do not constitute an offer or solicitation to subscribe for units in the Asymmetric Opportunities Fund. Asymmetric Asset Management accepts no liability for any inaccurate, incomplete or omitted information of any kind or any losses caused by using this information.