The ASX 200 was up 2.9% for the month of April, and Luke's Fund achieved a return of 4.4% over the same period, bringing the Fund’s current returns for FY2021 to 56.2%.
The top contributors over the month were:
Talga Group, which contributed 27.3% of the returns. Talga reported significant progress in the development of the vertically integrated anode business after the close of trading in March. The share price rallied strongly after Biden’s Leaders Summit on Climate Change, following announcements regarding the acceleration of the electrification of transport around the globe.
Dusk Group, which contributed 12.9% of the returns, on the back of an earnings upgrade on April 16.Duck group upgraded guidance for EBIT to $38-40M.This is a 120% increase from FY2020.With the rollout of the Magento eCommerce platform underway, Dusk Group will be able to leverage their digital transformation off their network of bricks and mortar stores, with the enhancements enabling click and collect, ship from store, and a range of other improvements to drive already impressive same store sales growth.
The top detractors to the performance over the month were:
Electro Optic Systems, which contributed -11.5% of the returns on their Q1 2021 quarterly report. EOS announced another quarter of negative cashflow, which disappointed the market.It as been 2 years since EOS has delivered positive cashflow, with the market growing impatient with the failure to convert contract wins, and cutting edge technology into profitable income.With $124 M in contract assets on the balance sheet as at January 1, EOS need to convert these assets, as well as the growing inventory into cash over the next 1 or 2 quarters, or risk investors losing their patience.
Selfwealth, which contributed -11.2% of the returns for the month, despite an outstanding Q3 quarterly update.Selfwealth reported receipts of $5.8 M, up 178% YOY, record increase in active traders, and positive cashflow for the quarter.If was the first full quarter of the US trading platform, with the platform turning profitable in February, with US trades representing 7% of total trades over the quarter. It was also the first quarter with the new Openmarkets contract in place, with indications gross margins have improved by approximately 20% in the new contract.
Our gold hedge portfolio returned 9.0% for the month (vs a gold price change of 1.2%). As at the end of April, the precious metals portfolio is 16.6% of the fund portfolio.
Notable changes to the portfolio included:
We sold our silver holding, and transferring the cash raised out of Luke’s Fund, and added to Bitcoin, which is held outside this portfolio.For those interested, the Bitcoin holding has returned 250% this financial year, and is now 7.7% the size of Luke’s Fund. We anticipate partially selling down the Bitcoin holding in Q2 FY2022, which coincides with the half way mark of the Bitcoin halving cycle.
We held 0.8% cash at the end of April.
KEY LEARNINGS FROM THIS MONTH
Position sizing, we believe is more important than correctly picking the right companies to invest in. Not reacting to changes to a business outlook can be incredibly detrimental to portfolio performance. Portfolio weightings should always reflect the confidence you have in the future of your investments. Holding on in hope of a change in fortune can be costly indeed. Here are some examples of our sell downs this year:
Altium, sold out in July 2020, @ $32.30. Current Price: $29.65
Appen, sold out over July – Dec- 2020 @ $26.77 - $36.46. Current Price: $15.66
A2 Milk, sold out in February 2021 @ $8.60. Current price: $7.22
Bubs, sold out over July 2020 @ 94-98 cents per share. Current Price: 41 cents per share
K2Fly, sold out in Oct-Dec 2020 @ 35-36 cents per share. Current price: 32 cents per share.
Vortiv, sold out in July 2021 @23.5 cents per share. Current price: 19 cents per share (prior to return of capital)
Readcloud, sold out in July 2020 @ 39 cents per share. Current price: 36 cents per share.
Had I held onto the above companies in the hope my concerns were unfounded, my returns would be well below where they stand today. I have coined the term “paranoid optimism” to describe my approach to investing. The optimism helps me find opportunities and hold onto them, whilst my paranoia protects my capital. It is a state of contradiction and tension that I find is essential for personal success in investing.
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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