November 2018
Why Totus Capital? Totus Capital is an independent investment firm managing funds on behalf of high net worth individuals, unitholders of platforms and institutions Totus Capital 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 positive attribution from long book and short book The Portfolio manager and investors are highly aligned via significant personal investment in the fund Highly experienced award winning team Proven investment strategy that has delivered 20.0% 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 $200m of Assets Under Management (AUM) Launched Cayman vehicle for non Australian domiciled investors Highly experienced COO hire Strong fund inflows as Totus is included in wealth management models Solid year to date performance 3
Award Winning Investment Team Ben McGarry (Portfolio Manager) has 19 years of financial markets experience on both the buy and sell side of the industry. As an analyst at UBS Australia and Morgan Stanley in London, Ben covered a broad range of companies and sectors. Ben also qualified as a Chartered Accountant with PricewaterhouseCoopers in Sydney. Sam Granger (Portfolio Manager) joined Totus Capital in 2014, having previously worked at NAOS Asset Management as an emerging companies analyst. He holds a Bachelor of Commerce (Liberal Studies) degree from the University of Sydney. Cameron Pierce (Senior Analyst) joined Totus Capital in 2018, having previously worked for Bennelong Australian Equity Partners in a similar role for 4 years. Cameron previously worked at Macquarie Equities on the sell side and has over 12 years of financial services experience. 4
Organisational Chart Ben McGarry CEO Kym Reynolds Executive Assistant Investment Team Finance and Operations Distribution Ben McGarry Portfolio Manager Sam Granger Portfolio Manager Cameron Pierce Senior Analyst Cathy Young Head of Operations Andrew Aitken Head of Distribution 5 Accountant Joanne Cupples Client Services
Performance Quality (Since inception April 2012) Totus Alpha Fund ASX 300 Accumulation Index Alpha 20.0% p.a. Beta 0.16 Correlation 0.12 Sharpe ratio 1.22 0.62 Sortino ratio 2.59 1.05 Average Monthly Return 1.62% 0.78% Average Return in ASX Up Month +1.97% +2.62% Average Return in ASX Down Month +0.99% -2.96% Up Months 65% 67% Down Months 35% 33% 6
What is the Totus Capital Edge? Totus consistently outperforms in down markets Attribution shows the short book providing significant and sustained alpha Process treats short book as a source for risk adjusted alpha (Average performance in ten WORST ASX Months) 3.0% -7.7% 4.1% -6.7% 0.7% 1.0% 6.3% -5.4% -5.4% -5.3% 1.8% -4.5% -1.0% -3.7% 6.1% -3.2% -0.6% -3.0% 6.1% -2.9% 2.8% -4.8% A U G ' 1 5 M A Y ' 1 2 J A N ' 1 6 S E P T ' 1 4 J U N E ' 1 5 M A Y ' 1 3 M A R - 18 N O V ' 1 4 J A N ' 1 4 S E P T ' 1 5 A V E R A G E Totus Alpha Fund ASX 300 Index (incl div) 7
Portfolio Exposure (% of net assets) 340% 290% 240% 190% 140% 90% 40% -10% -60% Gross exposure Net exposure 8
Investment Philosophy Totus = 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 always gravitate towards cashflow 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 results in optimal investment outcomes Portfolio s designed to avoid the 3 sins of investing gearing (at a net level), excessive concentration and illiquidity This philosophy results in a portfolio of stocks with the following characteristics: Long Tailwinds High quality earnings Cash Delivery Simple Short Headwinds Low quality earnings Trash Hype Complex 9
Investment Process Long Short 1000 stocks 750 stocks 300 stocks 90-120 stocks n Investible Universe: ASX300 + S&P 500 + select global mega caps Researchable Universe Totus themes then eliminates stocks to a manageable universe of circa 300 stocks Screened Universe: Quant screening of market cap, liquidity, earnings quality, Valuation Portfolio Construction The bottom up research and Portfolio construction process 40-60 shorts Initial Filtering Structural Themes Bottom Up Stock Selection Screened Universe: + Availability of borrow Researchable Universe Totus themes then eliminates stocks to a manageable universe of circa 300 stocks Portfolio Construction The bottom up research and Portfolio construction process 50-70 shorts The investment process allows for widest universe of opportunities so that the portfolio can be protected through all market cycles 10
Portfolio Construction and Limits 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 40 Long/60 short (maximum 135 positions) 15% (net) hard limit at cost long book 5% (net) hard limit at cost short side Gross < +/-325% (average 220%) Net < 150% (average 40%) Listed Australian and US securities (typically 30% US) 11
Structural Themes Long Themes Bricks to Clicks Rising Rates Scarce Growth Ageing Population Value Electric Vehicles Adoption Short Themes Fad s Frauds & Failures Earnings Risk Rising Rates NBN Disruption Structural Change Electric Vehicles Adoption Each theme can have a combination of: - long and short positions - domestic and global stocks 12
9-Dec-16 9-Jan-17 9-Feb-17 9-Mar-17 9-Apr-17 9-May-17 9-Jun-17 9-Jul-17 9-Aug-17 9-Sep-17 9-Oct-17 9-Nov-17 9-Dec-17 9-Jan-18 9-Feb-18 Short Example #1 GetSwift 5.00 4.00 3.00 2.00 1.00 85% return 0.00 Meteoric share price rise lead to massive market capitalisation Internet investment chat room favourite Australian Financial Review 6 Jan 18 Highly promotional ASX releases Untested management team Customer feedback lukewarm at best 13
12-Feb-13 12-Jun-13 12-Oct-13 12-Feb-14 12-Jun-14 12-Oct-14 12-Feb-15 12-Jun-15 12-Oct-15 12-Feb-16 12-Jun-16 12-Oct-16 12-Feb-17 Short Example #2 - Quintis 2.50 Huge cash burn, high debt 2.00 Poor corporate governance 1.50 Opaque end markets 1.00 0.50 86% return Promotional management 0.00 Conflicted sell side research 14
Oct 2011 Jan 2012 Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Long Example #1 - Alphabet 1600 1400 219% return 24% IRR Global leader in search 1200 1000 800 600 400 200 0 Significant un-monetised opportunities e.g. Al Metronomic top-line and bottom-line growth Net cash balance sheet Material discount to Australian listed comparables US $ AUD $ 15
1-Jul-14 1-Sep-14 1-Nov-14 1-Jan-15 1-Mar-15 1-May-15 1-Jul-15 1-Sep-15 1-Nov-15 1-Jan-16 1-Mar-16 1-May-16 1-Jul-16 1-Sep-16 1-Nov-16 1-Jan-17 1-Mar-17 1-May-17 1-Jul-17 1-Sep-17 1-Nov-17 1-Jan-18 1-Mar-18 Long Example #2 Smartgroup Trading below IPO issue price 14.00 12.00 10.00 8.00 6.00 4.00 2.00 702% return 82% IRR 40% discount to closest peer at entry point Sticky customer base, significant recurring earnings The opportunity: Uncertainty around largest client renewal 0.00 Significant insider buying from management and board 16
Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 390 340 290 240 Annualised return (net of fees) 20.0% Annualised standard deviation 14.7% Reward to risk ratio 1.37 Performance (net of fees) 190 140 90 Totus Alpha Fund Founder Series ASX 300 (incl. dividends) RBA cash rate Return (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CYTD 2012-0.08 4.13 4.07-2.77-1.04-0.34-1.92 1.02 1.26 4.17 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 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 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 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 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 2018 3.68 4.61-0.99 0.48 2.81 2.03-0.02 0.40-0.94-4.21 7.78 17
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) 233.3% Prime Broker Morgan Stanley & Credit Suisse Auditor Administrator Liquidity Platforms Ernst & Young CITCO Fund Services Monthly Powerwrap, Ausmaq, Mason Stevens, Netwealth, HUB24 18
Contact Details Address: Suite 1, Level 8, 139 Macquarie Street, Sydney NSW 2000 Telephone: +61 2 8072 9945 Email: ir@totuscapital.com.au Web: 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 the Corporations 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 or advice contained in this newsletter has been prepared without taking into consideration your objectives, financial situation or needs. All securities and financial products or instruments involve risks. Past performance results are not necessarily indicative of future results and no guarantee is being made that similar returns will be achieved by 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 Fund shall 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 as well as other important information you must acknowledge prior to investing in the Fund. 19