Totus Capital Pty Ltd (ABN 151 2 772) AFSL: 409468 April 2019
Why Totus Capital? Totus is an independent investment firm managing funds on behalf of high net worth individuals, platform unitholders and institutions 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 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 17.8%* 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 $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 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 Tony Hammond Chief Operating Officer Investment Team Kym Reynolds Executive Assistant Finance and Operations Distribution Ben McGarry Portfolio Manager Sam Granger Portfolio Manager Cameron Pierce Senior Analyst Antonia Connolly* Accountant Andrew Aitken Head of Distribution Joanne Cupples Client Services *Antonia works part-time 5
Performance Quality (Since inception April 2012) Totus Alpha Fund ASX 300 Accumulation Index Alpha 17.5% p.a. Beta 0.13 Correlation 0.10 Sharpe ratio 1.09 0.68 Sortino ratio 2.31 1.19 Average Monthly Return 1.5% 0.8% Average Return in ASX Up Month +1.8% +2.7% Average Return in ASX Down Month +0.8% -2.8% Up Months 62% 66% Down Months 38% 34% 6
What is the Totus Capital Edge? Totus outperforms in down markets (average return in ASX down months +1% vs ASX -2.9%) Alpha Fund up in 10 out of 15 worst months since inception (+1.9% average vs ASX -4.3%) Process treats short book as a source for risk adjusted alpha (Performance in fifteen WORST ASX Months) 6.3% 6.1% 6.1% 7.2% 3.0% -7.7% 4.1% -6.7% -4.2% 0.7% 1.0% -5.4% -5.4% -5.3% 1.8% -1.0% -4.5% -3.7% -0.6% -3.2% -3.0% 1.0% -2.9% -2.7% -2.0% -2.4% -2.4% -1.1% -2.3% 1.9% -4.3% -6.2% 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 Jun 13 Mar 13 Average Totus Alpha Fund ASX 300 Index (inc. dividends) 7
How do we perform in strong markets? Strategy historically lags the ASX in strong risk on markets but performance is still positive Totus delivered an average +2.5% net of fees in the strongest 15 months since inception (Performance in fifteen BEST ASX Months) 9.2% 12.2% 8.8% 4.0% 2.8% 4.2% -2.8% 4.3% 0.9% 4.3% 4.3% 4.3% 2.7% 4.4% 3.7% 4.4% 1.5% 4.8% 4.9% 5.0% 1.4% 1.1% 5.3% 5.3% -3.5% 6.4% 6.9% 4.9% -0.2% 2.5% -6.2% Oct 17 Jul 12 Oct 14 Apr 13 Jul 15 Dec 16 Jul 14 Oct 15 Mar 16 Feb 14 Jan 13 Feb 13 Jul 13 Jul 16 Feb 15 Average Totus Alpha Fund ASX 300 Index (incl. dividends) 8
Portfolio Exposure (% of net assets) 350% 300% 250% 200% 150% 100% 50% 0% -50% 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 Dec-18 Feb-19-100% Net exposure Gross exposure 9
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 should 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 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 Tailwinds High quality earnings Cash Delivery Simple Short Headwinds Low quality earnings Trash Hype Complex 10
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 11
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 220%) Net < 150% (average 38%) Listed Australian and Developed Market equities (mainly US) 12
Structural Themes 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? 13
Historical Portfolio examples Theme Long/Short Long Stock Short Stock * Australian Housing Short Reece Beacon Lighting Discretionary Retailers Building Materials Ageing Population Long Medibank Private Oceania Healthcare Hospital provider Electric Vehicles Long Independence Group Western Areas Royal Commission Short Netwealth Banks Diversified Financials Aged care provider Fads Frauds & Failures Short Asset Manager Food Beverage & Tobacco Diversified Financial Electric vehicle manufacturer * stocks are historical and may not represent the current portfolio 14
Name Smartgroup CSL Objective Corp Gentrack Xero Netwealth ALE Property Group After Pay Fortescue Metals Baby Bunting Portfolio Highlights Longs Theme Owner operator culture Scarce Growth Owner operator culture Scarce Growth Scarce Growth Royal Commission Sustainable yield Scarce Growth Iron Ore Disruption Value Shorts Theme Fad Frauds & Failure Earnings risk China slowdown Australian housing Australian housing China slowdown Ageing population NBN disruption China slowdown Royal Commission Disclaimer: Above represents the Australian Totus Alpha Fund. This fund runs the same strategy and limits as the Totus Alpha Offshore Fund 15
Short Example #1 GetSwift 5.00 4.00 3.00 2.00 1.00 85% return 0.00 9-Dec-16 30-Dec-16 20-Jan-17 10-Feb-17 3-Mar-17 24-Mar-17 14-Apr-17 5-May-17 26-May-17 16-Jun-17 7-Jul-17 28-Jul-17 18-Aug-17 8-Sep-17 29-Sep-17 20-Oct-17 10-Nov-17 1-Dec-17 22-Dec-17 12-Jan-18 2-Feb-18 23-Feb-18 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 16
Short Example #2 - Quintis 2.50 Huge cash burn, high debt 2.00 Poor corporate governance 1.50 1.00 Opaque end markets 0.50 86% return Promotional management 0.00 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 Conflicted sell side research 17
Long Example #1 - Alphabet 1600 1400 1200 1000 800 600 400 219% return 24% IRR Global leader in search Significant un-monetised opportunities e.g. Al Metronomic top-line and bottom-line growth Net cash balance sheet 200 0 Oct 2011 Dec 2011 Feb 2012 Apr 2012 Jun 2012 Aug 2012 Oct 2012 Dec 2012 Feb 2013 Apr 2013 Jun 2013 Aug 2013 Oct 2013 Dec 2013 Feb 2014 Apr 2014 Jun 2014 Aug 2014 Oct 2014 Dec 2014 Feb 2015 Apr 2015 Jun 2015 Aug 2015 Oct 2015 Dec 2015 Feb 2016 Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016 Feb 2017 Apr 2017 Jun 2017 US $ AUD $ Material discount to Australian listed comparables 18
Long Example #2 Smartgroup 14.00 Trading below IPO issue price 12.00 10.00 702% return 82% IRR 40% discount to closest peer at entry point 8.00 6.00 4.00 Sticky customer base, significant recurring earnings The opportunity: Uncertainty around largest client renewal 2.00 0.00 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 Significant insider buying from management and board 19
400 350 Annualised return (net of fees) 17.8% Annualised standard deviation 14.4% Reward to risk ratio 1.24 Performance (net of fees) 300 250 200 150 100 Totus Alpha Fund Founders Series ASX300 Accum. Index RBA Cash rate indexed 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 0.54-1.99 10.9 20
Long/Short Attribution Equity long / short contribution to return 40.0% 40.0% 30.0% 30.0% 20.0% 20.0% 10.0% 10.0% 0.0% 0.0% -10.0% -10.0% -20.0% -20.0% -30.0% -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 Long Short Net quarterly return 21
Australia/Offshore Attribution Australian/offshore equities contribution to return 40.0% 40.0% 30.0% 30.0% 20.0% 20.0% 10.0% 10.0% 0.0% 0.0% -10.0% -10.0% -20.0% -20.0% -30.0% -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 AUD Offshore Net quarterly return 22
Long/Short Attribution Cumulative return since inception - Long vs short 500.0% 400.0% 300.0% 200.0% 100.0% 0.0% -100.0% -200.0% -300.0% 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 Long Short 23
Australia/Offshore Attribution Cumulative return since inception - Aus. vs offshore 350.0% 300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% -50.0% 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 AUD Offshore 24
Fund Summary Fund Style Long Short Absolute Return Domicile Australia Manager Totus Alpha Management Pty Ltd Functional Currency AustralianDollar Inception 2 April 2012 Return since inception (net of fees) 215.7% Prime Broker Morgan Stanley & Credit Suisse Auditor Administrator Liquidity Platforms Ernst & Young CITCO Fund Services Monthly Powerwrap, Ausmaq, Mason Stevens, Netwealth, HUB24 25
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. 26