July 2020 Totus Capital Pty Ltd (ABN 151 2 772) AFSL: 409468 Why - - PowerPoint PPT Presentation

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July 2020

Totus Capital Pty Ltd (ABN 151 2 772) AFSL: 409468

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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
• ffering 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 from

long 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 16.0%* 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

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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 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.

Tim Warner (Analyst) joined Totus Capital in 2019, having previously worked at

Centennial 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 the University Medal) degree from the University of Sydney.

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Joanne Cupples Client Services Distribution Finance and Operations Investment Team Ben McGarry CEO Sam Granger Portfolio Manager Ben McGarry Portfolio Manager Tony Hammond Chief Operating Officer Andrew Aitken Head of Distribution Antonia Connolly* Bookkeeper

Organisational Chart

Kym Reynolds Executive Assistant

*Antonia works part-time

Tim Warner Analyst

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Superior Scalable Long-Term Returns

(Since inception April 2012 to June 2020 – net of fees)

Rolling (pa) Totus Alpha Fund ASX300 Accum Index Outperformance 1

• 3.3%
• 9.7%

6.4% 2

• 0.8%

1.1%

• 1.9%

3 9.7% 5.4% 4.2% 4 5.5% 5.8%

• 0.4%

5 8.2% 5.2% 3.0% 6 12.0% 5.3% 6.7% 7 15.4% 6.8% 8.6% 8 16.7% 8.6% 8.1% Since Inception 16.0% 8.2% 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

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Performance Quality

(Since inception April 2012)

Totus Alpha Fund ASX300 Accum. Index Alpha (per annum) 7.8% Beta

• 0.12

Correlation

• 0.11

Sharpe Ratio 0.93 0.46 Sortino Ratio 1.80 0.66 Avg monthly return 1.3% 0.7% Avg return in ASX up month 1.5% 2.8% Avg return in ASX down month 1.0%

• 3.4%

Up months 61% 67% Down months 39% 33%

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• 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?

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1.53% 0.95% 2.79%

• 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

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• Totus Alpha Fund rose in 10 out of 15 worst months since inception (April 2012)

Performance in the fifteen WORST ASX Months

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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)

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• Totus Alpha Fund rose in 10 out of 15 best months since inception (April 2012)

Performance in the fifteen BEST ASX Months

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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)

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Portfolio Exposure

(% of net assets)

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• 50%

0% 50% 100% 150% 200% 250% 300% 350% Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20

Net exposure Gross exposure

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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 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 Short

Tailwinds 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 Construction The bottom up research and Portfolio construction process 50-70 shorts Researchable Universe Totus 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 Universe Totus themes then eliminates stocks to a manageable universe of circa 300 stocks Portfolio Construction The bottom up research and Portfolio construction process 40- 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

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ESG Considerations for Long Investments

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Totus Investment s

Environmental

Sustainable long-term business models

Social

Respect for key stakeholders

Governance

Shareholder alignment Strong board oversight Transparent disclosure/accounts

Totus Long Investments

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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 Tesla Uber ASX Listed WeWork 0.1 1 10 100 1000 2011 2012 2014 2015 2016 2018 2019 2021

Peak Market Cap ($b)

Historic Opportunities

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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)

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• 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 Microsoft Xero Tech enabled cash burners Australian software Global Pandemic Short Amazon Travel Agents Structural Change Short Pizza franchisor Traditional Media Royal Commission Short Netwealth Diversified financials Fads Frauds & Failures Short Ride share Electric vehicle manufacturer Unrolling roll-ups Iron Ore Supply Disruption Long Fortescue Metals Rio Tinto BHP

* stocks are historical and may not represent the current portfolio

*

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Longs Name Theme

Microsoft 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 Theme

Fad 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-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

85% return

Australian Financial Review – 6 Jan 18

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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-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

86% return

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Long Example #1 - Alphabet

Global leader in search Significant un-monetised

• pportunities e.g. Al

Metronomic top-line and bottom-line growth Net cash balance sheet Material discount to Australian listed comparables

200 400 600 800 1000 1200 1400 1600 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 US $ AUD $

219% return 24% IRR

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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 board

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 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

702% return 82% IRR

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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 23.77 2020 2.71

• 1.41

10.42

• 13.88
• 2.20
• 3.04

7.31

• 2.02
• 10.00

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100 150 200 250 300 350 400 450 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 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Totus Alpha Fund Founders Series ASX300 Accum. Index RBA Cash rate indexed

Annualised return (net of fees) 16.0% Annualised standard deviation 15.1% Reward to risk ratio 1.06

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Long/Short Attribution

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*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

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Long/Short Attribution

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*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% 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 2Q20 Equity Long / Short Contribution to Quarterly Return* Long (Gross) Short (Gross) Net Performance

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Australia/Offshore Attribution

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*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

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Australia/Offshore Attribution

*Attribution analysis is on a gross basis and does not include fees. Net performance includes futures, currency and fees.

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• 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 2Q20 Equity Onshore / Offshore Contribution to Quarterly Return* Onshore (Gross) Offshore (Gross) Net Performance

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Bear Market Volatility

S&P 500 High to Low Analysis

40.0 50.0 60.0 70.0 80.0 90.0 100.0 50 100 150 200 250 300 350 400 450 500 550 600

Performance Since S&P 500 High (Base: 100) 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 low Total 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 1 Average % change 17%

• 25%

18%

• 23%

13%

• 19%

16%

• 22%

26%

• 34%

Average days 22 54 68 73 4 22 31 50 28 24

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Bear Market Recoveries

Drawdowns > 15% Total Return Annualised Number Average % change Average days GFC 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 Performance from Bear Market Low (Base: 100)

S&P 500 Index 3yr Peformance from Low of Bear Market

87 Crash GFC Dot Com

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Bear Market Volatility

10 20 30 40 50 60 70 80 90 100 High to Low of Bear Market 3yr Recovery post Low VIX

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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) 244.2% Prime Broker Morgan Stanley & Credit Suisse Auditor Ernst & Young Administrator CITCO Fund Services Liquidity Monthly Platforms Powerwrap, Ausmaq, Mason Stevens, Netwealth, HUB24

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• 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

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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

• r 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.

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