Contrarian Value Fund

Managed by Arowana, the Contrarian Value Fund (CVF) was a listed investment company that commenced trading on the ASX in January 2015. CVF’s investment mandate was to identify materially mis-priced securities that provided positive risk asymmetry using data driven fundamental analysis combined with machine learning algorithmic analytics.

CVF was formerly known as the Australasian Value Opportunities Fund (AVOF), which was established as an unlisted fund in 2009. From 1 July 2009 through 30 September 2014, AVOF produced an annualised net return of 18.4% (without any leverage) compared to the S&P/ASX 200 return of 10.5%, beating the index by nearly 8% per annum. It was this track record that led to investor appetite for an LIC version of the fund.

As we reflect on our journey at the 10 year anniversary mark, we came to the realisation that a contrarian value style and being listed on a stock exchange are diametrically incompatible, especially in a heavily momentum biased market. A contrarian value style tends to take a number of years to pay off and does so in a non-linear manner which runs counter to the listed market’s more short-term focus.

In December 2020, after an extensive strategic review it was recommended by the Independent Board of CVF to liquidate the portfolio and return capital to shareholders, with Arowana retiring as the manager of the CVF following the payment of a termination fee. Since its IPO until the liquidation, CVF has delivered annualised net returns of 8.6% compared to the S&P/ASX 200 return of 7.7% for an out-performance of 0.9%. (excluding costs associated with the liquidation, annualised performance was 8.9%, for an out-performance of 1.2%).

This was achieved whilst putting significantly less investor capital at risk than many of our peers. Since its inception, CVF has held on average approximately 53% of its investable assets in cash. Adjusted for this average cash holding, the outperformance is greater, with an annualised performance of 18.2%. CVF was also able to deliver an average grossed up dividend yield of 5.7% per annum over the period that CVF was listed.

As an operating funds management business unit, the CVF Manager did not achieve scale but was able to deliver positive returns. The funds management business unit delivered a multiple on invested capital (MOIC) of 21.9x and an internal rate of return (IRR) of 148.9% over the period from IPO till the termination and retirement of Arowana as the Manager.