EXTRACT Q3 FY22
INVESTMENTS
MARCH 2022
POWER THROUGH MARKET UNCERTAINTY
20% VEHICLE RETURNS SINCE A C Q U I S I T I O N 1,2
+3% QOQ VEHICLE R E T U R N 1,3
F1 MEETS MACH 1
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CTi MACH 1 FUND
LEX PEDERSEN
TRUSTEE
lex@CHROMETEMPLE.com +614 04 84 64 24
Specialised Investment and Lending Corporation Pty Ltd AFSL number 407100 ACN 149 520 918 investors@silcgroup.com.au
DISCLAIMER CHROME TEMPLE Investments Pty Ltd ACN 640 888 026 (Investment Manager), a corporate authorised representative (number 001284056) of SILC Fiduciary Solutions Pty Ltd ACN 638 984 602 (AFS licence number 522145) (AFSL Holder). The authority of the Investment Manager is limited to general advice and deal by arranging services to wholesale clients relating to the CHROME TEMPLE Investments Mach 1 Fund (Fund) only. Specialised Investment and Lending Corporation Pty Ltd ACN 149 520 918 (AFS licence number 407100) is the trustee (Trustee) of the Fund and the issuer of the information memorandum and supplementary information memorandums. This document contains general information only and is not intended to provide any person with financial advice or offer of any kind. Prospective investors should carefully consider the contents in the information memorandum and supplementary information memorandums in full and seek professional advice prior to making any decision regarding an investment in the Fund. No reliance may be placed on this document for any purpose nor used for the purpose of making a decision about a financial product or transaction. Information relating to the Fund contained in this document has been prepared without taking into account the objectives, circumstances, financial situation or needs of any person, and may differ to information contained in the information memoranda. This document may also contain forward looking statements regarding our intent, belief or current expectations with respect to market conditions. Past performance and/or forward looking statements are not a reliable indicator of future performance. Except as required by law and only to the extent so required, neither the Investment Manager, Trustee, AFSL Holder nor its affiliates warrant or guarantee, whether expressly or implicitly, the accuracy, validity, timeliness, merchantability or completeness of any information or
data (whether prepared by us or by any third party) within this document for any particular purpose or use or that the information or data will be free from error. Further, the Investment Manager, Trustee and its affiliates expressly disclaim any responsibility and shall not be liable for any loss, damage, claim, liability, proceeding, cost or expense arising directly or indirectly and whether in tort (including negligence), contract, equity or otherwise out of or in connection with or from the use of the information in this document.
REFERENCES IMPORTANT: Past performance is not indicative of future performance and the expected returns of the Fund may not occur as expected or at all. An investor's balance in the Fund may decrease as well as increase in value. All statements that indicate expressly or by implication an expectation of investment returns are based on reasonable assumptions and commercial judgement and no representation is made or assurance given that such statements, views, projections or forecasts are correct or that the expected returns will arise or that investment balances in the Fund may not decrease. You must read the Disclaimer and the contents of the Information Memorandum in full to understand the risks involved in an investment in the CTi Fund. 1 Past performance is not indicative of future performance. 2 Vehicle returns are calculated before fees. Mach 1 Fund vehicle returns represent the percentage increase in value from their initial acquisition price to their 31 March 2022 valuation or gross sales price (if applicable). 3 QoQ vehicle returns are calculated before fees and represent the percentage increase in value as at 31 March 2022 vs their 31 December 2021 valuations. For Fund vehicles that were acquired after 31 December 2021, returns
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represent the percentage increase vs acquisition price. For Fund vehicles that sold between 31 December 2021 and 31 March 2022, returns represent their sale price vs their 31 December 2021 valuations. 4 Performance (returns or results) "net of fees" factors in costs incurred through 31 March 2022, while "net of pro forma performance fees" further factors in the potential performance fees on a pro rata basis through 31 March 2022 as defined in the IM. 5 Results are before fees. For the S&P/ASX 200, FTSE100, NASDAQ, Gold (in AUD), Bitcoin (BTC-AUD), S&P 500, HAGI and Hagerty indices calculated as their 31 March 2022 prices vs 31 December 2021 prices. Stock market indices obtained from Yahoo Finance and Wall Street Journal. HAGI and Hagerty obtained from their respective websites. 6 Based on the returns and values presented in the Mach 1 Q2 FY22 update, which are calculated on the same basis as the current report. 7 Hagerty Media. "When does collector car season end?" November 2016. 8 Hagerty Media. "Amelia 2022 auctions proved bidders have limits." March 2022. 9 HAGI Indices: Top, F, and P (Historic Automobile Group International) 10 Prices are before fees. For the S&P/ASX 200, FTSE100, and Gold (in AUD) prices were rebased to 100 and calculated off of the returns from 17 May 2021, 30 Jun 2021, 30 Sep 2021, 31 Dec 2021 and 31 Mar 2022. For HAGI and Hagerty indices, prices were rebased to 100 and calculated based on the change in the indices values as at 30 April 2021, 30 Jun 2021, 30 Sep 2021, 31 Dec 2021 and 31 Mar 2022. Mach 1 results were rebased to 100 based on realised vehicle returns (if applicable) and unrealised returns calculated from the independent valuation assessment. 11 Hagerty Media. "The year of the F40" December 2021.
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CTi MACH 1 FUND
Contents
NOTES FROM THE PORTFOLIO MANAGER 04
Portfolio Manager, Lex Pedersen, reviews the latest quarter's results
PORTFOLIO IN REVIEW 08
Overview of the Fund's portfolio composition, performance to date and current industry trends
THIS QUARTER'S PODIUM 14
Inspired by the return of the Australian Grand Prix, we take a look at the Fund's cars that are steeped in F1 history
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C T iC TMi AM CA H C 1H F 1U F NU DN D
We approach the Fund's one-year 1,2,3 anniversary with +17% returns, net of fees
FEATURE |
NOTES FROM THE PORTFOLIO MANAGER
POWERING THROUGH MARKET UNCERTANITY BY: LEX PEDERSEN The world upped the crazy stakes since our last quarterly update. Predictions around rising inflation and interest rates, market volatility and challenging economic times have come to fruition. Many spectators are surprised to learn that cars have powered through the market uncertainty. Fear of a car
bubble has sceptics sitting on dry powder expecting the other shoe to drop. And we agree that it will, in the commuter market, but not ours. The Fund's thesis is built on a set of cars that will only become more desirable and scarce, powering their value through the market uncertainty. Quarter over quarter Fund vehicle returns increased by +3% on what we consider to be conservative valuations, outperforming the S&P/ASX 200 by 1,3,5 4.0x times over the same period.
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CTi MACH 1 FUND
Even with~$1 million of incoming new capital, the opportunity is so much greater.
We are very proud that as we embark on the one-year anniversary of the Fund, we have grown gross vehicle values by 20%, and are delivering +17% returns, net of fees (+15% net of pro 1,2,4 forma performance fees).
The second is that after years of validating vehicles as an investment class, delivering these results from such a stable investment class when there is so much market volatility and uncertainty is why this Fund exists.
When I reflect on the Fund's performance to date, two things come to mind. First is that the only thing I believe we lack is more funds to capitalise on all the opportunity we see in the market. We have another quarter of new capital coming in which will help increase Q4 FY22 results with well bought acquisition returns, but the opportunity is so much greater.
But the Fund also exists to provide passion with this investment. And in light of recent world events, I think we could all use an excess of all things cars to brighten the day! As always thank you for being part of the Mach 1 Fund community.
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CTi MACH 1 FUND
FEATURE | PORTFOLIO IN REVIEW
Q3 FY22 In a quarter that saw the ASX/S&P 200's +0.7% QoQ return "win big" over NASDAQ's (9%) QoQ decline, S&P
RESULTS THROUGH 31 MARCH 2022
500's (5%) QoQ decline and Bitcoin-AUD's (5%) QoQ decline, the Fund's +3% QoQ gross vehicle return (+2% net of fees) is a great result. And while the Fund outperformed the ASX/S&P 200 by 4.0x, the Fund's results were modest compared to Q2 FY22's +9% QoQ 1,3,4,5,6
gross vehicle returns.
THE OPPORTUNITY IS SO MUCH BIGGER
In our previous update, we discussed how the Fund benefitted from the growing awareness of how special the last of the line vehicles are. From the Fund's perspective this meant that some of the growth we anticipated for this quarter came a little earlier, especially when you consider that the Fund's capital CHROMETEMPLE.COM
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CTi MACH 1 FUND
VEHICLE PERFORMANCE CTi valuations are based on the mid-point of the third-party assessment valuation range.
QUARTER OVER QUARTER RETURNS THROUGH 31 MARCH 2022 10.0%
9.2%
4.1%
1,3,5
3.0% 1.8%
0.7% (4.6%)
HAGERTY
was
GOLD
HAGI TOP INDEX
already
tied
up
MACH 1 FUND VEHICLE RETURNS
in
capital to acquire new cars to bolster results with strong acquisition returns the
quarter.
It
is
a
ASX / S&P 200
great
investments - leaving little available
in
FTSE100
missed
opportunity of sorts. In our view, with
BTC-AUD
(9.1%) NASDAQ
CLASS Mk-I Mk-II Mk-III Mk-IV
QTY % 25% 31% 31% 13%
FUM QOQ VEHICLE WEIGHT RETURNS 1,3 22% 2.7% 27% 3.5% 34% 4.8% 16% -0.9%
VEHICLES
100%
99%
3.0%
n/a
1%
n/a
more capital we would be able to take advantage of the best time to buy Fund target cars. Further
Cash + GST
impacting
the
quarter's
results are what we believe to be fairly
ing when you consider that spring
conservative views on valuation. We
aligns
fully approve the valuator's approach
collectible car sales as the desire to hit
as we enter Australia's "slow" season in
the open road for the summer starts to
collectible cars.
influence behaviour.
Historically, coincides
the with
end a
of
summer
deceleration
in
collectible car sales. This is not surpris-
with
an
acceleration
of
1,7
This seasonality is observed universally and it's why the northern hemisphere car indices performed so strongly this
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CTi MACH 1 FUND
quarter - they've just wrapped up winter and, after a long COVID respite, have summer squarely locked in sight. In addition to entering the high collectible car season, two other factors favourably benefitted the car indices compared to the Fund's results.
THE PORSCHE FACTOR First is the Amelia Island auction effect. March's auctions have become Porsche central, with the event catering to the German marque. The average car sales price for Porsche doubled during the auctions. 1,8 HAGI and Hagerty results, having a significant Porsche representation in their respective indices, were heavily influenced by Porsche trends. As previously noted, Porsche is purposely
absent from the Fund to date. We of course notice the impact of this decision most heavily during this quarter when the Amelia auctions inundate the results - you just have to look to HAGI to see how impactful Porsche can be. HAGI's returns include a +18% QoQ increase from the Porsche 1,5,9 marque alone. While we recognise that value and growth can be found with Porsche cars (a marque we personally love), we have a clear investment thesis that we are confident will deliver strong results and Porsche just isn't the best marque for what the Fund wants to achieve. Porsche is a leader in synthetic fuel, making many of their cars outside of the Fund's thesis, specifically high capacity engines. But even more than
$125 (Hagerty)
GROSS PRICES REBASED TO 100 1,10
$120 (CTi Mach 1)
P R I C E
$114 (HAGI) $108 (Gold) $107 (FSTE100) $107 (ASX/S&P 200)
$100
17 MAY 2021
30 JUNE 2021
30 SEP 2021
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31 DEC 2021
31 MAR 2022
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CTi MACH 1 FUND
PORTFOLIO COMPOSITION As at 31 March 2022
Mk-IV 16%
Mk-I 22%
% of FUM
% of Vehicle Weight Mk-III 35%
Mk-II 27%
Mk-I Mk-II Mk-III Mk-IV
22% 27% 34% 16%
TOTAL VEHICLE % OF FUM
99%
CASH + GST % OF FUM
Mk-IV 13%
Mk-I 25%
Vehicle Quantity % Mk-I Mk-II Mk-III Mk-IV TOTAL FUND VEHICLES
25% 31% 31% 13% 100%
Mk-III 31%
1%
% of Vehicle Quantity
Mk-II 31%
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CTi MACH 1 FUND
that, Porsche is the first target marque for all levels of collectors. As a result, the starting price point for most Porsche models already have much of the upside potential baked into their price (especially in Australia), making the potential returns profile riskier and not as appealing as other vehicles in the market the Fund could target.
THE UNICORN FACTOR The second trend influencing car indices outcomes is the unicorn effect. There are a few cars that are so special (e.g. pricey) that their trends control the overall results. The two unicorns of the season were the Ferrari F40 and 1,8,11 Porsche Carrera GT. For HAGI, these two cars represent ~20% of their index' overall results, so when both cars set record prices recently, HAGI's top index value 1,9 increased accordingly. Although Hagerty doesn't provide a value weig-
hting of the cars in their index, anecdotally we know that because Hagerty reported that analogue supercars such as the 2005–2006 Ford GT, Porsche Carrera GT, Jaguar XJ220 and Ferrari F40 were high performers, we know they track the prices of these cars as part of their index and thus their trends are influenced by these 1,8 cars. As great as these unicorns are (and they are!) with prices of USD +$2 1,8 million, these are already well established collectible cars. For the Fund, we target tomorrow's classics the future unicorns if you will meaning it's not just the price tag that pushes these cars outside of the Fund's lane. That's not to say some of these cars won't make their way to the Fund someday, but for now we see greater potential in a whole lot of cars that are
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CTi MACH 1 FUND
are not yet on everyone's radar.
POWERING THROUGH ANY MARKET UNCERTAINTY After a +9% Q2 FY22 QoQ result, and such strong showings from the northern hemisphere car indices, we came down a little hard on our most recent +3% QoQ return. But the truth of the matter is that this is a really strong result and the potential for further capital appreciation still has a 1,3,6 steep trajectory ahead. We expect analogue supercars will continue to power through any current market uncertainty. Their ready appeal and unique place in the market helps. While our current valuations were not overly enthusiastic, in the long run that is a good thing. An overheated market is one that has the potential to cool suddenly. Instead, what we are
seeing is that car collectors are still very much willing to pay big money for exceptional cars, but not willing to spend recklessly. That bodes well for the long-term stability of collector car values. Also boding well for the Fund's cars is the impact of broader economic trends. Particular vehicles perform better than others during economic downturns. Staple collector cars— Ferraris and Porsches in particular— tend to provide the strongest hedge against inflation and, generally, are considered by many to be a safe place to park money when other markets 1,8 are unpredictable. Empirically we see that in our valuations. Ferraris did well. In contrast, bidders seemed to have a smaller appetite for rare oddball cars that are harder to gauge current or 1,8 future value.
REV'ING UP RETURNS There is so much opportunity in the market that our biggest challenge is deciding if we should sell one great investment to acquire another. Our goal is to raise enough capital so that instead of trading off returns between cars, we are capitalising on all of them.
FUNDS UNDER MANAGEMENT FUM grew by +11% from Dec '21 to Mar '22. New capital coming in during Q4 FY22 will help bolster Q4 results.
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A few CTi Mach 1 Fund assets (past and present) to brighten your day!
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CTi MACH 1 FUND
FEATURE: THIS QUARTER'S PODIUM
F1 MEETS MACH 1
Fresh off of the 2022 Australian Grand Prix, we decided that this quarter's podium should pay tribute to the Fund cars that are steeped in Formula 1 history. These models may be street legal, but just barely...
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AMG CLK63 Black Series
AMG C63 Black Series
Mercedes-AMG Mercedes-Benz might not be people's first thought when it comes to collectible cars, but the AMG's performance in the Grand Prix speaks to its engineering feats. The marque has collected more than 200 wins as an engine supplier and is ranked second in Formula One history. It has set records for the most wins in a season (2016), and for the most consecutive titles, winning seven consecutive Drivers' titles and eight consecutive Constructors' titles. Since joining F1 in 1954, ten Constructors' and thirteen Drivers' Championships have been won with Mercedes-Benz engines. The reigning Constructors champions haven't had the greatest start to the 2022
season, but with every passing day find themselves closer to the race-winning pace. We start our homage to Formula 1 inspired Fund cars with a vehicle that was patterned on the F1 race safety car - the AMG CLK63 Black Series. The Fund owns a couple of exemplary examples - quite a feat considering only 500 were made globally, 32 came to Australia and several of those met their fate on the track. Rounding out the marque's presence in the Fund is the AMG C63 Black Series. Inspired by the SLS AMG GT3 customer sports car but engineered for track use, the AMG C63 Black Series is one of the last in the AMG range to use the firm’s big, naturally aspirated 6.2-litre V8 engine.
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C TC iT iM M AC AH C H1 1F U FN UD ND
Aston Martin
If you watched the 2022 Australian Grand Prix, the neon yellow livery features of this Aston Martin might look familiar. Sharing duties with AMG as the official F1 safety car in 2022, the Aston Martin Vantage made its first on-track appearance for the season at the Australian Grand Prix! While the safety car looked great, it didn't have the easiest of starts with one driver comparing it to a turtle. But Aston Martin is no stranger to mixed reception in Formula 1. Debuting as a F1 race team in 1959, they left after the 1960 season failing to score any points. The marque returned to the Grand Prix grid in 2021, finishing on podium twice. Starting
off the season with unfortunate driver crashes, it's difficult to tell how the British marque will fare in 2022. But while its F1 fate is still unknown, one thing is known, the Fund's Aston Martins are top performers. The Fund is no stranger to the Aston Martin marque having a couple of different models in the fleet. But on these pages, we highlight the Fund's recent Aston Martin GT8 acquisition because, well just look at it. The lightest and meanest V8 Vantage model at the time it was built, this car was modelled after the V8 Vantage GTE race car. Production of the GT8 was limited to just 150 units, and was not sold into the North American market.
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CTi MACH 1 FUND
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Scuderia Ferrari - The Prancing Horse
On the final stop of our tribute to Formula 1, we take a look at the Australian Grand Prix winning team - Ferrari. The Ferrari marque is the biggest Fund marque in terms of count and value and as such there were several options to choose from for this section. But rather than focus on just one model, we've decided to highlight 'The Prancing Horse' marque in all its glory. Ferrari is the oldest surviving and most successful Formula One team, having competed in every world championship since the 1950 Formula One season. The team was founded by the Enzo Ferrari. As a constructor, Ferrari has a recorded 16
I have, in fact, no interest outside of racing cars - ENZO FERRARI
Constructors' Championships. With 789 podiums and 241 first place finishes, Ferrari remains the dream racing team for most F1 drivers. Ferrari has always produced engines for its own Formula One cars and has also supplied engines to other teams. This 2022 season sees the marque back on top and fans are rejoicing. The Fund is also rejoicing, as the marque generates strong Fund performance results (+23% vs acquisition price), including across the Fund vehicles shown 1,2 on this very page.
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A (INVESTMENT) CLASS APART
LEX PEDERSEN lex@CHROMETEMPLE.com +614 04 84 64 24
TRUSTEE Specialised Investment and Lending Corporation Pty Ltd AFSL number 407100 ACN 149 520 918 investors@silcgroup.com.au
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