A PERIOD OF EXCELLENT PERFORMANCE

BY: LEX PEDERSEN

A purple patch is a period of excellent performance. And right now, everything is coming up purple Literally, including the Fund's very own purple (Viola 30) last of the line Lamborghini Aventador Ultimae which landed in the TEMPLE just before the New Year. Though we didn't realise it at the time, the colour selection was foreshadowing the Fund's purple patch

During a time period where the ASX/S&P 200 and S&P 500 experienced (-5%) and (-19%) declines, respectively, and the FTSE gained only marginally (+1%), the Fund generated +12% YoY gross returns through 31 December 2022.

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Encouragingly, it's not just one factor that is positively contributing to the

Fund's current and foreseeable return growth profile Instead, it's a confluence of multiple factors prevailing in the current market

One factor relates to the stability of the vehicle asset class. When there is uncertainty and perceived risk in the market - Will interest rates continue to climb? Has inflation stablised? etcinvestments with (i) low volatility, (ii) anti-inflation properties and/or (iii) low market correlation have historically outperformed other traditional investments over those periods In the case of vehicle investments, it possesses all three of these characteristics which means vehicles can still appreciate even when the market is otherwise challenged.

While the current environment makes it difficult for the market to assess and price risk in stocks - this is why the Australian market has experienced the worst volatility since 2008, collectible cars have fared better because they preserve their purchasing power for long periods of time

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On top of this, we are seeing three other key strategies play into the Fund's favour: instant appreciation, acquisition returns, and holding well.

This quarter highlights the importance of our hold strategy, and how it can be a critical element to navigating the current, more rationale car market and maximising the mid and longterm performance of the Fund. 1,4,5,6

At the moment the car market is in a cycle that we refer to as a wealth preservation cycle This is a period when opposing forces like inflation (which increases vehicle value) and a cooling industry (which decreases demand) result in a decline in commuter car values, while cars of distinction (Fund cars) act as a strong source of store of value (wealth preservation) with the potential to generate consistent moderate returns in an otherwise declining market.

In the current cycle, we can expect most collectible cars to appreciate modestly, while commuter cars are expected to decline in value and resume their normal depreciating trajectory And considering the conservative nature of our independent valuers approach, most of the fleet did just that - gains were modest for cars that have been in the Fund for

More Than One Quarter

Some sceptics will think we should have swapped out Fund cars during the pandemic car bubble However, our analysis shows that most of the Fund's cars are still early in their appreciation trajectory.

Continuing to hold these vehicles is in the best interest of the Fund's value over time, even if in today's environment the gains are only modest Afterall, modest though their returns may be, in today's volatile market, slow and steady is certainly winning the race. And in the face of the current challenging market, the Mach 1 Fund has continued to create value for unit holders

With our hold strategy preserving the mid and long-term growth potential of the Fund, we'd like to strengthen the value creation potential of the Fund by making even more acquisition returns in the coming quarter. It is the acquisition return strategy that will deliver those higher returns during this market. And there are plenty of indications that there are some great buying opportunities available to the Fund.

To do this, we are in the process of selling a couple of fleet vehicles that have a more gradual growth trajectory than some of the vehicle opportunities that have recently come to market as the true collectors reappear

Our Investment Committee's short list of expertly negotiated and sourced next purchases include some specialty cars (like a Ferrari 458 Speciale), one of the few Australian allotments for the last of the line Aston Martin V12 Vantage (333 to be made globally), and some further opportunities that we think have the potential to be instant appreciation vehicles

I've remarked before that the automotive revolution is ushering in an age of instant appreciation (cars that never depreciate). And the Ultimae is a great example of those dynamics at work Between it's arrival and 31 December 2022, the Ultimae appreciated an impressive +40% and all indications from the market suggests that there is much more upside to come. We feel confident that the Ultimae's value may increase by at least another +10% in the next quarter alone - setting the Fund up for another potential period of excellent returns

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Normally, I'm not one to torture investors by teasing content of the Fund's most recent edition without giving you a full look at all the goods, but for such a special car as the Ultimae, we want a commensurate unveiling. So until we have the unveiling event (invitation to hit your inbox soon), it's return profile - as vibrant as it's colour - will have to do

Sufficiently capitalised, these are the type of acquisition returns on the horizon for the Fund. And I can't wait to have you all over at the TEMPLE, because I'm confident that like me you'll be blown away by just how bright the Fund's purple patch looks!