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Writing in its latest monthly update, leading fund manager QVG Capital reports a positive return for its Long Short Fund in October, up 3.6% for the month versus a gain of 5.8% for the S&P/ASX 300 Index (ASX: XKO).
The QVG Long Short Fund is a 'best ideas' fund with the flexibility to take advantage of the best ASX opportunities regardless of share price direction or market capitalisation.
The fund's solid performance in October was driven by its long positions, the top contributors being Aristocrat Leisure Limited (ASX: ALL), Hub24 Ltd (ASX: HUB) and IDP Education Ltd (ASX: IEL).
Aristocrat Leisure offers a highly diversified product suite. Their core operations span physical electronic gaming machines for land-based venues, backend management software for enterprise operators, and B2B digital content licensed to virtually every legit online casino across regulated global markets. Beyond traditional real-money gambling, the company also maintains a massive, highly profitable footprint in free-to-play mobile games.
Although the Aristocrat Leisure share price jumped 15% higher in October, in tune with other ASX growth stocks trading on premium valuations, Aristocrat shares are still down 23% over the past 12 months.
Writing about the company, the fund says Aristocrat is a beneficiary of the stronger US dollar. In addition, the QVG Capital Long Short Fund says, "feedback from the Global Gaming Expo of continued strong trading over recent months both for the US land-based market and Aristocrat's market share bodes well for near-term earnings".
The Hub24 share price climbed more than 20% in October on the back of a September quarter trading update which showed resilient inflows onto the platform amid elevated levels of stock market volatility.
"Given the nature of financial markets, we were impressed with the strength of HUB's flows. Commentary around revenue margins and operating cost growth were also encouraging," the portfolio manager said in its monthly update.
The IDP Education share price jumped almost 12% higher in October as the provider of international student placement services and high-stakes English language testing services continued to bounce back from a difficult period impacted by the pandemic.
Writing in its update, the QVG Capital Long Short Fund said it expects the headwind of falling valuations to no longer be the driving force behind the ASX stock's performance. Going forward, the fund expects earnings growth will be the key driver of future returns, saying its English language testing and student placement divisions are recovering strongly.
"IDP has a runway of multiple years of ~20% revenue growth as they exploit the benefits of their scale to entrench their market leadership."
IDP Education shares trade at 75 times trailing earnings, with that multiple forecast to come down to around 50 times FY23 earnings based on S&P Capital IQ forecasts.
On the short book, QVG names EML Payments Ltd (ASX: EML), Megaport Ltd (ASX: MP1) and Appen Ltd (ASX: APX) as top contributors to returns in the month of October.
Respectively, regulatory issues, increased cash burn and another downgrade weighed on these share prices.
The EML Payments share price was hit for six on the last day of October when the global payments company was hit with yet more regulatory concerns.
The Megaport share price took a dive after the network-as-a-service provider released a lacklustre first-quarter trading update.
