CIO Insights - 16 August

Hi everyone
 
Even though it already seems so long since the Olympics finished, how good were they?! Well done to the IOC and Japan for putting on such a great show, given the near impossible circumstances, and what relief it provided to all of us, watching so many sporting triumphs while the Aussie spirit is truly being tested with COVID-19. Our equal best medal haul with Athens in 2004, while to me the highlights were Jess Fox coming back in the C-1 canoe slalom to win gold after the disappointment in the K-1 the day before, the swim team, and Logan Martin from Logan winning gold in the skateboard freestyle!!
 
But back to business…
 
Since May our share price has enjoyed a nice bounce from below $4.00 to back up around $4.50, and if you include the dividend, it’s not far away from the all-time high set back in February of this year. We don’t talk a great deal about our share price in our updates, and forgive me if you already know this, but it’s because we can’t really control how it moves on a day-to-day basis. How it moves is a function of good old supply and demand – who wants to buy our shares, and who is willing to sell our shares. The decisions we make, in consultation with our managers, affect the value of our shares, but not the price. We aim to give investors as much information as we can so that potential buyers and sellers can make the most informed decisions possible. This comes in the form of our written updates, as well as the weekly releases of our Net Tangible Asset value, which we give on three tax-adjusted bases (you can find them on our website here).
 
To me, people buy shares either because they think they are cheap compared to what they are worth, or because they believe that over the longer term, they will provide a better return than leaving their cash in the bank or buying property or whatever other investment opportunity is presented to them. People sell shares because they need the cash, have been presented with a better investment opportunity, or because they believe the shares are no longer cheap.  
 
See the difference between price and value? We regularly show investors the value of HM1 shares, and hopefully provide comfort that in the longer term we can deliver above average investment returns. In FY2019-2020 and FY2020-2021, we delivered very similar investment returns on the portfolio of around 25%. In 19/20 our share price only appreciated by about 5%. Some comments were made regarding how we and other LIC’s hid behind NTA as their investment performance rather than actual share price performance. In 20/21 our share price performance was 43% (including dividends). In both situations we have tried not to make a song and dance about our share price performance, but rather comment on what we can control, which is the value of HM1 shares.
 
Outside of reporting season, perhaps the biggest uncertainty facing investors right now is around what the Chinese Government is doing. As I mentioned in our latest Monthly Investment Update last week, the Chinese Government announced a sweeping overhaul of the education tech sector, which decimated a $100B industry, almost overnight. Needless to say, the immediate concern was ‘what will they go after next?’ and many sectors in the Chinese market fell heavily, prompting some to say that China had become uninvestable. Whilst I don’t think it is uninvestable, I do think it has become an extremely difficult place to invest for the time being. As reported, one of our managers recommended the exit of one of our core holdings with regulatory exposure to China last month also. Could we, or anyone, have seen this coming? Should we have just had a blanket exclusion for all Chinese stocks for the last three years? I don’t think so, unless we had a crystal ball!
 
What matters is that we don’t sit still like a deer staring at the headlights when the landscape changes – rather we act quickly and decisively. Remember also that one of our other Chinese investments was Yeahka Limited, the payment-based tech platform for merchants and consumers in China, which, when its share price seemed to move far above what our manager saw as its ‘value’ (see above), we promptly sold for a 3-month gain of almost 130%, which has been our most successful 2020 conference recommendation.
 
And now for the feel-good segment of today’s update. A few weeks ago, we met with the team at the Black Dog Institute (BDI), who are one of the nominated beneficiaries of our annual donation. To hear what a difference our donation makes to organisations such as BDI is truly one of the things I love most about this job. And remember, that you, our shareholders, are really the ones making this donation, as it is made in lieu of the usual management fee that investment managers charge clients for building and managing a portfolio.
 
Even prior to COVID-19, mental health had become a major area of concern for all Australians. The pandemic has only served to increase the incidence of mental ill-health, and therefore the need for help in providing assistance to those people dealing with anxiety, depression, suicidal thoughts and a host of other feelings. 1 in 5 Australians will experience symptoms of mental health in any given year, which is about 5 million people. Half of those will not seek help. BDI seeks to create a mentally healthier world for everyone, through their translational research, education programs, digital tools, and clinical services. They have recently developed a Workplace Mental Health Toolkit, various online factsheets that help sufferers with mental health tips and advice, mental fitness challenges and so much more (see below for key resources), all of which requires funding.
 
Lives are being saved every single day through the tireless work of these guys, and having resources to seek help for mental ill-health in such a way that more sufferers are willing and able to access is a genuine game changer, especially in these times. Without such funding, they simply cannot progress like they have, and hope to continue doing. I have attached their latest Impact Report here, and a Key Mental health statistics page here – I hope you can take the 10 minutes or so it takes to read them – I guarantee it will make you feel good about what we, and you are doing with HM1.

 

Stay safe,

Rory Lucas
Chief Investment Officer
Hearts and Minds Investments Limited

Reminder: these are simply my general views and should not be taken as investment advice

 

Further resources and information about Black Dog Institute:

 

Black Dog Institute Beneficiary Profile
1 in 5 of us will experience symptoms of mental illness in any given year. In Australia that’s around 5 million people, and roughly 60% of these people won’t seek help. Learn what Black Dog is doing to create a mentally healthier world for everyone here.

 

COVID-19: Resources for Anxiety & Stress
If you are looking for ways to look after your mental health while we practice physical distancing, you can explore the evidence-based resources and information designed for the general public, managers and workers, schools and young people, and health professionals.

 


Digital Tools and Apps
Black Dog Institute have created numerous online tools and mobile apps for your mental health and wellbeing, developed and successfully tested through research trials that you can access here at no cost.

 


Impact Video Series: Black Dog Institute
For our Impact Video Series we interviewed leading individuals from our beneficiaries to discuss the importance of medical research, their recent breakthroughs and the vital need for private funding. Hear from Black Dog's Chief Scientist, Scientia Professor Helen Christensen AO here.

 


Participate in research study: Under the Radar
The Under the Radar study aims to improve the support available for men experiencing thoughts of ending their life and develop a service that is accessible and safe for those who are not receiving professional help or understand what they’re going through. You can be part of designing the solution by participating in the study. The first phase involves a 30-minute anonymous survey online. For more information click here.

 

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DISCLAIMER: This communication has been prepared by Hearts and Minds Investments Limited (ABN 61 628 753 220). In preparing this document the investment objectives, financial situation or particular needs of an individual have not been considered. You should not rely on the opinions, advice, recommendations and other information contained in this publication alone. This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Past performance is not a reliable indicator of future performance. This document may not be reproduced or copies circulated without prior authority from Hearts and Minds Investments Limited.