2019 updates from the CIO

Monday November 18th, 2019

As you should be aware, the next Sohn Hearts and Minds Investment Leaders conference is this Friday, down at the beautiful Sydney Opera House. For HM1, this means we will finally get the new set of stocks for the conference portion of our portfolio. We will be selling the remainder of the holdings from the 2018 conference, and given the amazing performance of these stocks, it will mean we incur a tax liability on those gains. Yesterday’s weekly ASX announcement provided detail on how we will disclose our NTA on a weekly basis going forward. You can read the announcement here.

If we sold the remaining conference holdings last Friday, it would result in a tax liability of approximately 7 cents per ordinary share. These tax payments will result in the generation of franking credits which the Board will endeavour to distribute to shareholders going forward.

Of course, share prices keep moving, and so our ongoing NTA will primarily be a function of those moves.

Have a good week and look out for the new Conference picks next week!

 


Monday November 4th, 2019

Today we posted an NTA of $3.04, down slightly from last weeks $3.07. We expect the October month end number to be very similar. The share price rallied to close at $3.13 on Friday, part in response I suspect to our announcement of intention to add a new manager to our Core portfolio, that being TDM Growth Partners.

With the US reporting season in full swing, the last week saw quite a few of our companies release numbers. Whilst most were pleasing, a couple failed to meet investor expectations, and the share prices reacted accordingly. This is going to happen from time to time, but we believe that by only holding the highest conviction ideas of the top managers, we will be on the positive side of the ledger more often than not. Some of our managers are a bit nervous about the state of global markets right now, and they can (and indeed have) taken the opportunity to book some extremely impressive gains in the conference stock side of the portfolio. This money will now remain in cash until the next Sohn Hearts & Minds conference on November 22, which is less than 3 weeks away.

Have a great week.

 


Monday October 28th, 2019

Today we reported an NTA of $3.07, up from $3.01 last week. The share price is at $3.05. For the month the NTA is up just over 2%, while the share price is up just under 2%.

Many of our core portfolio stocks had good bounces on no new news this week, while JB Hi-Fi was up 10% on the back of positive commentary during their AGM, and including dividends paid has now provided us with a return of 64% in 11 months! Remember that this was one of the most heavily shorted stocks in 2018. Lear Corporation (LEA.US), which makes automotive seating and electrical distribution systems for cars reported last Friday and had a nice little bounce of 3% after reporting better than expected numbers for the quarter.

This week sees the big tech stocks (excluding Microsoft, which reported last week) report which should make for interesting (and no doubt) volatile times.

You will hopefully have seen the Notice of Meeting for our Annual General Meeting (on November 26) which was released to the market on Friday, which included important information about our opportunity for TDM Growth Partners to become a new core fund manager for HM1. We are extremely excited about this rare opportunity we have been given. If approved, we will be conducting a renounceable rights issue to fund their investment recommendations. Talk to your financial advisor or stockbroker if you are unsure about what this means for you.

The core portfolio is now up 18% since inception, while the conference portfolio is up 33%. Remember that the conference picks are (up to) 12 month recommendations, some of which we have closed out already, either because they have reached their target prices, or something has changed which invalidated the original investment thesis. With just over 3 weeks until our next conference we look forward to investing in a new suite of stocks within that part of the portfolio, which represents 40% of funds invested.

 


Tuesday October 15th, 2019

Yesterday we reported an NTA of $3.03, up from $3.01 last week. The share price has been in low to mid $2.90's for the last 2 days.

There is nothing new to report this week.

The US reporting season starts up again later this week though, and will go for about 3 weeks, so we expect some news on how some of our stocks are performing financially. Remember also that the next Sohn Hearts & Minds Investment Leaders Conference will be held on November 22, and from this we will get our new list of conference stocks for addition to the HM1 portfolio.

Have a good week.

 


Tuesday October 8th, 2019

Yesterday we reported an NTA of $3.01, up from $3.00 last week. The share price is trading just below $3.00 this morning.

A pretty quiet week for our portfolio, with some tech sector weakness being counter-balanced by some corporate activity in one of our core holdings. As we get closer to our next conference, we will possibly sell more of our conference holdings, as managers may not wish to hold them over the next round of quarterly reports, which have proven to be volatile in the past, given they need to be liquidated by the end of November.

 


Monday September 16th, 2019

Today we reported an NTA of $3.06, up ever so slightly on last weeks $3.05. The stock closed today at $2.96, roughly a 3% discount.

Last week’s star stock, DocuSign Inc, kicked on again during the week, and logged further gains of just over 11%. This is a quality business, and good businesses tend to keep increasing in value. PagSeguro, on the other hand, fell to some clear profit taking, which is understandable given the share price rally the stock has experienced in the last couple of months. No stock price ever moves in a straight line! We remain comfortable holders of both names in our portfolio.

Overall, the conference portfolio has generated investment returns of almost 35% since inception. This is a combination of favourable market conditions, excellent individual stock recommendations, and also prudent risk management. 

By remaining in regular contact with our managers, if a position isn't playing out as the manager originally thought, positions can, and have been closed out. This has contributed significantly to the returns of the portfolio. This is the case for both the conference managers and our core managers. As the market evolves, a stock holding that was listed in our Annual Report a couple of months ago may not necessarily remain in our portfolio, if the original thesis has become obsolete, or alternatively, if a better opportunity presents itself to one of our Core Managers. 

Our Managers take their position recommendations very seriously, and are always doing their best for our investors.

Have a good week.

 


Monday September 16th, 2019

Today we reported an NTA of $3.06, up ever so slightly on last weeks $3.05. The stock closed today at $2.96, roughly a 3% discount.

Last week’s star stock, DocuSign Inc, kicked on again during the week, and logged further gains of just over 11%. This is a quality business, and good businesses tend to keep increasing in value. PagSeguro, on the other hand, fell to some clear profit taking, which is understandable given the share price rally the stock has experienced in the last couple of months. No stock price ever moves in a straight line! We remain comfortable holders of both names in our portfolio.

Overall, the conference portfolio has generated investment returns of almost 35% since inception. This is a combination of favourable market conditions, excellent individual stock recommendations, and also prudent risk management. 

By remaining in regular contact with our managers, if a position isn't playing out as the manager originally thought, positions can, and have been closed out. This has contributed significantly to the returns of the portfolio. This is the case for both the conference managers and our core managers. As the market evolves, a stock holding that was listed in our Annual Report a couple of months ago may not necessarily remain in our portfolio, if the original thesis has become obsolete, or alternatively, if a better opportunity presents itself to one of our Core Managers. 

Our Managers take their position recommendations very seriously, and are always doing their best for our investors.

Have a good week.

 


Monday September 9th, 2019

Today we reported an NTA of $3.05, up from $3.01 last week, and the stock is trading around the $2.95 level this afternoon.

The big mover last week was DocuSign, Inc. which reports slightly out of time with other US stocks. Pleasingly, it surprised on the upside against analyst expectations for its second quarter numbers, with revenue up 41% year on year, impressive new customer growth of 25%, as well as anticipating improved revenue growth for Q3. The stock rallied 22% on Friday night. As we outlined in our latest monthly, we are seeing large moves in share prices at the moment, due to macroeconomic nervousness around negative bond yields and trade war updates, and increased short term investor behaviour. At the last quarter results update from DocuSign, investors ran the other way because revenue growth just missed analyst expectations, sending the stock down 15%. This is a quality stock, as evidenced by this report, with very solid growth coming through, and we are happy holders of DocuSign.

Elsewhere, Nufarm continued its recovery, rallying 3.5%, and PagSeguro was also up 3.5%, while Reece rallied over 7% after announcing further expansion into the US with a $220m acquisition of a southern California plumbing supply wholesaler, Todd Pipe and Supply.

Have a good week.

 


Monday September 2nd, 2019

Today we reported an NTA of $3.01, up from $2.94 last week, and the stock is trading around there this morning. 

For the last week Nufarm (+7.8%) and DocuSign, Inc (+6.1%) have been our best performers while Reece (-2.8%) has lagged.

With reporting season both here and in the US now complete, investors now have more information about the financial health of their companies, and prices are reacting accordingly. As always, no portfolio is immune to macroeconomic announcements, and with new tariffs taking effect today, global markets remain nervous. The flight to safety (i.e. government bonds) continues, with now over $17 trillion (or 30% of investment grade securities) invested in negative yielding bonds. 

We are pleased with the report cards from our companies, and where there has been less optimistic guidance delivered to the market, our recommending managers remain comfortable in their investment theses, seeing current issues as more transitory than systemic.

Have a good week.

 


Monday August 26th, 2019

Today we reported an NTA of $2.94, and the stock is trading just above that this morning.

In case you missed it, we released our Annual Report on Friday. You can view it here.

Of our locally listed conference stocks, JB Hi Fi have reported, surprising everyone and rallying over 10% on the day, and has since reached a new high of $33.24. It also announced a 51c dividend. PagSeguro (the Brazilian money merchant company) hit an all-time high during the week, and Bandai Namco (the Japanese toys, hobbies and video gaming company) has continued its great run post Nikkei inclusion. A couple of our Core stocks have also reported in the last week, with one of them in particular giving disappointing guidance. Its share price reacted accordingly.

Obviously, the portfolio suffered losses on Friday night with Trump and his tweeting about China and tariffs. No portfolio is immune to macro machinations. When an asset class comes under selling pressure, everything is marked down in the short term. In the medium and long term, company fundamentals determine share prices, and we remain comfortable with the quality companies our fund managers have recommended. 

 


Tuesday August 13th, 2019

Yesterday we reported an NTA of $2.98 to the market.

Earnings season in the US, as usual, caused large moves in company share prices, both up and down. Indeed, with the domestic reporting season also underway, we can expect more surprises.

Yesterday, one of our conference recommendations, JB HiFi, reported, and pleasingly for us, as shareholders, exceeded analysts expectations. Given how heavily shorted this stock has been, the 10% rally was not unexpected.

Our portfolio has not been immune to negative surprises though, especially in a couple of our offshore holdings, and even the best stocks will disappoint when high expectations are baked into a share price ahead of a company update. As investors, we must always remember this, and not panic when good companies have temporary price setbacks.

 


Monday August 5th, 2019

Weaker global markets (S&P down 3.1%; Nasdaq down 3.9%), and Trump tweets and tariffs all weighed heavily on investors minds this week. Yesterday we reported an NTA of $3.09. With the big selloff in the US market last night, obviously our NTA is lower again.

The only change to our portfolio last week was a further selldown of Bandai Namco (7832.JP). The stock was named as an inclusion in the Nikkei 225 as at August 1, and rallied strongly into this. This position has realised just over 30%, which includes a favourable FX gain, given the appreciation in the Yen.

We are now only 3 months away from our next Sohn Hearts & Minds Conference, where we will hear from some new, and some returning fund managers who will pitch their highest conviction idea to the audience. Most, if not all of these ideas will be invested into the portfolio.

 


Monday July 29th, 2019

 

Welcome to the CIO blog

Today we posted a pre-tax NTA of $3.18, up from $3.07 last week, and the share price opened this morning at $3.10.

As you probably know, a large portion of our portfolio is held in US listed companies, and so with the reporting season now underway, we are getting more colour on how our companies are performing. For the companies that reported last week, we are pleased to say that the numbers were pretty good. The domestic reporting season also gets underway this week, and the Aussie dollar is weaker after stronger than expected economic numbers out of the US on Friday night.

Our conference stocks in particular have been performing very well lately, with Pagseguro (PAGS.US) now up over 120% in AUD terms since we invested. We will be profiling Beeneet Kothari (the manager who pitched Pagseguro last November at the Conference) in our July monthly report to be released next week. He is also a confirmed speaker for the Conference in November.

Another of our conference stocks, Bandai Namco, (7832.JP) was recently announced as an inclusion in the Nikkei 225 from next month. It is up 10% since the start of July, and almost 28% in AUD terms since we invested.

Overall, our conference stocks are now up 32% since inception, while the core stocks are up just over 26%.