4/8/2020 12:00:00 AM

Fund Reviews: Australasian Growth

Written by Doug Jopling, Senior Investment Analyst and Portfolio Manager

Growth Fund

The fund was up 12.4% during the month and is now only 4.8% lower than when the market peaked on 20 February.

I took profits on some positions that have recovered close to their highs of February, for example I sold some Appen at ~ $25 after buying it at ~ $19.60 and sold some MNF ~ $4.60 after buying some more in March at ~ $3.50.With Appen I thought the downside risk at $25 was higher than the upside risk, while for MNF I wanted to trim the position size as it had grown quite large.Sometimes it pays to not be too greedy and take profits when you can.

I sold out of Cardinal Resources, a gold developer and replaced it with a gold producer, Ramelius Resources.Cardinal is subject to a potential takeover at a price not that much higher than I sold at, but there is downside risk if the takeover doesn’t go ahead, so I replaced it with a producer who is forecasting an increase in quarterly production.

In addition to Ramelius, I have bought some small positions in Zip Co, a buy-now-pay-later provider, and Summerset Group, the retirement village company.As the market has run hard in April, I decided to add only small new positions until we see which direction the market is heading.

While April was good for the fund, there were some opportunities in hindsight that I missed and you can’t help but kick yourself for not grabbing them.While I have my buy list ready, I am staying cautious given the large amount of bad economic data expected to be released over the next couple of months.

Written by  Mike Ross, Senior Investment Analyst

Dividend Fund

The Dividend fund returned 13.1% in April.

When going through any crisis nothing is as clear as it is with hindsight. Investing is a game of probability and estimates and we will always make mistakes.

At a high level, mistakes have included:

Not appreciating the risk COVID-19 posed for equity markets early enough;

Not selling certain positions quickly enough, namely domestic-facing cyclicals and companies with debt on their balance sheets.

Raising cash, and not deploying enough capital near the bottom.

The fund’s top holdings are weighted towards business that can generate similar, if not stronger cash flows despite COVID-19. These include companies in the telecommunications and data services industries and maintenance services. In some cases COVID-19 will accelerate trends beneficial to these companies and cause permanent changes in human behaviour and habits. For instance, the increased data consumption thematic is nothing new, however like the trend to online shopping, COVID-19 has accelerated the pace of structural change and will drive increased demand for storage and connectivity.

The market meltdown in late February and March was indiscriminate in nature, meaning companies were sold off regardless of fundamentals, short or long-term prospects. After the bounce in late-March and April, many stocks are pricing in a lot more hope around a recovery. This is despite what is still a highly uncertain outlook. We have taken the market bounce as an opportunity to trim our holdings in some companies where expectations look too optimistic.

Written by Chris Bainbridge, Senior Investment Analyst and Portfolio Manager

Emerging Fund

ECF was up 18.9% during the month.

The fund benefitted from a number of strong performers during the month including Marley Spoon (ASX:MMM), Bigtincan (ASX:BTH) and Rpmglobal (ASX:RUL) (detailed below).

RUL provides software solutions along with technical and advisory services to the mining industry globally. RUL began providing advisory to the mining industry in the late 1970s. Following the collapse in commodity prices in 2012, RUL pivoted to developing software solutions for the mining industry. RUL’s software suite allows a mine to become more efficient by automating the many complex daily tasks required to run a mine. Following a period of heavy investment building out its software suite and a shift from a perpetual licence to a subscription model, RUL’s product suite has gained significant traction. In March 2019, RUL’s ARR was $3m, accelerating to $12.8m ARR in April 2020. The key product that is eliciting client interest is Xecute – a short term scheduling product. This is driving cross selling into other product sets. To put it into context, 14 out of the world’s 100 largest coal mines use at least one RUL software product. Only two of these mines are using Xecute - despite all having a use case for it. RUL is well positioned to deal with the current environment with $32.9m net cash and has benefitted from the movement towards a subscription software model and the mission-critical nature of its software.

Written by  Chris Bainbridge, Senior Investment Analyst and Portfolio Manager

Growth Fund 2

G2 was up 22.1% during the month.

Markets rallied strongly during April as unprecedented monetary and fiscal stimulus combined with developed economies moving through peak incremental Covid-19 cases to bring out the bulls. I have positioned the fund to benefit from our continued shift to what I’m going to call the metasphere (online world). Put another way, I have positioned the fund to benefit from a number of structural trends, trends which are accelerating in the current conditions, providing important tailwinds for performance during the month. These trends include:

  • the shift online, whether e-commerce (Kogan) or meal kit delivery (Marley Spoon);
  • increase in connectivity - data centre operators (NXTDC) and telco network infrastructure providers (Superloop) and (Opticomm); and
  • digitisation - whether payments (EML, Tyro), aerial mapping (Nearmap) or education (IDP).

Detracting from performance during the month was my inability to let my winners run. Trimming quality companies based on an uncertain view of short-term macro conditions proved costly and I aim not to do it again.

Capital Allocation is arguably both the most important and underrated skill of management. Accordingly, it was particularly pleasing to see two of our core portfolio companies, EML and Nearmap, restructure their affairs in a manner which I believe will create significant long-term value for shareholders vs the alternatives open to them. It’s easy to be a great management team when things are going well. The true test of management skill arises when they’re faced with a challenge. It’s great to see the teams at EML and NEA rising to the occasion.

Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser. Pie Funds is the issuer of the Pie Funds Management Scheme. For access to the PDSs, please click here.