Written by Doug Jopling, Senior Investment Analyst and Portfolio Manager
Australasian Growth Fund
The Australasian Growth Fund was down 1.1% for the month versus the ASX Small Ordinaries Index which was up 3%.
The fund held up well during the tech sector sell-off this month. In fact, two of the highest contributors for the fund were technology companies. Life 360, a location app provider, was up 10%, while Zebit an e-commerce platform for low credit score US consumers was up 37%. Market sell-offs are opportunities, and I used the tech sell-off to top up some existing positions and to buy some new technology positions at a lower price.
One of the new positions I acquired is Wisr, a fintech company that provides online personal loans. There are a few listed companies in this field, including the recently-listed Harmoney, who are all trying to take market share from the major banks. Currently these fintech companies have ~1% market share, so there is substantial growth ahead if they can leverage their platforms. I was attracted to Wisr due to its loan book growth and because it has created an eco-system to help consumers manager their finances/credit scores, which could become an important referral source for future loans.
I increased my position in Spirit Technology when it raised capital to help fund an accretive acquisition in the telecommunication sector.
I also participated in a capital raise to acquire shares in Cyprium Metals, a copper mine developer in Western Australia. I am attracted to copper as I believe copper demand will increase due to the increase in green technology/electric vehicles and that there are expectations of a copper supply deficit over the next couple of years.Copper price is riding high at the moment, which has helped the share price increase 25% since I acquired them this month. Cyprium aims to be in production by the end of calendar year 2022.
In terms of other major share price moves, Geopacific Resources fell 17% on lower gold prices, Elanor Property Group was down 12% and Palla Pharma was down 28% following a heavily discounted capital raise.
Written by Mike Ross, Portfolio Manager
Australasian Dividend Growth Fund
The Dividend Growth Fund returned 2.3% in March against the benchmark return of 3%.
Uniti advanced another 10% and other key contributors included Maas Group, Johns Lyng and the weaker NZ dollar.
Returns also benefited from a bidding war for Vitalharvest (VTH), a REIT which owns the largest collection of citrus and berry farms in Australia. VTH has an unconventional lease structure including both fixed and variable rent, the latter which is paid as a profit share from the assets. The fund acquired a position in VTH at attractive prices in late-2019 after a number of issues (drought, fruit flies, hail damage etc) temporarily wiped out variable rent. In November 2020 VTH accepted a takeover at $1 and a rival bidder has since driven the price up to $1.185. The bidding continues.
The main detractor to performance in March was AMA, which saw its share price smashed 17% on no news. The shares had been soggy since the former CEO left in acrimonious circumstances in January. This was compounded by a messy half-year result, management departures and concerns around supply. AMA is the largest smash-repairer in Australia with 15-20% market share in what is otherwise a very fragmented industry. This makes it an important provider to insurers as its scale and national network enable efficiency and lower claim costs. The company has been negatively impacted by Covid-19 as there have been less cars on the road.
The recent reporting period highlighted the strength in the economic recovery. While the fund does have some exposure to the domestic economy, our process remains focused on identifying companies that can sustainably compound earnings over the medium and long-term in any environment. It is pleasing that much of the recent performance has come from these core holdings.
Written by Chris Bainbridge, Head of Australasian Equities and Portfolio Manager
Australasian Emerging Companies Fund
Rising yields drove a continued rotation from tech/growth into more economically sensitive names during the month. As a concentrated portfolio of growth stocks, ECF was caught up in the rotation, finishing the month down 2.2% versus the Emerging Companies Index which was down 0.5%.
Positive contributors for the month included RUL and OTW. RUL provides software solutions along with technical and advisory services to the mining industry globally. RUL’s software suite allows a mine to become more efficient by automating the many complex daily tasks required to run a mine such as scheduling, finance and mobile maintenance. After a quiet first half, RUL announced a surge in new deal signings, with ARR growing from $15.8m in February to $19.4m in March and TCV growing from $14.5m to $27.8m. When you combine cashed up miners with the drive toward digitisation and factor in that the fourth quarter of the financial year is traditionally the busiest for new signings, we’re optimistic RUL can maintain its momentum. OTW also re-rated during the month on no news. We believe that the market is overlooking the quality, value and growth on offer here, but we’re confident that won’t remain the case for long.
Detracting from performance during the month was AMS and SLA. AMS is a video technology company which designs, develops and commercialises video monitor recorders, a device which, when used in conjunction with a video camera, significantly enhances quality and recording/monitoring capabilities. Management execution post-Covid has been flawless, positively surprising at both the top and bottom line. Management also signalled at the half that this had continued into the current year. Accordingly, when AMS de-rated during March we backed up the truck. We’re confident our conviction will pay off as investors realise the execution and leverage demonstrated in the first half is just the beginning.
When you invest in a concentrated portfolio of growth stocks, it’s not a question of whether you'll be hit by volatility but when and, more importantly, how you counterpunch when it comes. ECF was caught up in the continued rotation from tech/growth to reopening trades (we use the word ‘trades’ deliberately) in March. We were hit, but we counterpunched well and we’re confident that form will be reflected in performance moving forward.
Written by Chris Bainbridge, Head of Australasian Equities and Portfolio Manager
Australasian Growth 2 Fund
The rotation from tech/growth to reopening trades which began in February continued in March as rising yields drove investors to rotate into more economically sensitive names. In short, if you wanted a correction in tech, March was it. Growth 2 finished the month down 6.7% vs versus the Australian Small Ordinaries Index which was up 3%. Our monthly performance is diametrically opposed to how we believe we executed during the month. Investing is about process and we are happy with how we executed our process during the month and even happier about how we positioned the portfolio.
As Yen Liow says: volatility is the price and provider of performance. Volatility is inevitable. The question is whether it’s your friend or foe. Price volatility is your friend when you’re exposed to a high predication environment. A high predication environment is one where the future is likely to look like the past, such as a subscription business. The good news is that G2 is heavily weighted to subscription businesses which gave us the confidence to double down on a select number of such names which were sold off during the month.
Detractors during the month included BNPL and WSP. BNPL sector multiples re-rated in January and February on the back of the Affirm IPO in the US. We used the re-rate to significantly reduce our exposure in Jan and Feb and then the sell-off in late March to re-weight. We were lucky. The market served us up significant volatility and we capitalised on it.
The lesson this month came from Whispir. WSP is an intelligent messaging communication platform which helps customers achieve an improved ROI on their communication with customers. WSP delivered a strong first half result, upgrading ARR guidance to the top end of its range. WSP followed that up with a $40m capital raise to accelerate growth (finance speak for burn more money), when technology stocks were looking shakier than the Chiefs’ scrum. There was insufficient natural demand, so existing holders were overallocated stock, leaving everyone fuller than A2’s CBEC channel. With tech getting crushed and a vacuum of buying, the share price took a swan dive, detracting significantly from performance during the month. The lesson: avoid working capital raises. We’re confident in the long term for WSP, but inches matter in this game and we lost a couple here this month which we didn’t need to.
In sum, investing is a game of process. We’ll never have a perfect month, but we’re happy with how we executed our process in March. We’re happy that our process is repeatable. We’re happy that our process is refinable and we’re happy that our process is scalable. Importantly, we’re happy with the current state of the portfolio and we’re confident our process will be reflected in improved performance in time.
Information is current as at 31 March 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.