The Australasian Growth 2 Fund returned -13.1% for the month, bringing it to a 12-month return of -28.8%, and 12.8% annualised since inception.
The fund had a tough month, giving up all the gains from the month before. Although the ASX IT sector was down 12.5%, similar to the US Nasdaq index, which dragged down many stocks in the portfolio, there were also negative trading updates from EML Payments (EML: ASX) and Megaport (MP1: ASX), which were the biggest drags to performance. The fund also benefited from a 10% short position on the S&P500 for most of April.
We reduced both these stocks on the day of the updates. Although both stocks had corrected meaningfully before their third quarter updates, this didn’t protect the share-price falling. EML’s deterioration in cash generation was severe and was why the stock fell much more than the profit downgrade, which was only 10%.
MP1’s update highlighted a slowdown in their annualised recurring revenue added. When a company is trading at a high multiple, there is little room for slowdowns. Although the long-term investment case remains intact, and MP1 has a dominant market position in a fast growing market, it may take some time before the reseller channel is effective in ramping up the sales of their SD-Wan product.
On the positive front, Aroa Biosurgery upgraded its full-year revenue of NZ$37.7 million on a constant currency basis and exceeded guidance of NZ$34-37 million. The stock increased 14.8%. This NZ-based company is poised to benefit from a return to elective surgeries and a ramp-up in their sales team. There is a long-run way of adoption to come both from increased penetration of its existing customers and winning new clients. Their products are proving to be cheaper and more effective in reducing patient reoccurrence rates than the competitive products in the market.
Corporate Travel Management also increased 10.5% as investors became more comfortable with the outlook for corporate travel returning during this year.
Growth 2 is a fund focused on high growth companies. While we know that this strategy will at times underperform, we also know from the past that it can perform spectacularly well. We remain committed to being growth investors and wait patiently for the time to fully deploy the fund surplus cash (which is over 20%, if we include UWL currently under takeover).
Thank you for entrusting your capital to us.