Written by Doug Jopling, Senior Investment Analyst and Portfolio Manager
Australasian Growth Fund
The fund was up 1% during the month. It was a very mixed month for the fund, with a lot of companies only moving by a few percent up or down.
I put this down to: a lot of companies owned by the fund had already pre-reported in July, so there was no big news with the official results announcement in August; some of the companies in the fund have enjoyed strong gains over the last few months and people took some profit during the reporting season, especially in the illiquid positions; and market expectations were high and just delivering at the top end of guidance was not enough to satisfy these high expectations.
Macquarie Telecom, one of the largest positions in the fund, increased from AU$28 in February to AU$45 in August (or from AU$20 in March). The company had already provided an update to investors in July and gave no news when it presented it full results in August. I still like the datacentre thematic and this company will continue to grow over the next few years, so for now remains a core position for the fund.
MNF Group Ltd, another large holding for the fund, reported profits at the top end of its guidance, but then sold off. The price had risen from AU$3 in March to AU$6 in August, and I believe people’s expectations were too high going into the results. The medium/long term for this communications company still looks positive.
Probiotec was the most disappointing result for the month in terms of share price performance. The company delivered record results, but was sold off after disclosing cold and flu product sales were being impacted by social distancing (i.e. fewer people are getting sick).
In the month I sold my position in Class Ltd after it reported good results with the share price increasing around 35% in the last few months.
In terms of major share price increases, Life360 (a software app provider) was up 22% and Empired was up 26% (IT services provider). The main detractor was Strandline Resources down 20%, but still up 67% since I bought it.
Written by Mike Ross, Senior Investment Analyst
Australasian Dividend Fund
The Dividend Fund returned 6% during August in a strong month for equities, with the Small Ordinaries Accumulation Index up 9%.
Top contributors to performance included Baby Bunting, Adairs and Karoon.
Baby Bunting is the largest specialty retailer of baby goods in Australia and has been a long-term holding for the fund. The company ticks almost all the boxes we look for in a retailer with an aligned management team, a dominant position in a less discretionary category, a store-rollout and expanding margins. The brand will likely become more familiar to Kiwis over the next few years after the company flagged it is reviewing a potential entry into the New Zealand market. Baby Bunting was one of the few retailers that did not benefit from government support or rental reductions in FY20 yet still reported a strong result. Momentum continues into FY21with comparable sales up 20% in the first six weeks of trade despite Victorian lockdowns.
Adairs, a retailer of home furnishings, also contributed strongly to performance in August. The company continues to benefit from the shift to online sales and changing consumer lifestyles as people spend more time at home. Group sales are up 32% this year-to-date, including 103% growth in online sales and 47% growth in the recently acquired Mocka business. Online sales now represent approximately 35% of total sales yet the company continues to trade at a significant discount to listed peers.
Karoon continued to re-rate as the company progressed the Bauna acquisition. The deal is expected to settle later this month and will see the company transition from cash-backed exploration company to an oil producer generating significant cash flow. We believe the re-rate has been particularly slow given the company’s history, having been a source of disappointment for many investors in the past. The market appears to have adopted a “believe it when we see it” approach to the transaction.
Overall, reporting season could be characterised as “OK” for the fund. A few large positions held back relative performance. Pleasingly, results for these companies did not deviate meaningfully from our expectations and the investment theses appear on track. We are optimistic that catalysts over the next few months should see these positions contributing more positively to fund performance.
Written by Chris Bainbridge, Senior Investment Analyst and Portfolio Manager
Australasian Emerging Fund
August was another solid month with ECF up 10.8% versus the Emerging Companies Index which was up 16.5%.
Performance was driven by Covid beneficiaries, including meal-kit delivery provider Marley Spoon which again upgraded guidance and sales-enablement software provider Bigtincan.
Bigtincan is a global leader in the provision of sales-enablement software. Essentially, it aims to enhance sales productivity by giving sales reps updated content and tools via its platform. Bigtincan delivered a strong result with annualised recurring revenue (ARR) up 53%, improved retention and increased sales efficiency. More importantly, despite the challenging market conditions posed by Covid, Bigtincan’s outlook was strong enough for management to be comfortable providing forward ARR guidance of between 37% - 48% for FY21 with stable retention. We added significantly to our position following the result which has paid dividends as Bigtincan appreciated significantly in the days following.
Underperformance during the month was limited to a number of small positions which we’re confident will provide performance in FY21.
Looking ahead, after two busy months of updates, September is generally a quiet month on the news front. While companies may be quiet, we’ll be busier than a hacker on the NZX, meeting companies and reviewing our decisions from reporting season in the name of evolution and improvement.As ever, thanks for investing.
Written by Chris Bainbridge, Senior Investment Analyst and Portfolio Manager
Australasian Growth 2 Fund
Markets continued their strong rally in August driven by Big Tech and the Fed’s renewed commitment to hold rates lower for longer. Growth 2 ended the month up 18.4% versus the Australian Small Ordinaries Index which was up 9%.
G2’s performance was again driven by Covid beneficiaries, including meal-kit delivery, online shopping and Buy Now Pay Later.
In assessing G2’s performance in August, it’s important to consider the role of luck in investing. All activities sit on a spectrum of luck and skill, with investing sitting somewhere in the middle. We aim to shift G2’s returns in the direction of skill over the long term with (1) an intense focus on process and (2) by concentrating in areas, sectors and, where we can, specific stocks, where there is a higher dispersion of relative skill. However, luck still plays a critical role, particularly in the short term. While it’s difficult disaggregating luck from skill in any decision, it's necessarily evident at the extremes.
Two positions in August performed better than expected, exhibiting positive optionality which wasn’t part of our core investment thesis. In appreciating our luck, we took profits aggressively in these positions as the distribution of future outcomes had moved significantly to the downside.
Detracting from performance during the month was Appen. It would be easy to say we invested in March between $17-$19, trimmed above $40 and have now exited. In short, job well done. However, if my process had been better, I would have lost more money on APX this month but made more money overall. At the risk of looking like I flip-flopped more than a jandal factory, I built a large position in APX in March. However, rather than let APX run, lack of patience caused me to trim the position in the low $20s. The problem with trimming is that the big money is made in the sitting. This can be difficult in small caps as the difference between a great company and a company which is great at the time is often only a matter of months. However, the point stands, patience is key and I failed to exhibit that quality in respect of APX, thereby crimping returns.While I avoided some of the loss from APX falling this month, I also missed out on capturing more of the growth preceding it.
Looking ahead, after two solid months, investors should be cognisant returns don’t come in a straight line. At the time of writing, markets have experienced a pullback. The great news is that this has provided us with an excellent opportunity to reinvest profits taken in August in both new and existing positions. As ever, thanks for investing, we look forward to updating you soon.
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.