1/12/2022 11:00:00 PM

Fund Reviews: Global Growth

Written by Guy Thornewill, Head of Research UK & Europe and Senior Investment Analyst

Global Growth Fund 

The Global Growth Fund returned 2.6% for the month, bringing it to a 12-month return of 21.9%. 
After a sharp setback in November, the traditional Santa rally came to the rescue, and a number of global stock markets made good progress in December, closing at or near all-time highs. Investors looked through the worsening virus news as it became apparent that whilst the Omicron variant was more infectious than the Delta variant, it was also generally milder.
Winners in the fund included Giant Manufacturing, SES-imagotag and FRP Advisory. Giant is a leading global bike manufacturer, and a key holding in our exposure to the bike theme on which we remain very positive. The shares performed well as it became apparent that supply chain bottlenecks are beginning to ease, boosting sales further. SES-imagotag makes Electronic Shelf Labels which help retailers with their digital transformations, and it continues to see booming orders even if component sourcing remains a short-term challenge. FRP provides restructuring advice to companies, and with government support measures finally winding down in the UK, the outlook for this business is excellent. The only significant loser during the month was Cybozu, a Japanese software provider, which suffered during the continued sell-off in smaller technology stocks. Fund activity was limited during the month, as it was mainly centred around deploying cash opportunistically into existing holdings.
Looking into 2022, in our view the main risk to markets and growth stocks is higher interest rates from higher inflation. Indeed, the Federal Reserve has been guiding to a faster pace of monetary tightening for a few weeks now. If rate expectations rise too quickly, this could cause market dislocations at least in the short-term, as we have already seen at the start of January. However, we remain focused on companies with recurring revenues, structural growth and pricing power, which should enable us to navigate such periods. We also have cash to take advantage of opportunities as they occur.  Therefore, despite the risks of higher interest rates, supply chains which remain under pressure, and potentially another variant emerging, we remain positive on the outlook for the fund. 

Written by Toby Woods, Senior Investment Analyst

Growth UK & Europe Fund

The Growth UK and Europe Fund returned 3.3% for the month, bringing it to a 12-month return of 20.8%.
As is often the case, markets squeezed higher in December. Despite the rapid spread of the Omicron variant, it feels like the market is prepared to largely look through the medical concerns as the variant – so far – has proven to be less severe than previous iterations of the virus. In Europe, the UK and Denmark have seen the highest number of cases although the statistics are likely to be affected by higher amounts of testing. It is now apparent that Omicron is prevalent across all countries, yet thanks to high vaccination rates governments across the continent are keeping economies open without further lockdowns. The exception to this attitude is France’s decision to stop British travellers entering the country, but we suspect this is more of a political than medical decision. 
The fund performed satisfactorily during the month, and indeed over the whole year. The standout performer in the final month was Accell, rising more than 25%, thanks to publishing a surprise trading statement indicating much higher profits for the year than analysts expected. Accell is Europe’s largest bike manufacturer and while demand for bikes remains strong – a key theme of ours – there were concerns around component supplies. Accell, however, flexed its muscles thanks to its scale and received above average industry supplies that meant it could sell more bikes at full prices. 
We exited one position in December, Midsona. It is a producer of health foods, which has good industry tailwinds, but due to fluctuating and unpredictable inventory levels at customers and a lack of acquisitions the shares have underperformed. We felt that we can deploy capital better elsewhere so we exited. Instead, we added to some businesses which have more predictable and visible cash flows, such as DiscoverIE, Nexus and Gamma Communications. 
Finally, as we enter 2022 we are aware of higher inflation which will push interest rates up. Such an environment would be detrimental to growth stock valuations. However, we will keep the fund focused on those businesses with recurring revenues, structural growth and pricing power which should help us in more volatile markets. We have some cash in the fund that we can deploy to take advantage of any significant market sell offs. 

Written by Guy Thornewill, Head of Research UK & Europe and Senior Investment Analyst

Global Growth 2 Fund 

The Global Growth 2 Fund returned 3.0% for the month, bringing it to a 12-month return of 14.4%.
Markets made good progress during the month, rebounding from the November sell-off as fears about the Omicron variant subsided. Indeed, most markets closed the year at or near all-time highs.
Winners included Apple, one of the fund’s largest holdings, and Giant Manufacturing as bike component shortages began to ease. Schneider Electric also performed well after impressing the market with its growth targets. Schneider is, in our view, one of the best positioned large global industrial companies, tapping into the strong automation and electrification themes with its excellent product line-up and market exposure.  
On the negative side, HelloFresh and Yeti declined. HelloFresh, the leading global meal kit delivery company, announced some aggressive top-line growth targets, but cost and labour inflation is eating into profits in the short-term, which disappointed the market. We have been adding on weakness as we believe it will be the sector winner. Drink cooler company Yeti suffered from the market sell-off in more expensive growth companies, but its strong brand and broadening product line-up leave it well positioned for many years of growth.
Looking at fund activity, we started a position in Spotify after the shares got hit by the market sell-off in November. Spotify has emerged as a global leader in music streaming, and the group is starting to expand into other adjacent growth areas in audio such as podcasts. We think it will be able to improve monetisation of its large subscriber base over time. This purchase was funded by sales of Tomra, which had performed well but became too expensive in our view, and Mastercard which we believe is starting to face long-term threats to its business model.
Looking into 2022, in our view the main risk to markets and growth stocks is higher interest rates from higher inflation. Rising rates could cause market dislocations as we have already seen at the start of January. However, we remain focused on global growth leaders with structural growth, pricing power and robust balance sheets.  This should enable us to navigate such periods, and so we remain very positive on the outlook for the fund. 

Information is current as at 31 December 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.