12/14/2021 11:00:00 PM

Market Update - December 2021 - Australasian

Australasian Update - December 2021

In our latest video on our Australasian Funds, we were joined by Chris Bainbridge, Head of Australasian Equities and Portfolio Manager, and Mike Ross, Portfolio Manager.

Thank you for all your support this year. All the best for the holiday period and we look forward to being in touch again in 2022.

Kind regards,

Mike Taylor
CEO + Founder

Transcript:

Sam De Court: Hi everyone, my name is Sam De Court, and thank you for tuning in to our final video of 2021. Today we have members of the Australasian investment team with us, Chris Bainbridge, Mike Ross from over in Sydney, and we also have Founder and CEO Mike Taylor.

So to round off this year, we thought it'd be really helpful to give some insights into how 2021 has played out for each of the funds, as well as asking these guys to share some thoughts about the year ahead. So let's start with you, Mike Taylor. Can you please share some thoughts on the Australasian Growth Fund?

Mike Taylor: Sure. As everyone would know, the Australian Growth Fund is our first fund at Pie and the fund that’s very dear to my heart having been the PM on that from 2007 to 2016. I thought the best thing to do is just touch on a couple of holdings. Sam only tells me we've got 90 seconds so I’ll keep it short and sweet. The two holdings which I want to talk about, which I'm actually quite familiar with, the first one is Life360. So Life360 is actually the biggest position in the Growth Fund, sitting around 10% weight in that fund. And it's actually gained that weight through growth in share price, so throughout the year it’s gone from about $4 to $12. So it's been the best performer in the fund. It's been a multi bagger. And we've done really well so far with Life360. But we think for Pie the story's not over. We still think there's quite a bit of upside in that position. I'll give a quick background on what is Life360. So it's essentially a tracking app that allows families to track how other family members drive, and also how where your family members are located. So that may not be for everyone. But believe it or not, it is quite a popular service and particularly in the US. So that’s where their main market is and they're growing about 45% year-on-year at the moment. They recently made an acquisition of a leading tracking software firm called Tile. And that will increase their subscriber base by about 40%. And we think that’s going to lead to an average, or to an increase in their average, revenue per user across the combined sort of 1.6 million subscriber bases in the two businesses. So Life360 is still the biggest position and we’re still confident on that for 2022.

The other one I want to talk about briefly is Seven West Media. So Seven West is a position that we recently added in the Australasian Growth Fund. If you're not familiar with it, or you don't watch too much TV in Australia, there’s a couple of main channels - Seven, Nine and Ten. And Seven is the one which typically competes with Nine, at around about sort of 40% market share. At the moment, we think seven is undervalued, it's sitting on probably about a five times PE and we think it's probably a few upgrades left in the story. They've had some ones recently. They've got some key content that's coming through the summer period: The Ashes, which is particularly popular in Australia, they’ve also got the Winter Olympics and as we saw the recent Summer Olympics in Australia, that really pumped their viewership. In fact, I think they peaked at a much higher rating viewership than 40%. So overall, we think that's got some strong tailwinds in the next six to 12 months. 

SDC: Thank you Mike. Over to you Mike Ross. So for the Australasian Dividend Growth Fund, which had a really great year, congratulations, can you please do a bit of a debrief on this current year and maybe share some thoughts about the year ahead?

Mike Ross: Yeah, sure. So yeah, it has been a good year for the fund. And performance has come from you know a range of companies across different sectors: data centres, fibre infrastructure, ecommerce, energy, general industrials, to name a few. But I thought I’d briefly just share three lessons I've learned this year personally. So the first one, I guess, would be just to back your conviction. So looking at the larger contributors to performance in 2021, they were generally the largest positions in the fund at the start of the year, which is great. But equally, most of the detractors to performance, if I'm honest with myself, were smaller positions where I lacked a bit of confidence from the get go. So I guess it's just a good reminder that you know, great investment ideas are rare. So when you find one, just back yourself. 

Lesson two, the importance of management. So we often talk about wanting to invest alongside founders or experienced management teams with skin in the game. Most of our key contributors this year were these kinds of companies. So think of companies like Johns Lyng, Uniti, Macquarie Telecom, Homeco, MA Financial and MAAS group. The final lesson is just a reminder about the virtue of patience, because great companies compound over years, not months, and when investing the real money is made holding on to these businesses over the long term, not trading in and out of them. Personally, I've learned this the hard way. I've sold a lot of great businesses after they've had a period of outperformance when they looked a bit expensive on short term metrics.

And then your question, looking out to 2022. So I guess I'm really confident on the fund’s positioning. The larger positions now, they're high quality, they’ve got good aligned management teams, and good long runways for growth. And that's really what we look for. And we're exposed to a diverse range of industries, generally they're businesses that can do well regardless of broader economic conditions. And I guess we've all read the commentary on inflation, interest rates, Covid variants. From talking to a lot of companies recently, my personal view is we will continue to see signs of inflation and that will lead to some more volatility. I guess the good news for us is, volatility is great for fundamental stock pickers, because, and that's what we are, it creates opportunity, and we're already seeing some of these opportunities arise. So that would be my summary Sam.

SDC: Thanks, Mike, well said. Over to you, Chris. So how's 2021 been for the Australasian Growth 2 Fund?

Chris Bainbridge: Thanks Sam. 2021’s been really challenging for the Growth 2 Fund. Our expectation is excellence. Our performance this year has failed to match our track record. Growth 2 is a high conviction growth strategy, and that means that sometimes the ride can be a little bumpy. When the strategy works, it works really well which is what was saw in 2019 and 2020. When the strategy doesn't work, performance can be challenging, and that's what we've experienced in 2021. So why hasn't the strategy worked this year? We're laser focused on process. Our process is based on finding high quality growth companies with asymmetric outcomes. That means companies have lots of ways to win and few ways to lose. The major challenges we've experienced this year have come from unexpected external events with a number of large positions, and that can happen in a concentrated fund from time to time. At the same time, we've made a couple of mistakes. We've made mistakes, we've cut our losses, and really honed our process by raising the hurdle rate on quality for future investments. Investing is a game of cumulative knowledge and compounding advantage. You never compound faster when you’ve had challenges. The challenges we've had this year have really sharpened our focus. So how am I feeling about Growth 2 right now? I'm feeling a little frustrated. There's a huge amount of pent up performance in the portfolio that isn't currently being reflected in share prices. We can't control share prices, we can control process and we can control the companies that we put in the fund and that's making me optimistic. Looking at 2022, I’m optimistic for two reasons. One, our companies are fundamentally firing and have exceptionally strong tailwinds, and two, the great thing about investing in high quality growth companies is that time’s your friend. When they’re not going up, they’re just getting cheaper. 

SDC: Alright Chris, thanks for the update. Back over to you Mike Taylor for a couple of closing words.

MT: Thanks, Sam. Look, I’m sure all our investors would like me to give the prediction for 2022 and, as Chris said before we started, what the closing unit prices will be 31 December next year. But really all I want to say at this point is a big thank you to the team who worked incredibly hard this year. And thank you for all the wonderful support from our clients who've been with us sometimes many years. So really appreciate it. Also appreciate that it's been a challenging year for many, particularly those who are situated in Auckland, with three or four months locked down. So all the best, stay safe. 

SDC: Thanks Mike, and behalf of me as well, thank you everyone so much for watching this year. The team at Pie thoroughly enjoys doing these video updates. We’re always welcome to feedback. See ya everyone.



Information is current as at 15 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 reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary.?