A message from Mike: Winter chill eases

Friday 6 September, 2019

A  message from Mike: Winter chill eases

Reporting season has posted strong results

August was a strong month of outperformance for our Australasian Funds. The Growth and Growth 2 Funds were up between 5-6%. 

Considering our high cash levels and the market volatility (the XSOAI index was down -3.85%) this is a great result! The outperformance of Growth 1 was 9.84% in one month. How did we do this? August is reporting season for most of our Australasian positions and overall, our portfolio of investments posted strong results. Outperformance like this shows our active investment strategy, concentrated portfolios of small growth companies, can be successful in a tough environment. The Growth and Growth 2 Funds are now both up over 30% in 2019. 

The new strategy for the Multi-Strategy Fund continues to be deployed and we look forward to providing a detailed update in the next newsletter. 

But the war rages on

Globally, our funds continue to experience headwinds, as conditions remain tricky. However, we remain vigilant for signs the trade war is causing earnings to deteriorate. Our view is the trade war will be resolved prior to the US general election in 2020. Trump does not like it when stocks fall and has shown this many times lately, trying to prop up the market after one of his aggressive Tweets. 

Brexit is a mess, but the investment team thinks that the UK could be one of the best investment opportunities for 2020, even under a hard Brexit scenario. We have a shopping list ready!

Certainty and sentiment

Much like Brexit and market uncertainty, I’ve found the best returns for Pie come after periods of volatility and pessimism. As you would expect we monitor our own client activity and actually use this as a contrarian indicator. Typically, withdrawals increase 3 months AFTER funds have fallen. As a rule of thumb, the more nervous clients are, the more aggressive we should be. A recent example is both our Australasian Growth Funds were out of favour at the start of 2019, yet they’ve posted large returns this year. Currently our UK fund is not popular, which is one of the reasons I’m quietly optimistic about 2020 – despite current conditions looking scary. As Buffett always says, be greedy when others are fearful and fearful when they are greedy. 

Trends

Last month I talked about some of the best investments of the last decade. Looking at what’s hot right now includes Gold, Artificial Intelligence, disruptors and blockchain. Turning first to Gold. An investment in Gold is based on the precious metal being sought after, in times of uncertainty and when interest rates are very low. If these conditions prevail for a long period, Gold producers and explorers are the best place to invest. Artificial intelligence, or AI, is a big growth area. As more and more of our daily routine is completed autonomously, the demand for this technology will continue to rise. Investments such as Appen (APX.ASX) and Twilio (TWLO) are recent examples of firms integrating AI, but also some of the big tech giants like Google, Facebook and Microsoft are using AI across their products and services. 

Industry disruptors – these companies are businesses creating a completely new market by disrupting an existing one, for example WeWork, Netflix, Facebook, UBER and AirBnB. Typically, they create new markets by removing friction and simplifying product use. 

Lastly, when Facebook announced this year they are creating their own currency (Libre) it was a watershed moment as it legitimised the crypto-world, which until now had just been for speculators and cybercrime. I would expect over the next 5-10 years, a new currency will emerge, enabling frictionless transactions between users using blockchain technology. 

As always, thank you for your support. If you have any questions please don’t hesitate to call me on (09) 486 1701, or email me, mike@piefunds.co.nz.

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.