Quarter In Review

Low volatility and rising asset prices were themes for this quarter. We are enjoying it but not expecting it to last!

Ranger Fund

The Ranger Fund had a strong first quarter. While many companies contributed, the largest positive was Macmahon, which was subject to a hostile takeover by its largest shareholder, CIMIC. We did not accept the offer as we considered it opportunistic and below our assessment of a conservative valuation of the business. The offer ultimately failed as other investors came to the same conclusion. Macmahon’s share price remains above the takeover price. Over the quarter, we increased our position in Red Bubble which is, in our opinion, a very well managed and fast growing internet marketplace for design-led consumer items. We particularly like that its working capital is negative, allowing it to grow quickly without large capital calls.

5 Oceans Fund

5 Oceans also had a strong start to the year. Its holding in the Ranger Fund contributed positively as described above, while global equity exposure through Acadian also performed well. Some currencies strengthened against the NZD (namely EUR and GBP) which aided as the fund was not fully hedged against these currencies. Bond managers Kapstream and AMP Capital delivered steady positive returns which is just what we are looking for. As volatility continued to drop across asset classes Kohinoor suffered accordingly, though given how low volatility has gone, having a modest exposure to Kohinoor remains a very prudent approach.

Trans-Tasman Strategy

To complete the trifecta, the Trans-Tasman Fund also began 2017 well. While many companies contributed, the largest positive was Macmahon, which was subject to a hostile takeover by its largest shareholder, CIMIC. We did not accept the offer as we considered it opportunistic and below our assessment of a conservative valuation of the business.  The offer ultimately failed as other investors came to the same conclusion. Macmahon’s share price remains above the takeover price.

Over the quarter, we increased our positions in Red Bubble and IVE Group. Red Bubble is, in our opinion, a very well managed and fast growing internet marketplace for design-led consumer items. We particularly like that its working capital is negative, allowing it to grow quickly without large capital calls. IVE is a well-placed, well-run business in an out-of-favour sector (see our commentary “Finding gems amongst lemons - private equity backed IPOs” below). We exited Sky Network Television. Its Moat is quickly being breached. The merger with Vodafone is looking highly unlikely, which could result in Vodafone becoming yet another competitor.