17 Jul 2019

Quarter in review (Q2 2019)

Ranger Fund

Ranger had a solid quarter, albeit substantially lagging rampant equity markets.  Large divergences from market performance over short periods are highly likely for this fund given its make-up.  We invest in a small number of companies that, in our opinion, will generate solid returns over the long run irrespective of market movements.  Nevertheless, we prefer to demonstrate the fund’s lack of market correlation when markets are down, not up!

Kogan, Vista and Afterpay were the top contributors to positive performance over the quarter.  The share prices of Kogan and Afterpay continued to improve following the negative news that had knocked them in previous periods, more on Afterpay in our commentaries.  Vista’s share price benefitted from increased investor optimism around its Movio division.  Movio is the global leader in data analytics and marketing solutions for the film industry, and in April it released new research showcasing the effects of targeted marketing to moviegoers using their tools.  Results show significant increases in cinema admissions and revenue.

Macmahon was a dampener on performance over the quarter.  The abrupt resignation of two Board members, including the Chair, was in the “sell first, ask questions later” category for some shareholders and Macmahon’s share price was down 20% for the quarter as a result.  In our opinion, this is most definitely a bad look.  However, the Board has subsequently given investors some comfort by reappointing former non-executive director, Vyril Vella.  Vyril was previously a non-executive director of Macmahon for more than 10 years and has a reputation for robust independence, which was very publicly displayed during the CIMIC takeover offer for Macmahon in 2017.  The company has also reiterated its earnings guidance and its positive operating outlook.  We will be watching closely.

We increased our investment in Coventry Group over the quarter as our conviction increased after further research.  Coventry is an Australian industrial supplies and services business on a highly undemanding share price due to operating issues resulting from poor past management.  In our opinion, the new management team is doing an excellent job turning the business around and we expect to see steady progress over the next few years. 

 

5 Oceans Fund

The 5 Oceans Fund had a good quarter as growth markets continued their general rise higher and bond markets were also positive as yields lowered.  This meant that all managers contributed positively except for the two Kohinoor tail risk strategies which were a slight detractor as expected in this environment.

All the managers continue to perform the roles we appointed them for as markets throw different conditions at them.

 

Trans-Tasman Fund

The Tran-Tasman Fund nearly managed to keep up with a rampant New Zealand equity market, which, in our opinion, continues to be a beneficiary of the global demand for “safe”, “liquid” yielders.

Kogan, Vista, Contact and Afterpay were the top contributors to positive performance over the quarter.  The share prices of Kogan and Afterpay continued to improve following the negative news had knocked them in previous periods, more on Afterpay in our commentaries.  Vista’s share price benefitted from increased investor optimism around its Movio division.  Movio is the global leader in data analytics and marketing solutions for the film industry, and in April it released new research showcasing the effects of targeted marketing to moviegoers using their tools.  Results show significant increases in cinema admissions and revenue due to the use of Movio Cinema worldwide.  Contact’s performance was more a result of the general hunt for “safe” yield.  Relative to the rest of the market Contact’s yield is one of the safest, in our opinion.

Macmahon was a dampener on performance over the quarter.  The abrupt resignation of two Board members, including the Chair, was in the “sell first, ask questions later” category for some shareholders and Macmahon’s share price was down 20% for the quarter as a result.  In our opinion, this is most definitely a bad look.  However, the Board has subsequently given investors some comfort by reappointing former non-executive director, Vyril Vella.  Vyril was previously a non-executive director of Macmahon for more than 10 years and has a reputation for robust independence, which was very publicly displayed during the CIMIC takeover offer for Macmahon in 2017.  The company has also reiterated its earnings guidance and its positive operating outlook.  We will be watching closely.

We said farewell to Trademe this quarter.  While we concur with Trademe’s buyers about the potential upside, a lot will depend on who runs the company going forward and given we had no idea who that person might be we had to agree to the takeover at the price offered.  We also reduced our underweight to Infratil.  Infratil has some exciting opportunities in cloud server provision which, in our opinion, makes an underweight position unjustified.