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Monthly Report: Australian Fund November 2020

30/11/2020

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Australian Fund November Monthly Report

The value of the Forager Australian Shares Fund’s portfolio jumped 13.2% in November, the fourth best month in the Fund’s history (and the fourth best month this year). The ASX All Ordinaries Accumulation Index climbed 10.2%. Having fallen dramatically through February and March, the unit value is now up 17% for the calendar year, against an index that is up a couple of percent.

Our portfolio benefitted broadly from vaccine news out of the US and the UK. Three separate vaccine candidates all reported outstanding efficacy results and are being fast-tracked for use around the world. Life could be back to normal by the middle of 2021.

While the operating performance of most of our stocks proved remarkably resilient this year, the portfolio remains skewed towards an increase in tourism and a general economic recovery. It was therefore no surprise that the portfolio surged following the vaccine announcements.

Travel stocks Experience Co (EXP), Tourism Holdings (NZSE:THL) and Apollo Tourism and Leisure (ATL) all benefited from investor enthusiasm for the sector. The share price of UK Bank Virgin Money (VUK) surged 41%. Car leasing companies SG Fleet (SGF) and Eclipx (ECX) both had strong months, benefitting from general economic optimism and sector consolidation rumours.

The portfolio also saw some stock specific news that added to the vaccine-related returns.

Family location app Life360 (360) announced a deal to provide access to the functionality of its app from Google’s smart devices. After creating a free Life360 account, users can now ask phones or smart speakers “Hey Google, where’s my family?”. Google will also close its competing Trusted Contacts app.

The deal is another step forward for the business. The app is already embedded into the lives of 17 million Americans and a total of 26 million people around the world. More expensive paid plans have recently been introduced and come with more safety and security features. Life360 CEO Chris Hull has navigated COVID-induced shutdowns, cut costs, and handled a TikTok boycott. This bodes well for the business becoming a mainstay for concerned parents worldwide. The stock has doubled since the Fund’s initial buying in June.

Motorcycle and accessory retailer Motorcycle Holdings (MTO) continued its streak of upgrades, increasing its profit expectations for the second time this financial year. International travel is still off the calendar. The super release scheme provided a spending boost early in the current half year. With public transport remaining less desirable, motorcycles offer a cheap way to get around. While the first two of these factors will fade, the third will persevere for some time yet.

The company has also been busy making the most of the pandemic upheaval. Some temporary cost reductions will become permanent. An expanded range now features Indian motorcycles, Yamaha jetskis and Stihl chainsaws. Next financial year is unlikely to be as good as this year, but at the current valuation it remains an attractive investment.

Marketing services business WPP AUNZ (WPP) received a bid from its parent company WPP plc (LSE:WPP). The Brits already own 62% of the business and the local arm works within the sprawling 130,000-person international empire. The $0.55 per share bid price is still 11% below pre-COVID share price peaks. Franking credits totalling almost $150m are up for grabs. WPP AUNZ’s independent directors are considering the bid.

Recent results from WPP AUNZ have been pointing to a resurgence. Despite revenue falling 14% last quarter, profit was up 15% on big expense reductions. Some of the $70m saving is temporary but large permanent benefits will remain. The pandemic provided WPP an opportunity to recover margins lost over the last few years. All of that makes the parent’s bid look opportunistically timed.

There is further to go before the Fund’s underperformance over the past few years has been rectified. But 2020 has, so far, been a big step in the right direction. With businesses currently owned performing well and remaining attractively priced, we’re confident of more of the same in 2021.

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