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Monthly Report International Fund April 2021

30/04/2021

International Fund April Monthly Report

April was another big month, with Fund returns of 8.05% compared to a 2.88% increase in the MSCI AC World Net Index in $A.

It’s been an encouraging start to the year globally, as a number of countries reopen after strict COVID-induced lockdowns. More than 50% of Israel’s population, and a much higher proportion of vulnerable people, have been fully vaccinated against the virus. Bars, restaurants and beaches are back to normal. Great news for businesses that have been struggling for the past year. The UK is a step behind on the same path. Early data indicates that retail sales are up, bookings for hotels and restaurants are increasing and companies are hiring new staff. The Fund is exposed to the reopening of the UK economy through investments in companies like Lloyds (LSE:LLOY), Card Factory plc (LSE:CARD), Motorpoint (LSE:MOTR) and lastminute.com (SWX:LMN).

Lloyds recently reported results for the quarter ended 31 March. Results were better than market expectations, largely due to an unwind of provisions taken during lockdown. Management reversed these provisions based on improved economic conditions and continued low levels of defaults. The UK regulator has prevented banks from making dividend payments for more than 12 months now, but a resumption is looking likely alongside the half year results in July. Lloyds has plenty of excess capital to distribute to shareholders if permitted.

Social media giants Facebook (NASDAQ:FB), Snap (NYSE:SNAP), Pinterest (NYSE:PINS) and Twitter (NYSE:TWTR) all reported first quarter results in April. Facebook’s 48% revenue growth obliterated expectations. Snap’s reported 280 million daily active users were more than four million users ahead of what analysts were estimating. Both stocks rose when results were announced. The Fund’s social media investments didn’t fare as well.

Pinterest reported some phenomenal growth, with ad sales up 78% in the first quarter and guidance for more than 100% growth over the next three months. Monthly active users increased 30%, but most of the growth came from an increase in revenue per user.

That is something Pinterest has struggled with historically and a key part of our investment thesis. However, management also indicated that users in the US could decline sequentially next quarter as people spend more time outside their homes. This was the focus of most news and weighed on the share price. On a positive note, the company noted strength in younger Pinterest users and increased engagement from this demographic. An important factor for future growth.

After a blockbuster end to 2020 and an impressive analyst day in February, the market expected more from Twitter’s first quarter results than the company delivered. The stock sold off more than 10%. But the results weren’t bad. The number of daily users grew 20% over the same quarter last year, with user growth likely to slow closer to 10% for the rest of 2021 before picking up in 2022. Revenue increased 28% and the outlook is for at least 25% revenue growth over the remainder of this year. Profit margins were low, but that’s typical for the first quarter. Management guided revenue growth to outpace cost growth over the full year. In line with our investment thesis, the company has (finally) been delivering new user products and experiences at a hectic pace, and that should translate into financial results over time. But, to quote CFO Ned Segal, “it’s hard to measure a 3-year strategy 70 days in”. Patience will be required.

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