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Monthly Report: International Fund August 2020

31/08/2020
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International Fund August Monthly Report

The strong returns of the past few months continued, with the Forager International Shares Fund adding another 10% in August alone.

Recent company updates have indicated that those investments made prior to COVID-19’s arrival are proving resilient at worst.

Kiwi fashion retailer Hallenstein Glasson Holdings (NZSE:HLG) released a trading update, estimating that profit will be just 5% lower than the previous year, despite its entire store network closing for 4-8 weeks. Ulta Beauty (Nasdaq:ULTA) has also been dealing with closed stores, in its case more than one thousand of them. Yet the company’s results for the three months to the end of August still showed a profit, and recent trading has been encouraging. Motorpoint’s (LSE:MOTR) car warehouses in the UK have returned to busier than ever and Norbit (OB:NORBIT) managed a stronger than expected result thanks to healthy profit margins.

Others managed to accelerate their growth despite the difficult environment.

Celsius (Nasdaq:CELH) posted revenue for its second quarter of 2020 that was 86% higher than the previous year. One of its products is currently the best selling energy drink on Amazon and industry data suggests the third quarter could be even better.

It wasn’t just the pre-COVID investments contributing to returns, though. We added a significant number of new investments during the volatility of the past five months and most are already showing solid progress. Open Lending (Nasdaq:LPRO), Fathom (Nasdaq:FTHM), APi Group (NYSE:APG) and Instone (XTRA:INS) have all made strong contributions.

Even Thinksmart (AIM:TSL) got in on the act, with its share price doubling over the past couple of months. We’ve been writing about this AIM-listed company’s connection to Australian company Afterpay (ASX:APT) for more than a year, but other investors have only just woken up.

The Fund has now returned almost 30% over the past 12 months, something that would usually invoke caution. But market volatility is the long-term investor’s friend and there is still plenty of it around. Investors also remain pessimistic about some sectors of the market so we are still able to acquire businesses at highly attractive prices.

Four key areas were highlighted at our recent investor roadshow. We still consider them highly prospective.

First, we expect a medium-term recovery in travel and tourism-related assets. Recent news suggests an effective vaccine is not too far away and most countries are slowly getting back to a modified form of normal life in any case. The portfolio focus has been high-quality businesses that can navigate and benefit from the inevitable fits and starts.

Second, the portfolio remains exposed to an inevitable recovery in traditional “value” stocks. While rising inflation and interest rates are probably a prerequisite for rapidly rising share prices, most of the companies owned by the Fund are expected to be profitable and pay attractive dividends while we wait.

Third, alongside Thinksmart, there are other investments that we expect to benefit from specific corporate events such as asset sales or demergers. Dolphin Capital Investors (AIM:DCI) and Sony (TSE:6758) are the most prospective.

Finally, the small-cap universe that has been so fruitful over the past year remains attractive. While a chosen few trade at absurdly high valuations, we are continually finding new opportunities to add to the mix.

You will read about a few of those in the September quarterly report. In the meantime, cross your fingers for more market volatility.

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