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Monthly Report International Fund February 2022


International Fund February Monthly Report

Global share markets tumbled further in February, with the MSCI ACWI IMI falling 5.1% and the unit price of the Forager International Shares Fund falling 6.3%.

The month began with a focus on increasingly concerning signs of inflation and the prospect of higher interest rates, and ended with Russia mounting a full-scale military invasion of Ukraine. The latter event sent the prices of already scarce commodities like oil, gas and fertiliser soaring.

Any war is a senseless waste of life. One in a country many of us have travelled and have personal connections to is particularly gut-wrenching. When it comes to investing your money, though, we don’t have a geopolitical insight worth listening to. Our focus remains on finding businesses that are significantly undervalued and where we expect that value to be realised within three to five years.

The big disappointment for the month was Meta Platforms (NASDAQ:FB). The social media giant was meant to be one of our larger, higher-quality companies that generated modest but predictable returns. That group of stocks, including Sony (TSE:SONY), Autodesk (NASDAQ:ADSK), Keysight (NYSE:KEYS), Zebra (NASDAQ:ZBRA) and CDW (NASDAQ:CDW), has done its job in recent years—providing excellent returns and a source of liquidity for our smaller, more esoteric investments.

Meta has behaved like a small-cap, with its share price falling 33% in February. Its reported results for 2021 were good, but the outlook for the first quarter of 2022 has investors fretting that the end is nigh for its stable of social media platforms, including Facebook, Instagram and WhatsApp. The number of people using Meta’s platforms has stagnated, changes to Apple’s operating system have made it more difficult to advertise to those users, and new upstarts like TikTok are stealing the attention of younger generations.

Still, it expects revenue to be between 3% and 11% higher than last year in the first quarter of 2022. It trades at less than 15 times earnings, generates oodles of cash and uses that cash to buy back significant amounts of its own stock every year. It seems like an overreaction, but we didn’t buy one of the world’s largest companies for some unique insight into the business—we bought it to play a role and, to date, it hasn’t done that.

Results announcements elsewhere were far more positive. That was reflected in healthy share price bounces and increased portfolio weightings for Open Lending (NASDAQ:LPRO), Tremor International (AIM:TRMR) and eGain (NASDAQ:EGAN). The latter continues to dramatically exceed the modest expectations implied by its share price, producing high revenue growth and positive cashflow while also constantly talking down its near-term prospects. Its customer service communications software is in demand around the world, and it continues winning new customers and growing the revenue from its existing clients.

Data erasure software company Blancco Technology (AIM:BLTG) is another from the “promise low, deliver high” school and that’s possibly why its share price didn’t react to an excellent set of results (more likely, it is simply in a sector increasingly out of favour). After some sales challenges during COVID, the business is growing well again and is generating healthy profit margins. That’s partly due to some cost savings, like travel expenditure, that will unwind in time. But the medium-term trend is for profits to grow significantly faster than revenue.

But the standout result was marketing technology company Zeta Global (NYSE:ZETA). In an environment of rapidly falling stock prices for its peers, this company’s share price increase—up some 89% since our first purchase six months ago—had us nervous leading into reporting season. Zeta delivered stellar results for 2021, though, and laid out a compelling plan for doubling the business to US $1 billion in revenue in 2025. While it’s not the bargain it once was (Zeta’s share price tumbled after a botched IPO in June last year), it is still tracking well ahead of our initial investment thesis and has become one of the larger investments in the portfolio.