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Monthly Report International Fund January 2022


International Fund January Monthly Report

The unit price for the Forager International Shares Fund fell 6.2% over the month, as the late 2021 small-cap sell-off became a rout in January.

The Russell 2000 Index of US small companies fell 9.7% for the month, leaving it 17% off its November highs. Under the surface, it has been even more tumultuous than that. According to investment bank JP Morgan, half of the stocks on that index— that’s one thousand companies—have suffered share price falls of more than a third from their two 52-week highs.

From the highs of 30 June last year to the end of January, the Fund has suffered a 17.9% decline. Like the Russell 2000 Index, a significant number of individual stocks have fallen. For example, the share price of one of our investments, online real estate agent Fathom Holdings (NASDAQ:FTHM), soared from $10 to $50 in the nine months after its June 2020 IPO and has since crashed back to $14 again. In the 18 months that it has been listed, the business has more than doubled in size and, in our opinion, has plenty of growth ahead of it. It seems a more attractive investment today than when we first bought the shares.

This sort of stock price volatility hasn’t been limited to just one stock. Now, large swathes of the portfolio, including new and old investments, are significantly more attractively priced than they were seven months ago. As outlined in our December 2021 Quarterly Report and recent International Shares Fund webinar, the significant selling of last financial year’s best performers clearly wasn’t enough. With the benefit of hindsight, we see that we should have sold the lot.

In September last year, we were lamenting that fact. But by the end of January, lament turned into excitement as the selling, in many cases, went far beyond our valuations of the underlying businesses.

One small stock to buck the trend was UK-listed Blancco Technologies (AIM:BLTG). The share price was up for the month thanks to a positive trading update. In the sort of impenetrable English that English companies specialise in, Blancco told shareholders that it has experienced “strong revenue growth” that was “above the board’s expectations”. What those expectations were, we are left to guess. Our best stab is that its rates of growth are closer to our loftier expectations than the board’s or the market’s, and that’s why the share price rose. We continue to expect many more years of the same.

More of the same is expected elsewhere, too. With share prices dramatically lower and offering plenty of upside to our valuations, the accuracy of those valuations becomes even more paramount. With many US companies providing 2022 guidance alongside their next earnings announcement, February is going to be a very important month for firming up our estimates.

The Fund is relatively concentrated and, focused on smaller companies, meaningful falls in the unit price are not uncommon. There have been five retracements of more than 10% in the Fund’s nine-year history and you should expect more in the future. They should not just be tolerated but welcomed. Volatility is what provides us great long-term investing opportunities (as an example, we’ve just invested in energy drink company Celsius (NASDAQ:CELH) for the third time in two years).

We hope to get back to a more concentrated portfolio of our best ideas over the coming months. Some good results and further volatility could give us that opportunity.