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Monthly Report International Fund May 2023


International Fund May Monthly Report

The fads come and go quickly these days. In 2021, all you had to do was change your name to “XYZ as a Service” and make up some annual recurring revenue and your share price would double. Then 2022 was all about the metaverse. This year it is impossible to sit through an earnings call without hearing a spiel about artificial intelligence (AI).

The frenzy was set off by the phenomenal success of generative artificial intelligence app Chat GPT.

Within two months of launch, chat GPT had reached 100 million users. It took TikTok nine months to reach that marker, and Instagram more than two years. If you haven’t already had a play around with the tool, you should. It is free and fun.

We don’t pretend to have grand insights about how the technology will progress from here. It feels a little “flavour of the month” to even mention it. But, like cloud computing and online search, this technology will change our lives over the coming decades. Some listed companies will be losers and others winners.

NVIDIA Corporation (Nasdaq:NVDA) is the first clear winner. It designs the pre-eminent semiconductors needed for large AI systems and applications. The stock added 31% to its market capitalisation in May, mostly in one day, thanks to results and an outlook that obliterated market expectations. It’s up more than 170% over the first five months of 2023.

Our June quarterly report will contain a wider review of the risks and opportunities across our portfolio but, while the Fund doesn’t own NVIDIA, we did make a small investment in Alphabet (Nasdaq:GOOGL) in the first quarter of 2023. It is our view that suggestions of its demise were being exaggerated.

While Alphabet certainly faces some fresh challenges, we think its treasure trove of data makes it one of the few businesses more likely to benefit than suffer from wider adoption and penetration of artificial intelligence.

NVIDIA’s result dragged other large tech companies with it, resulting in a 0.9% increase for the MSCI ACWI IMI despite share price weakness outside tech. The Fund’s unit price rose 1.2%, thanks to a few excellent results.

Norbit (OB:NORBT) takes the cake. Norbit is a manufacturer of tailored, high tech products in Norway.

Its main segments are Oceans (think compact sonar systems) and Connectivity (mainly toll tags and smart tachograph systems). Two years ago, the company laid out a three-year plan for revenues and margins that we felt was ambitious but achievable. And they’ve methodically gone about delivering, with any remaining scepticism melting away with the first quarter result. Overall, the company achieved 60% revenue growth versus the same quarter last year, with its profit margin also up meaningfully. The stock is up almost threefold on the price we paid in the 2019 initial public offering and has proven an outstanding compounder for the Fund.

The biggest mover in our portfolio this month was Open Lending (NASDAQ: LPRO) which bounced 44%. The business is currently facing a very challenging market environment given its exposure to near-prime consumer automobile loans. Revenues were hit pretty hard due to ongoing supply issues in both new and used cars, as well as the impact from rising interest rates. Despite this, margins remained strong and management indicated that pandemic supply constraints are slowly improving and dealers are now back to growing inventories.

We think there’s a wider lesson in Open Lending’s recent experience. When the stock market has senselessly beaten down small-cap share prices, don’t assume it will take fantastic operating results to send share prices soaring the other way. One half-decent quarter is often enough. It’s a story we expect to see play out elsewhere in the portfolio in the months ahead.