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Monthly Report: International Fund November 2020

30/11/2020

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International Fund November Monthly Report

A slate of positive vaccine news sent global sharemarkets higher in November, with the MSCI World Index surging more than 7% in Australian dollars. We outlined four key themes for 2021 in our July 2020 roadshow, including a travel recovery, a general value recovery, some highly appealing small growth stocks and a collection of special situations. All four themes contributed in November.

The total Fund return for the month was 10.85%, taking the calendar year to date return to a touch over 30%, after all fees and expenses.

Travel and traditional value stocks were beneficiaries as investors shifted from the perceived safety of expensive work from home winners to recovery stocks. Lloyds Bank (LSE:LLOY), Wizz Air (LSE:WIZZ), Skywest (Nasdaq:SKYW) and Flughafen Wien (WBAG:FLU) are just a few of a long list of strong performers.

Despite November (finally) being a month where growth stocks were on the nose, some of our small companies delivered better-than-expected returns.

It wasn’t all good news. eGain (Nasdaq:EGAN) provided a disappointing update. While its third quarter results were good, the company announced that it had lost two larger clients currently using its customer engagement software. There are plenty of new customers coming on board, too, but the loss has us and others worried about the long-term likelihood of hanging on to them. The stock fell almost 30% in November and gave up all of our gains since purchase.

That was more than offset with some stellar results reported elsewhere.

It was a huge month for online luxury platform Farfetch Limited (NYSE:FTCH). In the first few days, after some speculation, Farfetch announced a joint venture in China with Alibaba Group (NYSE:BABA) and Compagnie Financière Richemont (SWX:CFR). The partnership should significantly expand the platform’s reach in China, as well as serving as an endorsement from two big players in eCommerce and luxury. An impressive set of results followed just a week later. Consumers spent 66% more on the platform than they did one year ago, and profitability continued to improve, eclipsing most people’s expectations. Farfetch’s share price increased 94% throughout the month as a result.

Energy drink company Celsius (Nasdaq:CELH), which has seen its share price rise fivefold over the past 12 months, keeps delivering results that justify the optimism. Revenue for the September quarter was 60% higher than the previous year in its key North American segment. Recent Nielsen data suggest the fourth quarter might be even better. Profit margins and cash generation are both heading in the right direction and, while we have taken a lot of profit off the table, the chances of this stock justifying our most optimistic assumptions are increasing by the day.

Used car retailer Motorpoint (LSE:MOTR) is another small business showing evidence that it is going to be a winner. First half sales were down 27%, unsurprising when COVID-19 closed all of its sites for 2 months. The company didn’t sit on its hands during shutdown, developing a home delivery offering by May. More than 40% of first half sales were online, chiefly click-and-collect, but by September 8% of total sales came from home delivery.

Dealerships reopened in June and pent up demand, strong used car prices and incremental online orders made for a gusty tailwind. Earnings per share for the half rose 10% (revenue, remember, was down 27%). This was accentuated by government support and an unusually strong pricing environment. Margins will come down over time. But the company has sailed through the pandemic. Adding more physical sites and increasing its online presence, Motorpoint will grow for years yet.

And finally, in the special situations category, Oriental Watch (HK:0398) grabbed the baton from Thinksmart (AIM:TSL), which has done much of the lifting for this group in 2020. Oriental Watch is a premium watch retailer (mostly Rolexes) in Hong Kong, China, Macau and Taiwan. The Fund acquired stock 18 months ago when it was a genuine Ben Graham bargain, trading at a sharp discount to net working capital, mainly cash and inventory. The market further ignored significant value in its property portfolio. Paid to wait via a double-digit dividend yield, we participated in November’s buy-back offer, selling almost a third of our holding at prices more than 50% above our purchase price. Interim results came out during November, citing a difficult environment in Hong Kong (due to COVID-19) more than offset by boom times in China. Overall, sales “slightly increased” (managements’ words) by 16.4% versus the same half last year

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