Reporting season made it a busy time for the stocks in the Forager International Shares Fund, particularly for our small-cap holdings. While it’s been a game of snakes and ladders for some stocks, the gains off the back of this reporting period have been more widespread across the portfolio.
Chief Investment Officer Steve Johnson discusses some of the standouts from reporting season, including a newer addition in Fathom (NASDAQ: FTHM) and a longer-term holding in Zebra Technologies (NASDAQ: ZBRA), whose share price has almost tripled since being added to the Fund.
Steve also shares the team’s perspective on supply chain issues and inflation, which have dominated headlines. He then reveals what’s next for the Fund – explaining why, in the current market, the team is considering a more conservative bent with a focus on higher-quality, more resilient businesses.
Hi everyone and welcome. It’s Steve Johnson here, chief investment officer at Forager Funds. And today we’re talking international stocks. It’s been an extremely busy couple of weeks in our International portfolio with the vast majority of our smaller companies reporting. In fact, we’ve had 15 companies report in the last week alone.
We wrote in our August monthly report that we thought we’d seen some pretty good results out of some of our small cap holdings and only seeing share prices go down. But the gains this reporting period have been very widespread across the portfolio. Most of our small cap stuff is up and you can see that overall in the latest unit prices.
A lot of that’s been some of the newer additions to the portfolio stocks like Fathom, for example, reporting some particularly good results. Playboy and Ammo as well. A couple of the real highlights for me though were some stocks that we’ve held for quite some time. Uh, Linamar, which is a supplier to the auto industry, reported a very, very good result considering the auto industry is struggling massively with a chip shortage. And our old friends at Zebra Technologies as well – this is quite a large company these days. Its share price has almost tripled since our first purchase about two years ago and we’ve reduced the weighting as a result. But the results that that company keeps putting out have been absolutely essential.
It’s certainly been a better response to good news this time around. There’s been a bit of, I guess, snakes and ladders in the portfolio. Some stocks have fallen on the back of results, but largely they are up significantly. And I think most importantly for us, it’s generally been reflective of the results that we’re seeing from these companies.
We can handle getting things wrong and share prices going down. It’s a little bit frustrating when you think your thesis is playing out well and the share price is not responding. So certainly this month we’ve seen big share price gains across those stocks that reported good results. A lot of stocks were up a lot prior to the results coming out as well.
So, for those businesses reporting numbers that kept people happy was important too. And again, we’ve seen plenty of that across the portfolio. So like I said before, you’re seeing that turn up in the unit price.
Supply chain issues and price rises have been a massive theme across all of the management meetings that we’ve had over the past couple of weeks. I think their concern varies depending on what the business is, but the consistent theme from everyone has been that these problems are not going away anytime soon.
Whether they do go away by the end of next year or not, whether we’re dealing with sustained inflation here is still a very, very difficult question to answer. But I don’t think there’s any doubt that into the end of 2021 and the first couple of quarters of 2022, we are still going to be seeing this as a big theme.
It’s most prevalent at the moment in the auto industry. We saw Linamar talking about it. We saw our Open Lending as well, which has been a wonderful investment for us, start to guide towards a more difficult period in Q4, again, because of a lack of supply of cars. But we’re also seeing that spread to other industries, and – I think really importantly – a wage inflation and inability to find labor as well. So, it’s a theme that you’re not going to see leaving the headlines anytime soon.
We’ve been talking quite a bit lately about a more conservative bent in the current market that’s out there – skewing the portfolio more towards some higher-quality, more resilient businesses. We’ve had a really good couple of months here with some of these small-cap growth stocks, and that’s probably going to give us the opportunity to continue that trend.
Really the theme from this reporting period has been constantly finding new ideas is a really important part of keeping the portfolio fresh – lots of our new stuff reporting good results and doing well for us, and that’s only going to become increasingly important in future. I expect it’ll be pretty quiet on the news front through to December, and then we’ll start getting the next lot of results and, importantly, guidance typically for 2022 with those numbers that start coming out in late January and early February.
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