In the below video, Chief Investment Officer, Steve Johnson, talks to Analyst, Chloe Stokes, about the reasoning behind some of the stocks the team have bought and held in the International Shares Fund and some they have sold.
Hi and welcome. It’s Steve Johnson here from Forager Funds and we’re talking about our International Fund with Chloe Stokes. You’ve just passed your three year anniversary with Forager, Chloe. We’ve got in the PDS that we hold stocks for three to five years and you seem to be selling everything that you own inside 12 months. What’s going on?
Technically that’s not true. You know that we’ve owned Hallenstein Glasson Holdings for probably almost three years now. So that’s one of the stocks that I’ve been able to buy and hold. The other stocks has been made more difficult by the market. The prices keep going up faster than my valuation models can keep up and luckily that hasn’t been the case for Hallenstein Glassons.
The whole portfolio is up more than 50% in the past 12 months, that’s been in the face of a fairly significant appreciation of the Australian dollar, which hurts it, and net of fees as well. The local currency stock performance has been something north of 70% and that has been causing us obviously some joy and it’s led to us paying some special distributions in the Fund, but also causing some issues around some of these stocks we hold. Something like Celsius is up 10 times over the past year. And I know everyone says when you find a great opportunity hang on to it, but hang on to it for how long and at what level of overpricing or lack of discount can you keep holding these stocks?
So maybe a couple in your world that you’ve had to sell, Chloe, can we talk about Ulta Beauty first? Because I know that’s a business you’ve got some high long-term hopes about.
That’s one that we’ve owned since December 2019. We did sell out of it recently because we just couldn’t keep up with the valuation, as I mentioned before. It was getting above our base case and this is even prior to COVID. So included in what we invested in initially was the expectation that Ulta would be rolling out a number of stores in the US and expanding into Canada. Because of COVID they’ve had to put those plans on hold.
On the other side of that they have pushed into online a lot faster than they might have otherwise, and there’s the potential that some of their smaller competitors might go bust. So there are some benefits as well. But when you think about a reopening, it looks like everything’s been priced in, and then some.
How much would we have made on that stock over the past 12 months?
I think we’ve made around 35% on that stock.
Right, and on a business that has been mostly closed for most of the past 12 months. So it’s a good insight into how the market is already repricing recovery on a lot of this stuff. Now February was a pretty good month for us, and it was a month where a lot of the momentum and growth stocks had sold off.
A lot of our returns came from different parts of the portfolio. For example, Skywest airline was up a lot. Where are you reallocating this capital to where we’ve realized at least fair value? I think in some cases we’ve held through fair value, we’ve been patient and they’ve traded at prices that almost forced us to sell. Where do you see the returns coming from here?
As we’ve been speaking about, the reopening is largely priced in, in a lot of the names in the US. There are some that we have invested in recently though. An example is Bed Bath & Beyond. We think there’s a good turnaround story in that one.
A prime hunting ground at the moment, and what has been for a while, is in the UK. I think there are a lot of stocks over there, including some in my sphere, so retailers especially bricks and mortar, where a reopening hasn’t been properly priced in. So we’ve been looking at stocks like Superdry, which would involve a turnaround story, but also something like Card Factory, which is a small bricks and mortar retailer that operates throughout the UK. They haven’t been growing like a weed because they sell greetings cards, but it’s been a pretty good business over a long period of time. And it’s priced as though it might never go back to selling cards in stores.
So looking at it from my level, there’s a bunch of new ideas coming into the portfolio, that’s fantastic. There’s also the stuff that’s been largely left behind where we think the business is continuing to perform well. We’re reallocating capital across to those and the cash weighting in our International Fund is up close to 10%, which is as high as it’s been for a long period of time.
If we go through another market volatility period, I think that will be a positive thing as well. Look, it has been an extraordinary period. You should not expect this level of turnover. I think like you’ve touched on with Glassons, it’s an easier way to make money over a long time, just to buy a business where the share price grows along with the business, rather than growing much faster, we would rather hold these businesses for very long periods of time, but there comes a point where there’s so much expectation in the share price that we need to move on.
I think you and the team have used our small size, our nimbleness to reallocate the portfolio to some really attractive opportunities and to keep that performance coming over the past three or four months. Whereas I think in previous years we maybe didn’t change enough or we were caught holding lots of cash. We’ve been able to keep delivering performance over these last few months when the market factors have changed a little bit in terms of where it’s coming from. Thanks for your time Chloe, and thank you for tuning in.
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