The Forager International Shares Fund offers a different approach to investing overseas. With investments in large liquid and resilient businesses (outside of the “FANGS”), combined with smaller value based ideas when the opportunities arise, the Fund offers exposure to a unique portfolio of global shares.
In the December 2022 Chief Investment Officer Letter we made the case for smaller companies in 2023. So far, in aggregate, they haven’t delivered.
For the first nine months of 2023, small and mid-cap stocks continued their trend of underperformance relative to their larger counterparts. Market performance has become even more concentrated among a small number of mega-cap tech stocks.
The largest seven companies in the S&P 500 (Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla and Meta) delivered a disproportionate 11 percentage points of the index’s total 13% return year to date. We are always sceptical about these types of statistics, the largest contributors are always a significant proportion of market gains.
But these are simply the seven largest stocks—it is unprecedented that they are also the seven largest contributors to overall index performance.
What is Forager International Shares Forager International Shares is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Specialised Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Forager International Shares has Assets Under Management of 215.97 M with a management fee of 1.05%, a performance fee of 1.43% and a buy/sell spread fee of 0.5%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Forager International Shares has returned 8.08% in the last month. The previous three years have returned 1.56% annualised and 14.83% each year since inception, which is when the Forager International Shares first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Forager International Shares first started, the Sharpe ratio is 0.73 with an annualised volatility of 14.83%. The maximum drawdown of the investment product in the last 12 months is -7.01% and -38.64% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Forager International Shares has a 12-month excess return when compared to the Foreign Equity - Large Specialised Index of 0.52% and -0.38% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Forager International Shares has produced Alpha over the Foreign Equity - Large Specialised Index of 0% in the last 12 months and -0.16% since inception.
What are similar investment products? For a full list of investment products in the Foreign Equity - Large Specialised Index category, you can click here for the Peer Investment Report.
What level of diversification will Forager International Shares provide? Forager International Shares has a correlation coefficient of 0.83 and a beta of 1.04 when compared to the Foreign Equity - Large Specialised Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on Forager International Shares and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Forager International Shares with the Developed -World Index? For a full quantitative report on Forager International Shares compared to the Developed -World Index, you can click here.
Can I sort and compare the Forager International Shares to do my own analysis? To sort and compare the Forager International Shares financial metrics, please refer to the table above.
Has the Forager International Shares been independently verified by SMSF Mate? This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Forager International Shares? 
How do I get in contact with the Forager International Shares? 
Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the Forager International Shares. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 While August was a weak month for global stock markets, an even weaker Australian dollar more than offset the decline. The Forager International Shares Fund notched up a gain of 0.9% for the month, just shy of the 1.1% return from the MSCI World Investable Market Index.
Share price appreciation associated with a takeover offer for Blancco (AIM:BLTG) added more than 1% to Fund returns for the month (see the July monthly report). The shares are currently trading at a small premium to the takeover offer. The bidder, Francisco Partners, hasn’t gained any traction beyond the three largest shareholders that had already committed to selling their cumulative 47% stake when the deal was first announced. We’re now slightly more hopeful that enough shareholders might join us in vetoing the current deal but, with the deadline for acceptance still a month away, it is too early to have any confidence.
The uranium price is up almost 10% since the start of August and is now up 27% so far in 2023, bolstering the Fund’s investment in the Sprott Physical Uranium Trust (TSX:U.UN). This investment is part of a broader commodities basket intended to provide a useful hedge against inflation. The Fund has slowly increased its investment in this owner of physical uranium over the past two years, with it now representing 2.3% of the Fund’s assets. After 15 years of next to no investment in uranium mining assets, our view is that the price needs to rise further to encourage enough mining to meet the world’s growing needs.
Nuclear power is controversial. But it’s likely an important piece of the decarbonisation puzzle. Wind, solar and other intermittent renewable sources of energy will only get us so far. Environmentally-conscious Germany, which recently decommissioned its last nuclear plant, is now burning more coal instead. In contrast, California has pushed back its plan to shutter the Diablo Canyon reactors for at least a decade.
Additional reactor life extensions are being granted across the US, UK and Japan. Political support for nuclear power has also turned a corner since 2022, with the US and EU now classifying it as a clean/green energy source.
But this story isn’t really centred on the West. After 20 years of almost no new nuclear reactors being built across the world, 40 are set to be completed between 2024 and 2027 (largely driven by India and China, where nuclear power has become a core to their emissions reduction and pollution control strategies). Further out, there are 19 additional reactors under construction and 425 new reactors planned or proposed across 31 countries.
Even without these new reactors, current demand sits well above existing uranium production (the gap having been met by stockpile depletion). Some of the world’s largest uranium producers, such as Kazatomprom (KAS:KZAP) and Cameco (TSX:CCO) have missed production targets and downgraded guidance.
The investment case for higher uranium prices has been doing the rounds for a decade. While the recovery was set back by the Fukushima disaster, it’s our belief that this has only exacerbated the underinvestment in future production.
An investment in Sprott Physical Uranium Trust (a closed-ended trust that owns physical uranium) gives the Fund direct exposure to the uranium price without the risks associated with miners themselves. If we’re right about a significantly higher uranium price, there will undoubtedly be miners and mining explorers that prove to be wonderful investments. In our experience, there will also be plenty that end up losing money whether the uranium price rises or not. It is our preference to keep it simple, and Sprott is as simple as it gets.
Backing out currency and the Blancco contribution, the rest of the portfolio was down a touch more than 4% for the month. Open Lending (Nasdaq:LPRO) and Taskus (Nasdaq:TASK) were the two most significant detractors, delivering good results for the June quarter but warning that the second half of the calendar year looks difficult.
Even some of those that exceeded market expectations saw their share prices fall, like Canadian manufacturer Linamar (TSX:LNR). With stock markets around the world rising strongly so far in 2023, some negativity is welcome.
Performance Commentary - July 31, 2023 July was an eventful month for the Fund. The unit price of the Forager International Shares Fund rose 3.0% on the back of several positive results, outpacing a 2.6% return from the index.
In early July, data erasure software provider Blancco (AIM:BLTG) released a trading update saying that its second half had been strong and the business expected to report revenue and profit for the year ended 30 June 2023 ‘comfortably higher than current forecasts’. The stock popped more than 15% on the news. It seemed strange the company took until three days after books closed to tell us it had been a good year. Perhaps they’d been busy?
A few days into August, the news broke that private equity firm Francisco Partners had bid £2.23 cash per share to take Blancco private. The bid represents a 25% premium over the share price at the end of July. The Blancco board has endorsed the bid and several large shareholders have committed to accepting it in the absence of a better offer.
We’re certainly not celebrating. The bid offers no obvious premium for control and undervalues the returns this business can likely generate for shareholders over the medium to long term. We’re also concerned the board hasn’t significantly shopped the company around to other potential bidders before accepting this one. We outlined those concerns in an Open Letter to all shareholders in Blancco Technology Group, which you can find published on our website. We may have more to say on the matter over the coming months.
Performance Commentary - June 30, 2023 Over the year to 30 June 2023, the Forager International Shares Fund returned 19%. Despite slightly underperforming its benchmark index over the year, it’s a result our team can be proud of.
This portfolio—by design—is invariably weighted towards smaller companies. Smaller companies garner less attention from investors and research houses. They tend to grow faster than more mature counterparts. Furthermore, mergers and acquisitions tend to be a more important tailwind for these companies given their size. The results? Smaller stocks have historically achieved higher returns over the full business cycle.
The S&P SmallCap 600 Index has outperformed the large cap S&P 500 by more than two times since the turn of the millennium. When seeking an analytical or behavioural edge in order to scoop a bargain, small caps are an evergreen hunting ground.
But that hunting ground is currently even more fertile than usual. In the decades prior to 2021, small caps traded at a premium multiple to the S&P 500 (higher growth is the reason they typically deliver higher returns). They are currently trading at a 25% discount—a multi year low.
Performance Commentary - May 31, 2023 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.
Performance Commentary - April 30, 2023 April was another positive month for the Fund and the wider market. The unit price of the Forager International Shares Fund rose 2.0%, slightly underperforming a 2.6% return from the index. While most portfolio investments will report results in May, those that were out in April were good.
Meta Platforms (Nasdaq:META) released its first-quarter results and continued its share price run for the calendar year, up 100% since 31 December 2022. Advertising revenue from the company’s social media platforms increased 4% compared to the prior year, after three consecutive quarters of revenue declines.
Users are sharing Reels twice as much as they were six months ago and newly introduced AI recommendation tools have driven a whopping 24% increase in time spent on Instagram. That’s equal parts scary and impressive. Meta’s margins are still lower than they were a year ago but there was a nice improvement versus the last quarter of 2022. Cost guidance for 2023 was lowered again.
Online travel agency lastminute.com (SWX:LMN) has been on a similar trajectory, though on a smaller scale. After Swiss legal troubles, a board and management sweep and some underwhelming fourth-quarter results, we were running out of patience for this business. The rest of the market was too. But there was some light at the end of the tunnel with the company’s full-year result this month. 2022 was a lackluster year for the business, with revenues still 10% below 2019 levels and margins much worse. But trading for the first quarter of 2023 looks promising. Sales were 10% above the same period in 2019 and while margins aren’t quite there yet, they’re definitely getting better. We need both of these trends to continue throughout the year.
Performance Commentary - March 31, 2023 It has been another wild start to the year for financial markets. Silicon Valley Bank, the 16th largest bank in the US, failed due to two years of mismanagement. Credit Suisse, one of Europe’s largest banks, was about to fail due to two decades of mismanagement, only to be rescued by competitor UBS in a near wipeout for shareholders.
Through all that, the unit price of the Forager International Shares Fund rose 10.7% for the quarter, versus an 8.3% return for the MSCI ACWI IMI index in Australian dollars.
Our team has attended various conferences over the past two months, across the United States and Europe. Meetings included a number of existing portfolio holdings and many other companies that are on our watchlist. Some end markets are showing signs of weakness—consumerexposed businesses being chief among them.
But we were surprised at the optimism across many other sectors. Industrials continue to do very well, driven by reduced Covid restrictions in China and onshoring efforts in North America and other Western nations. Other sectors such as semiconductors and commercial construction continue to exceed expectations of a few short months ago. The faster growing retailers on our watchlist, JD Sports (LSE:JD) among others, expressed no desire to pull back on store rollout plans. IT services businesses like Computacenter (LSE:CCC), Softcat (LSE:SCT) and Insight Enterprises (Nasdaq:NSIT), whose customers come from all corners of the economy, aren’t experiencing a slowdown in most parts of their business. Aggregates and cement companies such as Martin Marietta (NYSE:MLM) are talking about an acceleration in their business due to US infrastructure spending while solar power distributors Enphase (NASDAQ: ENPH) and Sunpower (NASDAQ: SPWR) continue to see strong demand for their products.
Performance Commentary - February 28, 2023 January’s investor optimism dissipated quickly in February. Global equity markets gave up much of their January gains as investors digested a plethora of results and stubbornly persistent inflation data, with the latter suggesting interest rates still need to rise more than anticipated in 2023 and potentially opening the door to having no rate cuts in the second half of the year either.
For both the Index and the Forager International Shares Fund, a weak Australian dollar offset all of the stock price falls. The Index was up 1.6% for the month, while the Fund’s unit price increased 1.9%. It is not easy running a business in the current environment. Inflation and supply chain issues are improving but still problematic, labour shortages are still rife and, just as those things start to improve, consumers are proving much more judicious.
Combine a difficult cost environment with dramatic shifts in consumer demand and you get significant changes in profitability from quarter to quarter. Results for the last quarter of 2022 are showing exactly that, with big winners and losers across the portfolio.
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