September, 2023
After a strong start to the quarter, weakness in September saw the Fund finish slightly down.
Top contributors to the porfolio in the September quarter were Booking Holdings, Alphabet and Safran. Booking reported a strong second-quarter result where it demonstrated continued progress on direct bookings, performance marketing efficiencies and North American market share. Growth and sentiment were also bolstered by resilient travel demand in Europe. Alphabet reported solid second-quarter results demonstrating stable trends in advertising and continued cost control. Concerns of Search disruption from AI /ChatGPT continued to ease as Alphabet demonstrated its product innovation. Safran reported better-than-expected secondquarter results and raised its full-year 2023 guidance on the back of a faster-than-expected traffic recovery. It also initiated a share buyback.
Yum! Brands, Microsoft and Chipotle Mexican Grill were the largest detractors from the portfolio this quarter. The Yum! Brands share price has been affected by broader weakness in consumer defensive stocks and concerns about a stalled economic recovery in China. This is despite a strong 2Q23 result that included accelerating store roll-out activity and strong momentum in other international markets. Chipotle’s share price fell this quarter after the company gave near-term guidance that disappointed elevated market expectations, reflecting moderating inflation-driven price increases and some temporary impacts from higher avocado and beef costs on restaurant margins. Microsoft delivered good final-quarter (to 30 June) results but the widespread optimism around Azure’s growth inflecting higher (and perhaps some excessive) exuberance around the near-term benefits it will reap from generative AI was not met by the guidance as we lap the optimisation cycle.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-September-2023-MHCF45199.pdfJune, 2023
A concentrated portfolio of 10-20 high quality companies meaningfully diversified in risk exposure and correlations seeking to achieve strong risk-adjusted, not benchmark-relative returns.
Cash and cash equivalents exposure between 0 - 50%. The Fund may, from time to time, hedge some or all of the capital component of the foreign currency exposure of the Fund arising from investments in overseas markets back to Australian Dollars.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-June-2023-MHCF45107.pdfApril, 2023
A concentrated portfolio of 10-20 high quality companies meaningfully diversified in risk exposure and correlations seeking to achieve strong risk-adjusted, not benchmark-relative returns.
Typical cash and cash equivalents exposure between 0 - 50%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-HIGHC-Retail-Factsheet-April-2023-HIGHC45046.pdfMarch, 2023
The portfolio rose over 10% during the March quarter with our holdings in Booking, Microsoft, Alphabet, Chipotle and Amazon leading the way higher. Each of these rose by over 20% in the quarter except Alphabet, which rose by 15%. The significant events of the start of 2023, particularly the banking crisis, has accelerated the pricing of peak rates and recession fears. The portfolio held no exposure to banks and benefited from this.
The lessening of risk to higher long-term bonds and concerns of greater economic slowdown have seen the backdrop move strongly in favour of the characteristics we seek for the High Conviction strategy.
In addition, the long-term total addressable market opportunity that we believe is evident for many of our holdings came back into focus as OpenAI launched ChatGPT to the public, acquiring 100m users in just eight days. Artificial intelligence is not a new phenomenon with about 20 large foundational models in existence, including Microsoft, DeepMind, Meta, Nvidia, and the Allen Institute. OpenAI’s ChatGPT brought a user interface that did several things; it presented a conversational logic that follows on and has contextual linking; it did not dump blocks of text answers but instead typed out answers word by word, giving the appearance of a person responding; and it was made open to the public.
Microsoft, already an investor in OpenAI, moved swiftly to invest a further $10B and lock up future ownership optionality. It has since added CoPilot to several products and rolled out the new Bing. The opportunity for commercial gains across its business from AI have become increasingly evident to investors.
Initially Alphabet struggled as investors worried Microsoft had ‘stolen a march’ on it and Bing would take search share from Google (and Alphabet bungled the initial showcase of its AI). We believe Alphabet has a strong position in advertising and Cloud that it can commercialise successfully, and this is not a two-horse race to be won by one. Alphabet, Microsoft and Amazon are also all facing near-term headwinds as Cloud spend is optimised by their clients and this has forced a meaningful reduction of headcount and other costs to be undertaken. We expect the very near-term quarterly results will remain soft as they each work through the rectification of overbuilt cost structures and instil greater discipline, but we consider this will ensure
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-HIGHC-Retail-Factsheet-March-2023-HIGHC45016-VF2.pdfJanuary, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-HIGHC-Retail-Factsheet-January-2023-HIGHC44957.pdfDecember, 2022
The Magellan High Conviction strategy rose slightly for the quarter. The biggest positive contributions came from the investments in Visa, Intercontinental Exchange and Yum! Brands. All three have shown persistent resilience through recent months and Visa and Yum! both benefit from the current high inflation environment. ICE is delivering strong results and benefiting from current market conditions while the prospective merger with Black Knight awaits regulatory approval. Booking Holdings and Safran also contributed strongly as the improving global travel trends continued.
The biggest detractor in local-currency terms in the quarter was the 25.9% fall in Amazon, as it has found itself on the wrong side of excess demand driven by pandemic stimulus and ultra-low interest rates that is now unwinding. This has seen sizeable cuts to expectations for both its retail and AWS businesses and implementation of major cost cutting and capex reductions to right size its operations. We believe Amazon will ultimately come out of this cycle stronger and better focused and will remain a leading player in its core exposures across cloud infrastructure, ecommerce and, increasingly, advertising. The other main detractors were Alphabet and Meta Platforms, for similar reasons to Amazon; overspend on costs and capex into material revenue slowdowns from stimulus-fueled strength. We exited Meta Platforms during the quarter as part of a general reposition to reduce correlated technology sector exposure and diversify our end market exposures.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-December-2022-MHCF44926.pdfSeptember, 2022
The portfolio recorded a negative return for the quarter. The biggest detractors in local-currency terms were the strategy's holdings in Microsoft, Alphabet and Visa. The trio slid mainly because they are proxies for economic activity: Microsoft for business IT investment; Alphabet, the owner of Google, for advertising; and Visa for consumer spending. A further blow for Microsoft was that its US$69 billion purchase of computer games developer Activision Blizzard faces a probe by the UK regulators over whether or not it could hamper competition.
The biggest contributors included the investments in Netflix and Amazon.com. Netflix gained after the streaming TV leader reported it lost a fewer-than-expected 970,000 subscribers in the second quarter and the company announced it will partner with Microsoft on its new ad-supported tier. Amazon rose after reporting second-quarter revenue that beat estimates and predicted sales could rise 17% in the current quarter thanks to third-party selling and sustained growth in its AWS cloud division.
Index movements are in local currency. US GDP statistics come from the US Department of Commerce, while US employment and inflation statistics are published by the US Department of Labor. EU economic statistics come from Eurostat. UK statistics are released by the Office for National Statistics. Japanese economic statistics come from the Ministry of Economy, Trade and Industry, the Ministry of Finance and the Ministry of Foreign Affairs (GDP). Australian economic statistics are released by the Australia Bureau of Statistics. China's economic statistics are compiled by the National Bureau of Statistics of China.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-September-2022-MHCF44834.pdfJune, 2022
The portfolio recorded a negative return for the quarter. Among the biggest detractors as a rise in government bond yields applied a greater discount to future profits were the investments in Netflix, Amazon and Alphabet. Netflix dived after the streaming service reported an unexpected decline in subscribers during the first quarter, when 200,000 people cancelled their subscriptions. Amazon declined after the online retailer posted its first quarterly loss since 2015 due to rising costs and a write-down on its investment in electric carmaker, Rivian. Alphabet, the parent of Google, dropped after firstquarter revenue growth of 20% disappointed due to poorerthan-expected ad sales in Europe and on YouTube.
No stocks contributed over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-June-2022-MHCF44742v2.pdfMarch, 2022
The portfolio recorded a negative return for the quarter. The biggest detractors were the investments in Netflix, Meta Platforms and Starbucks. Netflix fell after the streaming service said it expected subscriber growth to slow and profit margins to narrow. Meta fell after the owner of Facebook offered only a weak revenue forecast due to Apple privacy restrictions inhibiting the reach and effectiveness of its advertising and its Facebook site suffered its first drop in regular users in part due to the popularity among the young of TikTok. Starbucks slid on reduced guidance.
The biggest contributors were the investments in Visa and Amazon. Visa jumped after its first-quarter 2022 results beat forecasts as payments volumes including across borders increased, which enabled the company to hold back on costly client incentives. Amazon rallied after its fourth-quarter earnings report – that showed net sales jumped 9% to US$137.4 billion – smashed expectations, highlighted just how many growth prospects the e-retailer enjoys, and the company raised the price of its Prime membership scheme.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-March-2022-MHCF44651.pdfJune, 2021
The portfolio recorded a positive return for the quarter. The biggest contributors were the investments in Alphabet, Microsoft and Facebook.
Alphabet rallied after the parent of Google reported that rising spending on digital ads boosted first-quarter sales to US$55.3 billion, a higher-than-expected rise of 34% from a year earlier. Microsoft rose as rising demand for PCs, gaming consoles, and digital services delivered over the cloud boosted the software giant's first-quarter sales by a higher-than-expected 19% to US$41.7 billion. As well, in April, Microsoft agreed to buy speech-recognition firm Nuance Communications for US$19.7 billion, to expand the services it can offer business customers.
Facebook surged after firstquarter sales smashed expectations to rise 48% to US$26.2 billion as advertisers sought access to the social media platform's 2.9 billion users and a US judge unexpectedly dismissed two complaints against the social-media giant from the US regulator because the judge said the Federal Trade Commission failed to prove the company was a monopoly. The only stock to decline in local-currency terms was Tencent Holdings. The Chinese tech company fell as the Chinese government stepped up regulatory scrutiny of the country's largest technology companies.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-June-2021-MHCF44377.pdfMarch, 2021
The portfolio recorded a positive return for the quarter in absolute terms. The biggest contributors were the investments in Alphabet and Facebook. Alphabet rallied after its 23% surge in revenue for the fourth quarter that was driven by Search and YouTube advertising beat expectations. Facebook added after the social media's 33% jump in fourth-quarter revenue to US$28.1 billion showed the company's push into ecommerce during the pandemic had paid off. The biggest detractors were the investments in Netflix and Visa. Netflix slid as risk-taking investors rotated from streaming to legacy media companies. Visa fell on news that it was abandoning its proposed acquisition of Plaid that would have expanded its card network services because it faced anti-trust concerns
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-March-2021-MHCF44286-NEW.pdfFebruary, 2021
• Unconstrained, long-only, highly concentrated • High quality global equity strategy • High individual stock exposure – 8 to 12 stocks • Typical cash exposure between 0% - 50% • $10,000 minimum initial investment.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-February-2021-MHCF44255-1.pdfDecember, 2020
The portfolio recorded a negative return over the quarter. The biggest detractors were the investments in Alibaba Group and SAP. Alibaba dropped after 33%-owned Ant Group suspended its IPO, Chinese authorities said they would investigate the company for "suspected monopolistic conduct", key founder Jack Ma disappeared after criticising financial authorities, and the company's results for the September quarter displayed mixed results across segments.
SAP dropped after Europe's largest software company lowered revenue and profits forecasts and its third-quarter result fell short of expectations as cloud revenue growth slowed.
The biggest contributors were the investments in Starbucks and Alphabet. Starbucks gained after the coffee chain, when announcing a smaller-than-expected drop in same-store sales of 9% for the fourth quarter, signalled that the worst is past. Alphabet rose after its Google subsidiary's advertising revenue showed a better-than-expected rebound from the coronavirus-triggered slump and the US election outcome reduced the risk of a crackdown on Big Tech that would ensnare Google, which is already under anti-trust scrutiny by the US Department of Justice.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-December-2020-MHCF44196.pdfSeptember, 2020
The portfolio recorded a positive return for the quarter. The biggest contributors were the investments in Alibaba Group, Facebook and Starbucks. Alibaba rallied after the Chinese e-commerce giant reported revenue growth of 34% in the second quarter from a year earlier as lockdowns turned Chinese to online retail, and China's economy rebounded. Facebook rose after its 11% surge in second-quarter earnings beat expectations and the social-media company said its main site has 2.7 billion users per month. Starbucks rose after the coffee chain said its businesses in China and the US were recovering well as these economies reopened.
The only detractor was a recently purchased stock.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MAM-MHCF-Retail-Factsheet-September-2020-MHCF44104.pdfticker: MGE0005AU
commentary_block: Array
factsheet_url:
https://www.magellangroup.com.au/funds/magellan-high-conviction-fund/reports/
QUARTERLY
release_schedule: Quarterly
fund_features:
Magellan High Conviction Fund’s objectives are to achieve attractive risk-adjusted returns over the medium to long-term. The Fund offers investors an opportunity to invest in a high conviction global equity fund.
- Invest in companies that have sustainable competitive advantages which translate into returns on capital in excess of their cost of capital for a sustained period of time.
- The portfolio will comprise 8 to 12 investments.
- Applies fundamental bottom-up approach to seek companies with sustainable competitive advantages that can grow more quickly than the overall economy.
- Unlike the flagship fund, the High Conviction strategy doesn’t have strict limits on aggregate portfolio beta, but instead uses cash (up to 50%) to manage drawdown risk.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Large Blend - Specialised
peer_benchmark: Foreign Equity - Large Specialised Index
broad_market_index: Developed -World Index
structure: Managed Fund