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/2021/04/MAM-MHCF-Retail-Factsheet-September-2023-MHCF45199.pdfAugust, 2023
August markets were mainly influenced by the last of earnings results, weak China economic data and an uptick in 10-year bonds; the US 10 Year Bond spiked as high as 4.34% likely partly due to large issuance. Participants seem, even more than usual, unsure of the path for economic growth given the lagged effects of higher policy interest rates juxtaposed with ongoing levels of inflation above target and resilient consumption trends. Energy stocks benefitted from strength in the oil price while utilities struggled as expectations for real interest rates moved higher.
We see increasing evidence of more difficult conditions for consumer exposures (especially discretionary spending) while the opportunities being created by enabling and commercialising AI as well as addressing the capital investment needs of transitioning to a net zero carbon world suggest longer-term support for economic growth, especially in the US. In August, the portfolio rose, benefitting from good underlying company performances and an AUD fall of 3.9%. Price gains were led by Booking, Visa, Amazon, Alphabet and Intercontinental Exchange, which all rose over 5% in the month. Booking is delivering strong results as travel recovers and it is increasingly capturing customers directly via its App. Visa is also benefitting from travel recovery in its cross-border business while Amazon and Alphabet are starting to show the benefits of significant cost and efficiency efforts against strong revenue growth opportunities in part fuelled by AI. Intercontinental Exchange has succeeded in the acquisition of Black Knight, bringing clarity for investors. A couple of stocks had very small price falls but nothing of note in the month. We initiated a position in ASML given share price weakness has opened up a significant margin of safety in this leading exposure to the secular growth in semiconductors. We funded this by taking some profits in Booking.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-MHCF-Retail-Factsheet-August-2023-MHCF45169.pdfJuly, 2023
The portfolio rose in July. After large positive price moves this year, Chipotle Mexican Grill and Microsoft both fell back during July and were small detractors from performance in the month. Neither of these moves concern us and both companies reported excellent 2Q23 results in July. The largest contributions came from Booking and Alphabet, both up ~10% in July. Salesforce also rose nicely during July. Alphabet reported reassuring results during July as it points to strong investments to capitalise on Generative AI and ongoing costs improvements. Booking is leveraged to the rebounding of travel spending and with increasing availability of flights and the strength of travel in Europe, it is well positioned to capitalise. No new stocks were added in the month. Over the past six months, markets have generally been strong as economic data continues to show resilience, inflation comes down and financial system risks are less in focus while the expansion of ‘net zero’ targeting investments and Generative AI investments deliver new opportunities for investors.
The High Conviction strategy has performed well over this period and is positioned to capture the outsized long term growth opportunities across many varied vectors through those companies we see as most advantaged in their industries. While some noise around inflation and rates is to be expected as we close out 2023, we do see a backdrop that will support the fundamental valuation opportunities in our portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-MHCF-Retail-Factsheet-July-2023-MHCF45138.pdfMarch, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-HC-FUND-Retail-Portfolio-Holdings-March-2023-MHCFPH0323.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/2021/04/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/2021/04/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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-MHCF-Retail-Factsheet-June-2022-MHCF44742v2-1.pdfDecember, 2021
The portfolio recorded a positive return in the quarter. The biggest contributors included the investments in Microsoft and Intercontinental Exchange. Microsoft surged on a 22% jump in revenue for the third quarter as its cloud business benefited from the global shift to remote work. Intercontinental Exchange rose as energy derivative volumes climbed on the back of rising energy price volatility.
The biggest detractors were the investments in Alibaba Group and Meta Platforms. Alibaba dropped after the Chinese tech company announced sales figures that disappointed for a second straight quarter and lowered its fiscal outlook for 2022, which fanned concerns about slowing consumer spending in China. Still, Alibaba announced a 29% rise in revenue for the September quarter and forecast 20% to 23% growth in fiscal 2022 revenue, rather than the 27% analysts were expecting. Meta fell after the renamed Facebook warned revenues in the fourth quarter will be knocked further by Apple's privacy changes that restrict its ad-targeting, its thirdquarter revenues fell short of expectations on Apple's restrictions, and the company faced a public-relations blow and possible legal difficulties after a former employee exposed issues at the social-media company and that it was losing younger audiences
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-MHCF-Retail-Factsheet-December-2021-MHCF44561.pdfSeptember, 2021
Global stocks ended the September quarter almost unchanged, to end a run of nine rising quarters in 10. Stocks reached record highs over the first two months of the quarter after the Federal Reserve said it wouldn't overreact to higher inflation readings, US companies delivered better-than-expected earnings reports for the second quarter, and the eurozone and Japanese economies returned to growth. But these gains eroded in September after inflation concerns grew, rising interest rates reduced the present value of future profits, Congress failed to lift the US debt ceiling or pass more stimulus, worries emerged about China's economy, energy prices soared in Europe and covid-19 infections rose worldwide. During the quarter, seven of the 11 sectors fell in US-dollar terms. Materials (-5.0%) fell the most on China concerns while financials (+2.1%) rose most as higher interest rates helped bank margins. The Morgan Stanley Capital International World Index fell 0.01% in US dollars and gained 3.9% in Australian currency.
The portfolio recorded a positive return for the quarter. The biggest contributors were the investments in Netflix and Alphabet. Netflix gained after its 19% jump in revenue from a year earlier to US$7.3 billion highlighted its success, some of its new titles proved popular, and in anticipation of the release of new seasons of popular shows in the coming months that had been delayed due to covid-19. Alphabet surged after the parent of Google posted a higher-than-expected profit of US$21.7 billion in the June quarter after online advertising rebounded.
The biggest detractors were the investments in Alibaba Group and Tencent Holdings. Alibaba dropped after Chinese authorities cracked down on tech with a focus on antitrust, security and inequality issues. Tencent slumped amid this crackdown that restricts gaming by children and saw the cyberregulator fine the company for sexually suggestive content while antitrust authorities fined Tencent for unfair practices and ordered the company to end exclusive music-licensing deals
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-MHCF-Retail-Factsheet-September-2021-MHCF44469.pdfAugust, 2021
In August, the portfolio exited its position in Tencent Holdings and initiated a new investment in Amazon. Tencent owns numerous structurally advantaged businesses. However, we believe Tencent is operating in socially contentious areas including gaming, entertainment and social media that carry the risk of further, and potentially severe, regulatory intervention by the Chinese government.
Given recent events we do not believe we can judge with any degree of certainty where the Chinese government’s regulatory intervention will land and we cannot reasonably assess the impact on Tencent’s future profitability. Given the potentially wide range of outcomes on the value of Tencent, we have sold the investment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/MAM-MHCF-Retail-Factsheet-August-2021-MHCF44439.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/2021/04/MAM-MHCF-Retail-Factsheet-June-2021-MHCF44377.pdfasset_class:
asset_category:
peer_benchmark:
broad_market_index:
manager_contact_details: Array
ticker: MGE9885AU
release_schedule: Quarterly
structure: Managed Fund
commentary_block: Array
factsheet_url:
https://www.magellangroup.com.au/funds/magellan-high-conviction-fund/reports/
Fund Updates
fund_features:
Magellan High Conviction – B’s primary objectives are to achieve attractive risk-adjusted returns over the medium to long-term. The Fund primarily invests in the securities of companies listed on stock exchanges around the world, but will also have some exposure to cash. The Fund can use foreign exchange contracts to facilitate settlement of stock purchases and to mitigate currency risk on specific investments within the portfolio. As part of the investment objectives of the Fund, we 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. However, there is no guarantee that any or all of the Fund will be hedged at any point in time.