September, 2023
The Fund fell -6.1% net-of-fees during September, underperforming the MSCI All Countries World Index (net) as expressed in AUD from Bloomberg by -2.4%.
The relief rally that powered the first half of the year faded as investors came to understand that no further interest rate hikes was not the same as an interest rate cut, which some fear will not come until calendar year 2025.
The stellar performance of the magnificent seven – Apple, Alphabet, Nvidia, Microsoft, Amazon, Meta and Tesla (which is not a Fund holding) – came to a halt days after the June quarter reports were issued before accelerating (down!) in September, generating the first quarterly negative return for the Fund this calendar year. Markets don’t care for a hiatus. So, there has been discomfort with the lack of visibility of AI applications which some may have thought they were buying when they invested in Microsoft or Google earlier in the year.
It’s true AI won't butter toast for you. But deployed at scale in datacentres, even the productivity boost of the already available co-pilot for code writing alone is colossal. Large language model usage will also be behind the ever-increasing instances of AI applications like writing marketing materials for Amazon-sized product sets, summarising long documents, instantaneous translation (which Spotify is considering rendering its podcasts into different languages using the voices of the speakers) among literally thousands of others.
The biggest negative for the month was Netflix which detracted -1.3% from the portfolio value. The company lowered its ‘soft’ guidance for operating margins and warned investors that advertising was not yet material to overall revenue. The Fund’s other streaming play, Roku, also declined over the month, detracting -0.5%.
Nvidia generated a negative contribution of -0.7% for the month. Despites the chip company's meteoric guidance beat last month, investors have sold the stock down as the surge in demand obscures the scale of Graphics Processing Units following the initial demand ramp up from generative artificial intelligence.
Amazon, Google and Microsoft together cut -1.3% from the value of the Fund. The former two have become embroiled in antitrust litigation. Nevertheless, all three are making progress with their burgeoning artificial intelligence offerings. Amazon has made a substantial investment in Large Language Model (LLM) maker, Anthropic AI, Google is nearing the release of its reinforcement learning based Gemini LLM and Microsoft is committing to defend AI Copilot commercial customers against copyright claims.
CrowdStrike, Meta and Teradyne made up the Fund’s top contributors for the month. These three holdings increased Fund value by +0.2% collectively. Better-than-expected quarterly financials from CrowdStrike helped to lift the stock price at the beginning of September with the company beating on key metrics including revenue and earnings. CrowdStrike is benefitting from strong secular tailwinds in cybersecurity which have only intensified with the move to hybrid workplaces and digital transformation. The company’s cloud-delivered platform simplifies security management for analysts, making it an attractive proposition for customers looking to consolidate spending onto a harmonious, best-of-breed solution.
The Australian dollar depreciated -0.3% against the US dollar over the month, which meant the value of the Fund’s US dollar positions increased. As at 29 September 2023, the Fund carried a foreign currency exposure of 89.3%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-September-2023-Update.pdfAugust, 2023
The Fund’s value fell -0.9% net-of-fees during August, underperforming the Fund’s benchmark, the MSCI All Countries World Index (net) as expressed in AUD from Bloomberg by -2.0%.
Kicking off August was the worrying news that credit ratings agency, Fitch, had downgraded US sovereign debt from AAA to AA+, sparking fresh concerns surrounding the health of the US economy. Further cuts to ratings of US regional banks by leading ratings agencies Moody’s and S&P Global added to these concerns, pushing share markets down in the first half of the month.
Late in the month the US Federal Reserve had its Jackson Hole meeting at which it flagged the possibility of higher rates were the economic data to support it. It has not – immediately following the meeting both job growth and inflation data suggested that the Fed need not raise nor cut, at least until November or even further. Markets subsequently rallied to close out August.
Contributors and Detractors to Return
The largest contributor for the month was Nvidia at +0.7%, on considerable volatility - starting the month at US$465, before falling to US$408 and then rallying into the results and beyond all the way to US$492. The company exceeded quarterly revenue expectations by 24% and is on track to deliver US$17 a share EPS in FY25 (CY24), implying a forward price-to-earnings multiple of under 30x. While this may not be viewed as cheap by some, the company’s historical EPS was around $3/share, so growth in earnings is fivefold, which helps to explain the share price move to US$492.
Beyond Nvidia, there are many other portfolio companies that are benefitting from increased demand for AI solutions, such as Advanced Micro Devices, Arista Networks, Marvell Technology, Microsoft, Alphabet and Amazon. All these companies can lay claim to a valuable piece of the AI puzzle, and so provide diversification away from just one company, thus reducing risk for investors.
Palo Alto Networks, one of the Fund’s cybersecurity holdings, had a tumultuous month. The stock fell after announcing that it would report earnings on a Friday evening - an unconventional time slot (and one which the market interprets with uneasiness) and fell again after one of its peers indicated slowing growth in a key segment. However, earnings came through strongly. The downtrend reversed and the company showcased the robustness of IT security demand despite the tough macroenvironment. This was similarly reflected in the solid earnings of the Fund’s other cybersecurity holding CrowdStrike.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-August-2023-Update.pdfJuly, 2023
The Fund grew +5.4% net-of-fees during July, generating +2.6% outperformance against our benchmark index, the MSCI All Countries World Index (net) as expressed in AUD from Bloomberg, which was up +2.8%.
It now seems that markets were right to rally in the first half of the year, with the US Federal Reserve's program of interest rate rises to curb inflation appearing to have worked. The consumer price index remains controlled and even more pleasing is the absence of the predicted recession, with unemployment sitting around a respectable 4% and second quarter GDP up +2.4% annualised.
Contributors and Detractors to Return
The Fund’s performance was underpinned by Roku (increasing Fund value by +2.1%), Qualcomm (+1.3%) and Alphabet (Google) (+0.8%), with good contributions from companies such as ON Semiconductor (+0.2%) and Wolfspeed (+0.3%), the latter two of which are important players in vehicle electrification. ON reported on the last day of this month, with better-than-expected earnings and revenue for the quarter and an upgrade to guidance to both in the three months to September this year.
Qualcomm, our largest position, advanced because of the perception that smartphone and laptops are set to recover in the coming months. Roku performed very well late in the month from an oversold position. Investors again contemplated the company’s commanding lead in free ad-supported streamed television (FAST) at a time when advertising growth is poised to re-accelerate.
Alphabet (Google) surprised with a return to advertising revenue growth and an extension in profitability for the Google Cloud Platform first shown last quarter.
Taiwan Semiconductor was the biggest detractor for the month, cutting -0.2% from the Fund’s value, with the next three worst detractors (Netflix, Microsoft and Arista Networks) summing to only a -0.4% reduction.
Microsoft’s relative underperformance is to a certain extent a function of timing - the company is up around +40% this year as it has made all-time highs fuelled by artificial intelligence (AI). Microsoft’s AI products have access to one of the broadest groups of enterprise customers in the world today. Already, the company is adding AI to applications including Office, Teams and Enterprise, with new tiered pricing announced earlier in the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-July-2023-Update.pdfJune, 2023
The Fund grew +4.1% net-of-fees during June, as markets continued digesting the opportunity in AI and the economy proved more resilient than expected in the face of rising interest rates. The MSCI All Countries World Index (net) as expressed in AUD from Bloomberg rose +2.6%, resulting in outperformance by the Fund of +1.5%. Notably, the Federal Open Market Committee elected to pause the benchmark Fed Funds Rate at 5.25% - the first time since the beginning of their inflation-busting campaign in early 2022. The move was guided by May data that showed a drop in the US consumer price index to just 4% year-over-year from a peak of 9.1% in June 2022, giving policy makers some comfort that interest rate hikes are having the desired effect on the economy. Nevertheless, Fed Chair Jerome Powell reiterated his resolve to hike rates further if needed.
The Fund’s quarterly performance of +13.2% net-of-fees was supported by gains in long-held companies like Netflix, Amazon and Microsoft, together making up almost half of the contribution. Our semiconductor holdings, including Advanced Micro Devices (AMD), Nvidia and Marvell Technology enjoyed a boost from the advent of generative artificial intelligence and its potential future iterations and uses. Loftus Peak has always held exposure to this megatrend, recognising its nascent potential. For the six-month period to end June, the Fund grew +42.5% net-of-fees which was again thanks primarily to our core exposures to semiconductors, hyperscalers and streamers.
Samsara was the largest contributor to return in June, increasing Fund value by +1.2% in the month. The company’s June performance cemented its strong run in 2023 thus far, becoming one of the Fund’s top performers year-to-date. Samsara’s first quarter earnings revealed revenue growth of +43% year-on-year and improving operating margins, raising the stock price early in the month. Netflix was the second largest contributor, adding +0.8% to Fund value. The company is currently embarking on a campaign to monetise the ~100 million users accessing Netflix via password sharing. Preliminary third-party data released during the month has suggested the crackdown has been effective. We await confirmation of these figures at Netflix’ second quarter earnings result in July.
The biggest detractors for the month were Alphabet and AMD - two stocks that made significant gains in the first few months of the year. Regulatory headwinds contributed to Alphabet’s June fall with news that both Canada and California were moving to institute legislation aimed at charging big platforms for linking to news stories. The bills echo the familiar Australian legislation passed in 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-June-2023-Update.pdfMay, 2023
May’s performance saw the Fund rise a strong +13.7% net-of-fees – the Fund’s best absolute monthly result since inception in November 2016. The benchmark grew a more subdued +1.3% resulting in outperformance by the Fund of +12.5%, a record for monthly relative performance.
These figures come after a short but significant rally took hold in the second half of the month. Following Nvidia’s earning call - the first time the AI opportunity was enumerated by the company at the revenue level - AI exposed companies soared. This was particularly true of the semiconductor companies which produce the tools driving artificial intelligence.
Across the month, investors wrestled with the risk of the U.S. reaching its debt ceiling and the possibility that the world’s largest economy could default for the first time in history. These fears were alleviated following bipartisan support for a bill; increasing the debt ceiling and cutting back future spending modestly. The bill passed the U.S. House of Representatives on the final day of the month.
Year-to-date, the Fund is up +36.9% net-of-fees. The Fund has generated returns of +18.2% p.a. net-of-fees since inception - which translates to +6.4% p.a. outperformance net-of-fees.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-May-2023-Update.pdfApril, 2023
April saw the Fund value fall -4.4% net-of-fees as investors fretted over the prospect of a recession of uncertain duration and depth, and one which would be exacerbated by a further interest rate hike. This was despite the bank bailouts the previous month, including the troubled First Republic Bank which limped through April badly wounded. First Republic’s issues are part of a larger story around regional banks, however the latest batch of big bank earnings have reassured investors of the health of the overall financial system.
The poor April outcome is not ideal but comes after the +25.9% net-of-fees gain the Fund generated in the first quarter of this calendar year, with March alone contributing an uplift of +9.1%. The -4.4% net-of-fees performance by the Fund was -7.1% below the MSCI All Countries benchmark in Australian dollars which gained +2.7% in April.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-April-2023-Update.pdfMarch, 2023
March numbers built on the strong January and February performance with the Fund finishing the month up +9.1% net-of-fees. Economic data released early in the month implied that inflation could be more persistent than expected, requiring a more hawkish response from the US Federal Reserve, with comments from Chair Jerome Powell exacerbating these concerns, driving yields up and stocks down. Then Silicon Valley Bank and Signature Bank collapsed, followed by the fire sale of an embattled Credit Suisse to rival UBS. US regulators acted swiftly to guarantee the deposits of American banks, halting a possibly more severe systemic banking crisis. It appeared to spell the end of the aggressive rate tightening from the US Fed, with one wag noting that ‘whenever the Fed taps the brakes, someone goes through the windshield.’ Markets rallied, and Loftus Peak rallied harder: the Fund outperformed substantially in March, finishing +5.2% above the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg.
For the March quarter, the Fund gained +25.9% net-of-fees which is outperformance against the benchmark of +16.7%. Through the quarter, the Fund benefitted from easing macroeconomic concerns and a rotation back to technology, particularly in semiconductors and big tech.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-March-2023-Update.pdfFebruary, 2023
February opened weaker after January's strong performance, with evidence of persisting inflation curbing investor optimism that US interest rate cuts would happen this year. Nevertheless, the Fund gained +3.7% net-of-fees, with solid outperformance of +2.3% relative to the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg. Since inception, the Fund has generated +15.8% p.a. net-of-fees which is +4.8% p.a. outperformance against the benchmark.
Turning to the bigger picture, inflation is still the major worry and is driving market volatility, with the United States consumer price index (CPI) rising +0.5% in January and +6.4% annually (Source: US Bureau of Labor Statistics 14/02/2023) against estimates of +0.4% and +6.2% (respectively). This pushed 10-year Treasury note yields to the highest level since November last year (Source: Bloomberg 28/02/2023). The futures market is pricing in rates of ~5.4%, which indicate at least three more 25 basis point increases from the current upper bound level of 4.75%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-February-2023-Update.pdfJanuary, 2023
January saw a significant rebound in equity markets following December’s sell-off. The Fund gained +11.3% net-of-fees, almost reversing last month's loss of -11.3%. January’s outperformance relative to the MSCI All Countries World Index (net) as expressed in AUD from Bloomberg was +7.6%.
Markets digested further data points indicating cooling inflation. The United States December CPI print recorded the annual inflation rate at 6.5% - down from 7.1% in November. Monthly CPI was negative for the first time since early 2020 at -0.1% as energy prices normalised and food price growth slowed. December's employment figures were also stronger than expected - a sign the US economy is holding up well - which would usually give more credence to further rate hikes by the Fed if it weren't for wage growth coming in below expectations.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-January-2023-Update.pdfDecember, 2022
December saw our worst ever monthly performance, down -11.3% net-of-fees, which was underperformance of -5.8% against the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg. This rounds off our worst ever year with the Fund down -31.7%, the only full calendar year of negative performance since the firm was formed in 2014. This corresponds to an underperformance of -18.8% against the benchmark.
The market moves for the month reflect investor uncertainty in the face of interest rate hikes notwithstanding the November US CPI print, which showed inflation cooling. The US Federal Reserve, which drives global interest rates, remained cautious, so rates were hiked at its December meeting to the highest levels seen since 2007, while rate reductions are to be no earlier than 2024. The disconnect between leading inflation indicators and Fed behaviour drove volatility and a sell-off in December, with a solid January rally further proof of investor confusion.
Beyond the US, China reversed its zero-COVID policy. This may end the looming threat of businesses being abruptly disturbed by snap lockdowns. This is a tailwind for the broader economy and for companies operating out of and selling into China.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-December-2022-Update.pdfNovember, 2022
November saw two significant events, both related to expectations of slower interest rate rises, which together lifted Loftus Peak investor portfolios by +5.6% net-of-fees for the month, with outperformance of +2.9% relative to the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg. Since inception, the Fund has generated 16.1% p.a. net-of-fees which is 4.5% p.a. outperformance against the benchmark.
The first of these two events was a lower-than-expected 0.4% month-on-month US CPI increase for October which implied a less aggressive series of future rate rises, while the second was the explicit comment by Federal Reserve Chairman Jerome Powell who said last week that if the “promising” inflation numbers continued “the time for moderating the pace of rate increases may come as soon as the December meeting.”
More broadly we do not see these big market moves as reflecting a re-rating of companies in the portfolio based on the prospects of the underlying businesses, but instead as a recovery from oversold positions on the expectation of a more favourable trajectory for interest rates. Even the narrowly based Dow Jones, with only 30 stocks, was up +20% from its September low - enough to state that on the numbers, this index is in a bull market.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-November-2022-Update.pdfOctober, 2022
Earnings season kicked off in October with investors closely monitoring results for clues on how the Federal Reserve’s aggressive interest rate tightening has impacted corporate America. Netflix and Arista Networks delivered earnings which trumped these macroeconomic headwinds, while Amazon and Alphabet (Google) didn’t. The labour market, which is often used as a barometer for the health of the economy, continued to show strength, even as the benchmark Fed Funds Rate topped 3.25%.
Geopolitics was also front-of-mind with Xi Jinping moving to consolidate his power within the Chinese Communist Party, stacking the Politburo with loyalists and anointing himself for a third Presidential term. Chinese companiesfell after the announcement given Xi’s hostility to domestic internet firms and continuing COVID-zero policies which stifle economic growth.
The Fund closed out the month up +2.1% net-of-fees, which was underperformance of -4.5% against the benchmark MSCI All Countries World Index (net dividends reinvested) as expressed in AUD from Bloomberg. Since inception, the Fund has generated +15.2% per annum which is +4.0% outperformance against the benchmark.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-October-2022-Update.pdfSeptember, 2022
The Fund closed out the month down -6.7% net-of-fees, which was underperformance of -3.1% against the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg, one of the worst months on record for Fund returns. For the year to September, the Fund is down -21.6%, with underperformance of -10.6% against the benchmark. Half the Fund’s poor result came on the last two trading days of September, with a -3.7% sell-down caused by a major run on the trillion-pound liability-driven investment sector in the UK, essentially a panic in the bond market by large funds managing defined benefit retirement plans.
Of course, the major factor for the month has been the continuing talk of higher interest rates in the US as a mechanism to tamp down inflation (which has started to fall on most measures). As a policy decision, we believe this is the correct course – the world has seen big increases in costs across food, fuel, fertiliser, oil, travel and rents to name just a few of the big ones, and it does not take a lot of imagination to see that such steep price rises then feed into higher wage claims as workers seek to get ahead of the next hike by locking in a lift in salaries.
However, there is more to investment than just interest rate movements. The basis of the Loftus Peak Fund is the selection of a group of key companies across thematics which will continue to drive disruptive business models, and which will do so for some time. So it is that we do not invest in oil companies, because on a tenyear basis there is likely to be less oil used globally as electric cars go mainstream. Another thematic is networks, which underpins individualised connectivity through broadband, to perform a variety of different functions including banking, shopping, messaging and navigating.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-September-2022-Update.pdfAugust, 2022
This month’s bogey was European inflation, which was up to 9.1% for the twelve months to August, so still increasing. Energy and food prices drove this rise, courtesy of the Russian invasion of Ukraine, the result of which is that US interest rates will remain higher for longer.
August saw a reduction in cash exposure and an increase in the Fund’s position into high quality names. During the month the Fund underperformed against the benchmark MSCI All Countries World Index (net, as expressed in AUD from Bloomberg) by -1.3%. The contrast with July was stark – the Fund returned +9.9% for that month. Since inception, the Fund has returned an annualised +16.7% p.a. with outperformance of +5.6% p.a.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-August-2022-Update.pdfJuly, 2022
In July, the Fund reversed the June fall and then some – it was up +9.9% in absolute terms (net-of-fees) with outperformance of +3.9% relative to the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg.
Markets had braced for impact following the US Federal Reserve rate hikes (+2.25% so far this year) with expectations of a recession to hit relatively quickly, so forcing stock prices down in anticipation in the first half of the year. There are many negative indicators which pointed to this, except one very important one - the US unemployment rate which now stands at around a 50-year low. That could deteriorate if US policy makers are forced to raise rates again in the event inflation readings do not fall from currently elevated levels.
Many companies held by the Fund did not get the memo that the economy was in a technical recession - earnings were instead driven by many of the strong underlying disruptive trends we have pointed to in recent months, including cloud, auto and the internet of things. The better-than-expected June profit numbers saw many holdings rally in response
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-July-2022-Update.pdfMay, 2022
Inflation and interest rates continued to be front of mind for investors in May. The initial reprieve brought about by commentary from the Fed that suggested more aggressive hikes (than 50bps) were off the table was short-lived assome companies began feeling the economic pinch.
These cracks took the form of hiring freezes, excess inventory issues and downward revisions to earnings guidance (which had been made only weeks earlier). This all points to a greater likelihood of economic hardship. However, it wasn’t all bad. Many of the semiconductor companies the Fund is invested in either reiterated or increased their forward guidance. We believe this highlights the strength of the secular tailwinds these businesses are benefiting from. Although a recession might slow the pace of change, it is unlikely to alter the direction – more workloads will shift to the cloud, electric vehicles will take up greater market share and media consumption will be increasingly digital. Despite economic weakness, consumers and businesses across all industries will continue to make purchasing decisions in favour of better, more efficient solutions. The Fund closed out the month down -0.4% net-of-fees, which was outperformance of +0.9% against the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-May-2022-Update.pdfApril, 2022
Markets remained volatile in April as investors struggled to digest a barrage of news and economic data, including surging inflation and rising interest rates as well as the continuing war in Ukraine and lockdowns in China – all of which added more uncertainty to the short-term outlook.
Not even the quality end of the growth market was spared, with companies such as Amazon and Alphabet (Google) down significantly as assumptions around near-term softness in consumer spending began to impact pricing. These assumptions seemed to run contrary to commentary from management in the most recent earnings calls for a majority of the Fund’s holdings to date, which instead suggested this softness was yet to materialise. So despite strong fundamentals, it is the negative macroeconomic environment driving the narrative, and which resulted in one of the worst months in the strategy’s eight-year history.
The fund dropped -9.2% in value, which was an underperformance of -6.5% against the benchmark MSCI All Countries World Index (net) as expressed in AUD from Bloomberg. We were surprised by the speed of the minor bounce towards the end of March/early April and took some profits on positions, some of which were up more than 20% in a few short weeks. The Fund closed out the month with cash exposure of 13.3%
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-April-2022-Update.pdfMarch, 2022
Global stock markets recovered somewhat in March as the worst-case scenario of the unprovoked war in Ukraine – meaning an escalation involving NATO troops, or worse – did not eventuate. Still, the Fund lost -3.2% of its value with higher oil prices and interest rates the major negative factors.
This was the underperformance of -2.0% against our benchmark MSCI All Countries World Index (net, as expressed in AUD from Bloomberg). We believe the market has started to recognise the value of quality companies – those with robust business models, pricing power, strong balance sheets, and cash flows. We expect this trend to continue as the macroeconomic environment begins filtering through to company earnings. We took advantage of the market lows in March to increase our weighting to equities by around 5%, purchasing a number of quality companies that had been on our watchlist but were previously precluded from the portfolio on the basis of valuation. Cash exposure at the end of March was 7.4%
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-March-2022-Update.pdfFebruary, 2022
The launch of an unprovoked war in Ukraine caused significant dislocation, with the Fund’s net-offees return of -5.7% resulted in underperformance of -0.6% relative to the benchmark MSCI All Countries World Index (net, as expressed in AUD from Bloomberg). In conjunction with expected interest rate rises, which we expect will still happen, albeit likely not as severe, we repositioned the portfolio to reduce risk, which helped avoid the worst blow-ups. As noted in last month’s review, the holdings in semi-conductor companies have assisted performance generally over the past few months, outperforming the higher-risk “app” companies such as Block (Square) and Twitter and indeed Roku.
A number of semi-conductor companies in the portfolio were impacted by perceptions of shortages in neon and palladium, both of which are in part supplied from Ukraine. While the concerns proved overblown, by month end there was damage to the Fund, with Taiwan Semiconductor Company and Qualcomm detracting -1.5% from the Fund’s value. Our two streaming companies, Roku and Netflix, were together off -1.9% as concerns about postpandemic growth caused investors to fret about valuations.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-February-2022-Update.pdfJanuary, 2022
It was a volatile start to the year 2022. The Fund’s net-of-fees return of -6.4% resulted in underperformance of -4.3% relative to the benchmark MSCI All Countries World Index (net, as expressed in AUD from Bloomberg). The volatility was a direct result of the US Federal Reserve moving to squeeze inflation out of the economy, so reducing its bond buying process and flagging higher interest rates. In turn, the market began selling out of names with ‘growth’ characteristics. For some of these companies this was probably the right decision, but we also believe some have been over-sold, without a thorough examination of fundamentals or the underlying long-term secular themes powering their growth. We have seen this before: markets often have knee-jerk reactions to new information and take time – along with a couple of rounds of earnings – to properly assess the impact to companies. We believe we are still at the early stages of this process and that there is likely more volatility ahead, but that quality companies riding secular tailwinds are the safest place to be over the medium- to long-term. Some cash was raised towards month end by taking profits in companies the share prices of which had responded positively to strong earnings results.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-January-2022-Update.pdfDecember, 2021
The last month of 2021 ended with a whimper. The net-of-fees return of -1.5% resulted in underperformance of -3.0% relative to the benchmark MSCI All Countries World Index (net, as expressed in AUD from Bloomberg). This brings the Fund’s one-year net-of-fees performance to +21.2%, underperformance of -4.1%. The strong absolute result was achieved against the backdrop of the even stronger COVID-19 “re-opening trade”. Looking to the year ahead, we remain particularly confident in the Fund’s exposures to 5G and Internet of Things, cloud computing, digital advertising as well as the semiconductors underpinning these disruptive changes; we will continue to position our clients to benefit from these long-term secular trends.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-December-2021-Update.pdfOctober, 2021
By the end of October, almost half the portfolio had reported earnings, with generally favourable outcomes other than Apple and Amazon, leading to net-of-fees performance of +1.4% for the month and outperformance of +0.4% relative to the benchmark, the MSCI All Countries World Index in Australian dollars (which was up +0.9%). Since the Fund’s inception in 2016, it has returned +24.4% p.a., outperformance of +9.3% p.a.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-October-2021-Update.pdfSeptember, 2021
September was a poor month for markets generally – our benchmark index, the MSCI All Countries World Index (net) as expressed in AUD from Bloomberg, fell -2.8%, while the Fund had one of its worst months, dropping -5.4%, resulting in underperformance of -2.6%. Since the Fund’s inception in 2016, the Fund has returned +24.5% p.a., outperformance of +9.3% p.a. The market continues to focus on the “re-opening trade”, attempting to time its way into cruise liners, airlines and other travel related companies. While a rebound is in order, there remains a disconnect between the market’s expectations of continuing growth for these businesses in light of the changing nature of the market, brought on by disruption.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-September-Update-.pdfJune, 2021
June was a strong month for the Loftus Peak Global Disruption Fund, recording a return of +10.2% net-of-fees with +5.6% of outperformance. This brought total net performance for the 20/21 financial year to +38.2%, outperformance of +10.2% relative to the MSCI All Countries World Index in Australian dollars (it was up +28.0%).
The outperformance follows a few tough months during which the Fund lagged the broader market indices which were driven higher on the re-opening trade. For example, American Airlines shares almost tripled to close the month at US$22, with Marriott hotels showing a similar rebound to US$140. Commodity prices have been strong as well - copper for example will continue to be in demand because it is one of the raw materials required to re-make the energy network with lower carbon emissions. This is in addition to higher demand generally as the world normalizes postCOVID
The top performer was Roku, which added +2.7 percentage points to the Fund for the month. This was certainly a function of the important platform that the company has built, but there was also take-over talk, with Comcast mentioned. Roku is already the US market leader in operating systems for smart TVs, holding a critical position in advertising-funded streaming, enabling it to reap the benefits of the network effect (the viewers go where the content is, the advertisers go where the viewers are, Roku sits in between).
There were also good moves by Qualcomm (+1.5 percentage points), Amazon (+0.7 percentage points) and Nvidia (+0.5 percentage points). Qualcomm is expanding its market to include additional functionality previously captured by competitors such as Broadcom (the “front end” of the 5G modem). Nvidia continues to outperform on numbers which conclusively demonstrate the superiority of the company’s products in a world where Moore’s law – i.e., processing power doubles and costs halves – is breaking down.
There were a few underperformers, including Volkswagen and Daimler (which we own because we expect them to emerge as scale players in battery powered electric vehicles over the coming years) and Tencent, as China ramps up its pressure on home-grown technology giants.
The two top contributors for the month were also the biggest contributors for the 20/21 financial year. Roku contributed +9.9 percentage points and our biggest holding, Qualcomm, contributed +4.0 percentage points. Apple came in third, contributing +3.7 percentage points with its March quarter results confirming the company’s significant recurring revenues. Alibaba was a detractor, eating -0.9 percentage points of performance, as the company has grown slower amid China’s antitrust crackdown (including derailing the IPO of Alibaba backed Ant Group and later fining the e-commerce giant US$2.8 billion).
The Australian dollar depreciated -3.0% over the month against the US dollar, which meant the value of the Fund’s US dollar positions increased. As at 30 June 2021, the Fund carried a foreign currency exposure of 98.9%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-June-2021-Update.pdfJanuary, 2021
The Loftus Peak Global Disruption Fund was up +5.2% net-of-fees in January, outperforming the benchmark MSCI All Countries World Index net in Australian dollars by +5.0% (it rose +0.2%). One-year net performance to 31 January is +39.5%, which is outperformance of +37.0%. As we flagged in earlier commentary, markets were supported by the stimulus package proposed by President Biden. We believe the portfolio is well positioned for the generally anticipated economic upswing as the impacts of the virus are reined in and people continue to look for better and more cost-effective ways
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-January-2021-Update-.pdfOctober, 2020
The Loftus Peak Global Disruption Fund was up +4.7% net-of-fees in October, outperforming by +5.0% the benchmark MSCI All Countries World Index net in Australian dollars (which fell -0.3%). One-year net performance to 31 October is +43.1%, with outperformance of +40.2%. By month end many of our larger holdings had reported solid quarterly numbers, however with most companies rallying ahead of these earnings the market sold off, likely concerned about volatility ahead of the US elections. We exited the month with a much larger cash holding of 15.1%.
We hold a number of positions in companies which are enablers of 5G – meaning at-scale private and public cloud/datacentre service-delivery groups – for example Xilinx (+1.8% contribution for the month) and Qualcomm (+0.7%). The former is under an all-scrip takeover offer from AMD. Qualcomm is one of the largest players in 5G. We have been building our knowledge and understanding of the emergence of 5G for some years, and are well-positioned in the area
The big Chinese companies, Tencent (+1.1% contribution for the October) and Alibaba (+0.6%) were both buoyed by the proposed float of Ant Financial, however this important listing was pulled at the last moment, and these stocks gave back some of their performance post month end. With the exception of Google, which finished the month up 10% (on excellent results from Youtube) Facebook, Amazon, Apple, Netflix and Microsoft all had muted performance. Apple was the largest negative contributor for the month, cutting -0.3% from return, with Nvidia also a minor negative (-0.2%) However, because of the portfolio’s diversification performance was still good and benefited from the very significant shifts taking place as players attempt to position themselves around rapidly-evolving business models ahead of further change. The Australian dollar depreciated -2.0% over the month against the US dollar, which meant the value of the Fund’s US dollar positions increased. As at 30 October 2020, the Fund carried a foreign currency exposure of 93.9%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Loftus-Peak-Global-Disruption-Fund-October-2020-Update.pdfticker: MMC0110AU
commentary_block: Array
factsheet_url:
https://www.loftuspeak.com.au/downloads-centre/
Lates Fund Update
release_schedule: Monthly
fund_features:
Loftus Peak Global Disruption Fund aims to deliver a return over the benchmark (below) over the medium term by bringing a disciplined investment process to listed global companies impacted by disruption.
- The fund has been constructed to invest in companies across five core themes – networks, machine learning, energy (as a technology), connected devices and China (which by virtue its size and growth is disrupting global business).
- Asset allocation: Global Equities – Minimum of 15 securities, Maximum of 35 securities, Cash (1% – 50%). The Investment Manager actively adjusts the investment mix within the given ranges.
- High risk/return investment level.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Large Growth
peer_benchmark: Foreign Equity - Large Growth Index
broad_market_index: Developed -World Index
structure: Managed Fund