To my fellow shareholders,
You may have noticed that I have not provided an update since April and the main reason for this is that I have decided to change the reporting frequency from monthly updates to quarterly updates. Given our long term investing strategy, changes in the monthly returns really are inconsequential in the scheme of things and an overemphasis on monthly returns can be detrimental to long term returns. Our selectivity in trying to wait for all the ducks to line up before pulling the trigger also can result in long period of inactivity where I am unable to identify any opportunities, in which case there may be nothing to report. For these reasons, I decided to move to quarterly updates.
The ASX200 is having a very strong run in 2019 and our benchmark STW is up 18.6% (excl dividends) and 21.9% (including dividends, franking credits) for the calender year to June 2019. One of the hottest sectors pushing up the market is technology and in particular software as a service (SaaS) companies. In the US, the FAANG stocks (Facebook, Amazon Apple, Microsoft and Google) are amongst the most valuable companies globally and locally we have an equivalent “WAAAX” group. This group is made up of Wisetech, Afterpay, Altium, Appen and Xero. I’ve also included Nearmap to this group as it has been the top performing stock in the ASX200 index over the last 6 months to 30 June 2019.
The table below compares valuation benchmark for the FAANGS and WAAX goups (all in Australian dollars).
Our local WAAAX stocks clearly trump the FAANG group in terms of gains over the last 6 months and on revenue multiple basis appear to be valued much higher than their US peers. Supporters of the WAAX group will argue that their high growth rates justify these lofty valuations. Time will tell but I strongly suspect that most will not live up to the current hype.
In terms of activity, we have not bought any new positions over the last 3 months. The main reasons are:
- The last two months has been busy period for me as I’ve been doing a bit of consulting. Although consulting takes up some of my investing time, I feel that it can add value as it can give me exposure to new company, industry and contacts.
- With the market being at an all time high, there are fewer opportunities to buy good quality companies at attractive prices. We have come across a handful of opportunities but have not pulled the trigger for one reason or another.
A good thing about low levels of activity is that we’re not constantly paying our brokers.
I’ve reported below our results for June and July.
CV Capital’s objective is to beat the benchmark over the long term (3-5 years) and therefore I do not place too much emphasis on current performance given the relatively short history. The table below shows our performance (before taxes). Our cash position is circa 24% of the portfolio. Feel free to write to me about ideas as we have cash to put to work.
|15 Jan 18||30 Jun 19||Gross dividends (cumulative)||Simple return (pre-tax)||Compound return (pre-tax)|
|Benchmark - STW||56.7||61.39||4.17||15.6%||10.8%|
|15 Jan 18||31 Jul 19||Gross dividends (cumulative)||Simple return (pre-tax)||Compound return (pre-tax)|
|Benchmark - STW||56.7||63.15||4.94||20.1%||12.2%|