Managed funds

[Stoploss]

Discovery Founders Fund , Month by month ( Note Wholesale fund)

[Shareguy]

Couple of things.
Watching CNBC this morning according to them Russel 2000 small cap index up 21% since October.  WOW...this is an index move, no brilliance in stock picking is required.  I imagine its similar for small caps in Australia.

Talk was all about how small caps have moved from stupid cheap value to now be fair value and most of the gains from the potential cuts the market is hoping for in 2024 have been priced in at the point of the pivot, (i.e. the point in the couple of months where the market believes the Fed moves from tightening monetary policy towards looking at easing in the future)  The market firmly believes the Fed is done.

Several commentators now thinking the market has got slightly ahead of itself here and cautioning about applying fresh capital at this point, i.e. the seasonal period of strength is coming to an end...but we could still get "the January effect" so who knows.

I woke early this morning and did some hard core number crunching on BRM over the whole of the last decade to really drill down and see what the market thinks, (not what Mos or I think) as to whether it should trade at a premium to NAV or a discount and gathered the following data, summarized below from 120 end of month data points and converted this to yearly averages.  In the various years noted below on average the shares traded at a (premium) to NAV or a discount as follows
2023 this far (0.1%) premium
2022 (13.3%) premium
2021 (20.1%) premium
2020 (5.5%) premium
2019 8.9% discount
2018 9.1% discount  (Robbie Urquart replaced Frank Jasper as lead investment manager mid year)
2017 6.8% discount
2016 7.9% discount
2015 5.7% discount
2014 8.5% discount

Average for 10 years 0.65% discount to NAV.

Observations. 
The level of discount has been minimal overall and has traded at an average premium under Robbie Urquart's management of (6%) and an average discount of 7% under the former manager Frank Jasper.

I do not believe overall a premium or discount is warranted.  You couldn't own this stock in 2021 or 2022, the premium to NTA was too high.

It hasn't traded as high as a 9%-10 discount, (what I have been very busy buying at in the last couple of weeks), to NAV since October 2019 more than 4 years ago. Buying at a significant discount to NTA leads to higher overall returns, I posted the gross yield yesterday.

Finally - This is an income stock.  (Those wanting capital gains should look elsewhere OR reinvest all their dividends each quarter.  All the return in the last decade has been paid out with the 2% tax free dividends per quarter and the value of the multiple discounted warrant issues. Over the last decade the NAV has barely moved overall, was 75 cents in Dec 2013 and I estimate 74 cents yesterday. Taking into account the value of the warrant issues I estimate an average 10% annual tax free return, (you can increase this to nearly 11% average tax free if you buy close to a 10% discount to NTA).  BRM claim they have beaten the ASX index based on 70% hedged to $N.Z after fees and tax by more than 3% per annum average over the last 5 years under Robbie Urquarts leadership.  I have no reason to doubt their claim.
I expect the ASX to considerably outperform the NZX for the foreseeable future.
Disc: Substantial positions in BRM shares and Oct 2024 warrants

P.S. Possibly worth noting that the company changed its share buy-back policy from being eligible to undertake a buy-back, the shares must be trading at an 8%+ discount reducing this to 6%+ a few years ago.  They haven't bought any shares back in many years, but the stock is currently trading at such a discount level it makes a share buy-back a real possibility in the near future if market forces don't reprice the shares itself.

Some good points here.

[Basil]

I nearly went cross eyed doing all that number crunching this morning lol

Don't want to take anything away from the stellar start the guys at Discovery have had and also acknowledging their excellent track record when they worked at PIE funds with Mike Taylor.  Investors should be exceptionally pleased indeed with how their fund has gone since it launched in Sept 2022.
Might throw them a bone in early 2024. 

Was leaning against the idea based on my huge position already in Australia with BRM but oh my goodness the outlook for the N.Z. economy in the next 2 years the incoming Govt gave today with their mini budget was very grim.  Basically, when it comes to investing in N.Z., as I see it, less is more lol   
I'll mull things over during the holiday break.

[Shareguy]

Discovery up 15 percent so far this month Basil.

[Basil]

Woohoo, happy for you mate.  BRM up just over 7% this month after 7.9% last month, not too shabby either.  Might pay to have a bob each way on each horse next year ...mind you if I jump onto Discovery's back, I might jinx it for you.  I am a bit overdue for a loss somewhere after a very good 2023. 

[Shareguy]

Woohoo, happy for you mate.  BRM up just over 7% this month after 7.9% last month, not too shabby either.  Might pay to have a bob each way on each horse next year ...mind you if I jump onto Discovery's back, I might jinx it for you.  I am a bit overdue for a loss somewhere after a very good 2023. 

Good to see BRM up. A good way to get exposure to small and mid Aust stocks.  I agree that the asx will outperform the NZX. NZ has a very small share market with low liquidity and plenty of basket cases.   I have had a good year but only because of investing off shore directly and through managed funds. While my NZX portfolio has done ok it's nothing startling compared to the growth of Discovery or international stocks. Discovery could have a bad year in 2024. I doubt it but it's possible. They only need a couple of bad picks.

2024 in my opinion is going to be the year of a lot more M and A on the NZX.  We have already had recent interest in Arv and Rak. Who's next I wonder. We have some very beaten down stocks which I'm currently looking at. Our currency also helps make these stocks more attractive for an international player.

[Basil]

Thanks Shareguy.

I had another look at Discovery yesterday.  Very impressed both the founders are double degree qualified from the (no bias here from me whatsoever    ) best University in New Zealand, Auckland, and one of them worked in mergers and acquisitions at PWC...they only pick the cream of the crop, before going on to perform very well at PIE funds with their Australasian funds for about a decade. Also impressive for young guys they tipped in $6m between them, (not easy at all to accumulate that much liquid wealth at a fairly young age), into the Discovery fund themselves.

Also worth noting I had the fees wrong and its 1.2% management fee which is reasonable, (for some reason I had it in my head it was 2%) and then 20% performance fee but that's only on excess performance over and above the Australian small companies' accumulation index so sets a proper high bar before performance fee accrual starts to kick in, (whereas Barramundi set a lower bar for their 10% performance fee).

They're obviously young, very smart, hardworking and heavily invested themselves so are dead keen and hungry, whereas I am old, fat, contented and semi-retired and frankly, feeling far more inclined towards walking my dog, smelling the roses and enjoying my boat these days than doing deep research on Australian stocks.  Can't hurt to throw them a bone for a few years and see how they go.  On the "to do" list first thing in 2024.  I'm hoping over time they can achieve their medium-term target of 15% compounding return per annum which works out to almost exactly double your money every 5 years.
Going to run Discovery's growth approach side by side with Barramundi's income approach.  Good to have plenty of both and makes the prospect of less time spent on investment analysis myself, very real.

[Basil]

Barramundi (BRM) NTA just over 75 cents, very nice.
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/BRM/424161/410315.pdf
Stock available at a decent discount at 71 cents.  Disc: Topped up with a few more this morning. 

[Shareguy]

Thanks Shareguy.

I had another look at Discovery yesterday.  Very impressed both the founders are double degree qualified from the (no bias here from me whatsoever    ) best University in New Zealand, Auckland, and one of them worked in mergers and acquisitions at PWC...they only pick the cream of the crop, before going on to perform very well at PIE funds with their Australasian funds for about a decade. Also impressive for young guys they tipped in $6m between them, (not easy at all to accumulate that much liquid wealth at a fairly young age), into the Discovery fund themselves.

Also worth noting I had the fees wrong and its 1.2% management fee which is reasonable, (for some reason I had it in my head it was 2%) and then 20% performance fee but that's only on excess performance over and above the Australian small companies' accumulation index so sets a proper high bar before performance fee accrual starts to kick in, (whereas Barramundi set a lower bar for their 10% performance fee).

They're obviously young, very smart, hardworking and heavily invested themselves so are dead keen and hungry, whereas I am old, fat, contented and semi-retired and frankly, feeling far more inclined towards walking my dog, smelling the roses and enjoying my boat these days than doing deep research on Australian stocks.  Can't hurt to throw them a bone for a few years and see how they go.  On the "to do" list first thing in 2024.  I'm hoping over time they can achieve their medium-term target of 15% compounding return per annum which works out to almost exactly double your money every 5 years.
Going to run Discovery's growth approach side by side with Barramundi's income approach.  Good to have plenty of both and makes the prospect of less time spent on investment analysis myself, very real.

Putting in $6m is not small change. It certainly gave me a higher level of confidence. As you know I have recently given them some more to play with. When I did that, I looked at everything I could on line. I can't find anything that I don't like. Past performance has been exceptionally good, but it's only been going a year.  As you point out Basil time is short and they do the research and so far results speak for themselves.

Have also met them both and Chris's wife recently. Smart people I thought. Mark is the sort of person who I reckon gets little sleep and has his phone on his bedside cabinet to check what's happening. Or do we all do this. My wife hates me for it😂.

Disc, I'm not recommending people put money into Discovery.  It's high risk for wholesale investors.  Every investors profile is different.

[Stoploss]

Discovery up 13.1 % in Dec.( Since inception 15 months 70.8 % )
 Here is the latest update.
https://discoveryfunds.co.nz/market-insights/discoverys-december-2023-update/

Also now tracked in Sharesight:25806.FundNZ Discovery Founders" Fund
 If the Beagle waits too long for a feed the Greyhounds will beat him to it .

[Shareguy]

Wow. 70.8 percent return with December alone their best month up 13 percent. I have had a ok year from my own investing, but 70 percent sounds like a dream.

Go Neuren Pharmaceuticals. NNZ-2591

Congrats to Mark and Chris.

[Basil]

Discovery up 13.1 % in Dec.( Since inception 15 months 70.8 % )
 Here is the latest update.
https://discoveryfunds.co.nz/market-insights/discoverys-december-2023-update/

Also now tracked in Sharesight:25806.FundNZ Discovery Founders" Fund
 If the Beagle waits too long for a feed the Greyhounds will beat him to it .

Since my post on Dec 27 above, I've been reflecting more on this. 9.3% in Nov and 13.1% in December are great results no question (22.4%) 18.3% in the last 3 months, but keep in mind the small cap 600 value index was up 25% in Nov/Dec (source CNBC) so the market overall for small caps and tech has run red hot over that timeframe.  I'm of the view a correction or at the very least a consolidation is due.  Russel 2000 small caps is down nearly 5% in the last 3 trading days, so a correction has possibly already started.    I've had a very good 2023 so I am in no hurry to deploy cash into over stretched overseas markets that have recently run white hot, right at this point.  Beagle reckons sometimes it's good to "paws", (you see what I did there), reflect and wait for things to cool down a bit.

[Shareguy]

Since my post on Dec 27 above, I've been reflecting more on this. 9.3% in Nov and 13.1% in December are great results no question (22.4%) 18.3% in the last 3 months, but keep in mind the small cap 600 value index was up 25% in Nov/Dec (source CNBC) so the market overall for small caps and tech has run red hot over that timeframe.  I'm of the view a correction or at the very least a consolidation is due.  Russel 2000 small caps is down nearly 5% in the last 3 trading days, so a correction has possibly already started.    I've had a very good 2023 so I am in no hurry to deploy cash into over stretched overseas markets that have recently run white hot, right at this point.  Beagle reckons sometimes it's good to "paws", (you see what I did there), reflect and wait for things to cool down a bit.

Sounds like a good plan. Discovery down for Jan so far. You might be right with your "paws" 😂

[Shareguy]

Mike Taylor from Pie funds take on 2024

Founder and Chief Investment Officer Mike Taylor covers the December markets.

Despite some dire predictions 12 months ago, 2023 turned out stronger in the end for most investors, despite several scares, including the collapse of several US Regional Banks, higher interest rates, a war in the Middle East and of course, ongoing inflation. On that last point, by November 2023, we had some encouraging signs that inflation will be back below 2% in most developed countries this year. And that set the market alight with a strong rally to finish the year.

Some notable callouts for our funds performance in 2023 were the Pie KiwiSaver Growth Fund up +17.1% pre fees. The Pie Australasian Growth Fund up +25.2%, and the Pie Conservative Fund up +8.8%, which had a record year, being the highest return of the fund (both after fees).

At the end of 2022, investors thought a recession was definite. The year before (2021), they thought big tech would be immune to rate increases. And a year before that (2020), they were convinced that paying high prices for stocks popular during COVID would make them rich. These were the consensus calls and they all failed.



So where is consensus now?

To start 2024 investors believe, again with absolute conviction, that the economy is heading for a soft landing with lower interest rates finally on the horizon. Maybe this time they will be right. In theory, this environment should be positive for markets, although it's no surprise that after a multi-year bear market, nobody is that bullish or willing to stick their neck out.  The average forecast gain for 2024 by Wall Street strategists was essentially zero (the usual average is around 8-10%).



What do we think at Pie?

Here goes with the crystal ball.........

Healthcare – has underperformed due to the GLP-1 (weight loss drug) movement which we believe will fade.  It's also a defensive sector, so handy to own if economic growth slows down more than expected.
Small Caps – the herd is only just moving back into small caps, so we believe this trend has a long way to go.
Real Estate – despite a year end bounce, many listed property trusts are still trading at a steep discount to their Net Assets.
Rates  - we expect all major Central Banks, including the RBNZ to cut rates this year. The question is just by how much. With a soft economic landing, it should be around 1%, but if there is a recession, rates could be cut by 2.5-3%. Either way, rates are coming down.

Faster trends – stocks, themes, sectors, regions are all coming in and going out of favour very quickly. That means explosive moves and things will get overvalued and undervalued quite quickly. Don't expect the trend to last forever, let alone a long time.
Get in early, make your money, then get out.



Risks to watch out for?

Oil price spike from Middle East war expanding.
Disruption/tension around the US election and the results.
Weather events such as droughts impact food prices and growth.
Cyber attacks.
And on that note. Happy New Year everyone! A new lap begins.... Good luck ahead.


Thank you again for your support. If you have any questions, please don't hesitate to email me on
mike@piefunds.co.nz

Founder and Chief

[Basil]

My short term crystal ball.
I'm picking a very choppy directionless first quarter of 2024 as most overseas markets digest and hopefully embed, the massive gains from the last quarter of 2023.  Q2 CY24 could be a good time to apply new capital as the market sets itself up for a stronger second half with many central banks likely cutting by then.