Small enterprises are increasingly likely to be sold or folded with the owners’ offspring showing less interest in taking over the reins. It’s a dire situation compounded by many failing to have a retirement strategy.
Many investors chaff at the notion of sitting on “idle dough”; there’s a strong temptation to “do something”. But being liquid – and patient – proffers the opportunity to make the right investment decision at the right time.
From zero to hero amid the value renaissance
The first quarter of 2021 saw renewed confidence in global equity markets buoyed by hopes that the global distribution of the Covid-19 vaccines will ultimately turn the tide against the coronavirus. Fiscal stimulus and vaccine rollouts have far exceeded expectations causing equity markets to overcome bouts of volatility. As a result, the Dow Jones Index closed the year up 8.30%, rising 6.80% for the March quarter.
A fund that was able to leave the benchmark index well behind was Steve Johnson’s Forager Funds’ Australia Value Fund, which topped the one-year return category to March. Johnson is well-known for his regular interviews and staunch value focus, but even he likely didn’t see this year’s result coming.
The Aussie fund posted a one-year return of 89 per cent in the year to June 30, and a cracking 128.1 per cent return in the year to March 31. These types of returns are almost too good to be true. As Johnson suggests in the June Quarterly update, “if in 2019 nothing went right, the 2021 financial year was the antithesis.”
The timing couldn’t be better, with investors attracted to the ‘value’ approach rewarded despite a short-term underperformance in the middle of March. Similarly, Forager’s International Shares fund also returned around 80%, which actually moved it from a benchmark underperformer, to long term value add in less than a year.
Being a value-based fund, the team was able to capture opportunities in some of the most unloved sectors of the share market over the past decade, and benefit from the tremendous three-month rally after November. Investing in a dysfunctional market helped the fund take advantage of bargain prices.
Some of the fund’s best-performing stocks were names such as Motorcycle Holdings (ASX:MTO), and Enero Group (ASX:EGG). A takeover was also announced for one of the fund’s largest investments, Mainstream Group (ASX:MAI), another significant holding clocked a record quarter of new sales, and a smaller one stitched up a transformational deal.
Johnson says its tourism investments, Experience Co (ASX:EXP) and campervan operator Tourism Holdings (NZX:THL), are well-placed to benefit from the lifting of travel restrictions on Australia. The travel bubble to New Zealand will contribute favourably towards the fund’s investment performance.
Forager says it is “constantly on the lookout for opportunities as the post-IPO blues send some newly listed stocks far below their listing price. In addition to Adore Beauty (ASX: ABY), the fund has invested in fintech lender Plenti (ASX: PLT), purchased one-quarter below its IPO price. These are unlikely to be the last blown-up IPOs offering the patient investor opportunities,” the manager says.
