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4 Aug 2021 - The 'skin in the game' portfolio
The 'skin in the game' portfolio Lawrence Lam, Lumenary Investment Management July 2021 Founders have changed the world and will continue as long as capitalism exists. Our system motivates bright individuals to pursue dreams and build companies that improve human lives, just as trees in a canopy compete vertically for sunlight. For us investors, we need not miss out on these game changers. We can participate in the rise of these companies alongside their founders, and if analytical judgement is cast correctly, stand to benefit immensely from their journey. Are all founder-led companies start ups? Investing in founder-led companies does not mean venture capital investing - there are over 2,000 listed founder-led companies globally, varying in age, size and industry. Not all founders work on new and shiny products, only a small proportion are start ups. In fact there are many blue chip founder-led companies that are not in the technology sector, and these global household giants should resonate with many of my readers: Marriott, Morningstar, Hermes, Walmart and Nike. What are the risks of founder-led companies? The pros of investing in founder-led companies are well documented by academics and practitioners alike - Credit Suisse and Bain have quantified a +7% outperformance since 2006. Other studies show multi-decade alpha. In business, skin in the game matters and that is why founders make great business owners and operators. But not all founders are great. Not all founder-led companies turn out to be the next Amazon. Hence everything in moderation, and why diversification is needed to dampen the volatility of owning just one company. This is where a clear portfolio construction recipe comes in. I have previously likened portfolios to making a cake in this publication. We select our best ingredients and apply them in the right proportions before baking in an oven at the right temperature. What generates returns is not what has happened, but what will happen. And proportions are crucial. Instead of baking one cake with all our cake mix and hoping it turns out well, we should divide the cake mix to make many cakes. With each cake we make, risk is reduced. That is the key to a well-balanced portfolio of founder-led companies. The sum of the parts is always greater than the whole, especially when it comes to risk management. There is an optimal way to diversify and the framework for this process is tied with the concept of vintages. How to diversify a portfolio of founder-led companies The least volatile founder-led companies are also usually the oldest. Think Walmart, Hermes and Nike, who have each existed for decades. The advantage of these generational companies is stability of growth and predictability of dividends. They move like ocean liners, their brands carry an inertia that spins off free cash flow consistently. You can rely on these founder-led companies to deliver slow and steady growth to your portfolio. The advantages are not without risk though. Older generational companies can become complacent. Their founders may have already reaped the rewards of their lifetime of efforts and become content with sitting back and relaxing. Their succession planning may not be smooth. The companies themselves may not be built the right way to adapt to changing environments. Ocean liners have a huge turning circle; it becomes impossible to navigate fast-changing conditions when they have only been built to travel in straight lines. This is why portfolios should be built to capture the full spectrum of founders from different vintages. You want both ocean liners and speedboats. Younger founders are hungry and motivated. They are free of the shackles imposed by legacy constraints. In this day and age, issues caused by use of outdated technology can prove significant for incumbents - you can observe how difficult it is for banks to transform their systems. It is easier and faster to build from scratch than it is to modify, much like how building a new house is faster than renovating an old building. When the pace of change increases, newcomers have the advantage. Take for example a company my fund is invested in. It's a Dutch company called Adyen in the global payments market. They've been built with technology from the ground up that allows them to outcompete incumbents. As a result, they have been able to win significant market share in a very short period of time and capture the accelerating change in consumer payment behaviour. When it comes to founder-led companies, there are pros and cons to both old and young. Having all your eggs in either one or the other would be unwise. Spread your portfolio across founders from all vintages. You want to build a fleet that encompasses the ocean liners, giving stability and reliability, and mix them with speedboats who can navigate changing environments and adapt with the times. This is what can truly mitigate risk. Skin in the game - when theory meets practice A final question and thought for my readers: which of these investment opportunities is inherently riskier over the long-term: 1) Multinational blue chip where the board has employed a salaried CEO on a 5-year contract; or 2) A mid cap company where the founder retains majority ownership, is the CEO and Chair. The multinational blue chip has existed for much longer, so its share price is more predictable, less volatile. The mid cap founder-led company has a much more volatile share price - analysts have a wide variety of opinions regarding its prospects. But which one is riskier over the long-term? Which company would you rather invest in? The answer depends on your understanding of the difference between risk and volatility. One investment is more volatile, but is actually less risky over the long-term. Happy compounding. About the author Lawrence Lam is the Managing Director & Founder of Lumenary Investment Management, a firm that invests in the best founder-led companies in the world. We scour the world looking for unique, overlooked companies in markets and industries on the edge of greatness. We are a different type of global fund. Disclaimer: The material in this article is general information only and does not consider any individual's investment objectives. All stocks mentioned have been used for illustrative purposes only and do not represent any buy or sell recommendations. Ownership of this publication belongs to Lumenary Investment Management. Use of this material is permitted on the condition Lumenary is acknowledged as the author. Funds operated by this manager: |

3 Aug 2021 - Have Emerging Market Funds Passed Their Used-By Date? Part II
Have Emerging Market Funds Passed Their Used-By Date? Part II Premium China Funds Management July 2021 Click here for Part I of this series In this second part we will consider the current standing of the larger EM countries and then review long term performance of the various indices and, and in the process demonstrate that active management is very effective in less efficient markets. Let's turn now to the state of the larger EM countries. It is surprising to many just how big the largest emerging markets are already. China and India together are already bigger than the US or Europe. The main emerging market powerhouses are China and India.
In any discussion of emerging markets, the powerful influence of these two super-giants must be kept in mind. Whilst countries like India and China are still in the EM index, it is worth looking at the next table which compares them to the framework introduced earlier and considers just how emerging they still are. Putting aside the geopolitical and trade factors which can cloud the conversation it is, we believe, reasonable to view a few of the EM countries as no longer emerging, or at least getting close to that stage of their journey as a nation. If we take a historical and visual look at Emerging markets and Asia ex-Japan we can see in the image below how Asia ex-Japan used to be a niche subset of Emerging markets, compared to Developing markets (DM) That, in our view, is no longer the case. Almost unnoticed, Asia ex-Japan has become the dominant (80%) part of EM. Where we are starting from today - and are heading very quickly - is shown in the following images where we recategorise Developed markets as The Western economies (including Japan) and separate Asia ex-Japan and the Frontier markets/commodity countries. This contention carries compelling investment implications. The underpinning of these changes in large part is a theme that will have at least a full decade of strong growth as the poor of Asia climb into middle class. Strategic allocations and portfolio construction need to catch up and to rethink the use of emerging market funds. As a minimum we suggest that advisers take 80% of EM into an Asia ex-Japan specialist and add to that a Global resource/commodity specialist. The obvious question following our contention is; "what do the numbers say?" The chart below, whilst busy, tells a compelling story. Note: Saudi Arabia is not included as it does not have a long enough history but over five years its story is consistent with our contention. Some key observation to assist in understanding the implications of this chart:
In summary, investing in an Emerging Markets Fund is primarily an investment in Asia ex-Japan, and the remaining approximately 20% has detracted from long term performance by comparison. We therefore contend that it is a better outcome for clients to use a specialist Asia ex-Japan that has a strong China capability and if the commodity exposure from EM funds is desired we argue a specialist in either Global Resources and/or Commodities is more effective. [1] Source: Emerging Market Countries and their 5 Defining Characteristics; Kimberley Adao www.thebalance.com; Aug 2020 Funds operated by this manager: Premium Asia Income Fund, Premium Asia Property Fund, Premium China Fund, Premium Asia Fund |

2 Aug 2021 - Managers Insights | Collins St Asset Management
Damen Purcell, COO of Australian Fund Monitors, speaks with Rob Hay, Head of Distribution & Investor Relations at Collins St Asset Management. The Collins Street Value Fund is an index unaware fund which seeks to create strong investment returns over the medium and long term with capital preservation a priority. Collins St maintain a portfolio of investments in ASX listed companies that they have investigated and consider to be undervalued. The Fund has risen +64.78% over the past 12 months against the ASX200 Accumulation Index's +27.80%, and with a similar level of volatility. Since inception in February 2016, the Fund has returned +19.26% p.a. vs the Index's annualised return over the same period of +11.63%.
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2 Aug 2021 - How REA Group became the great Aussie multi-decade compounder
How REA Group became the great Aussie multi-decade compounder Chris Demasi, Montaka Global Investments July 2021 Often cited as the densest year of technological innovation of all time, 1995 stands out for several reasons; The launch of the world's first internet enabled marketplaces (Craigslist and eBay), the start of online dating (Match.com), the first fully digital, animated feature film (Pixar's Toy Story) and of course, a humble "bookseller" was born (Amazon.com). While lesser known, 1995 was also the year the greatest internet startup in antipodean history was founded, REA Group. Just like the great tech tales of Silicon Valley, our Aussie protagonist (REA Group) was started in a garage (1995), IPO'd just before the dotcom bust (1999) and lost ~90% of its value shortly thereafter (2001). However just before complete failure, it was dealt a dose of good fortune, with Rupert Murdoch and his global media empire, News Corporation stepping in and providing a much-needed capital injection. News Corp. took 44% of REA Group (realestate.com.au at the time) in exchange for A$2 million in cash plus A$8 million worth TV and print advertising, giving REA Group a total equity valuation of A$23 million. Fast forward twenty years to today and News Corp. owns 61% of REA Group which has a market capitalization of A$21 billion, or 910 times the valuation Murdoch paid in 2001. For comparison, a purchase of Amazon stock at its low point after the dotcom bust would have returned 510 times the initial investment today, or less than two-thirds what REA Group delivered (excluding dividends), which earns it a place among the greatest internet start-ups of all time. Aside from being a multi-decade compounder for shareholders REA Group holds one of the most privileged positions in real-estate of any company in the world. Real-estate markets tend to be highly localized, with the comparable property radius only extending to surrounding neighborhoods, creating fragmented, non-uniform supply dynamics, which are highly supportive for an online marketplace like REA Group which can aggregate that supply more uniformly. In addition to this, the Australian market is unique, in that it is impossible to function as a real-estate agent (or broker) without a subscription to REA Group's professional tools and access to its property listing portal, which as we will discuss, is entrenched with buyers and renters in the Australian market. Through its flagship portal (realestate.com.au) REA Group has become "the destination" for real estate in the Australian market with ~65% of Australia's adult population (12 million people) checking property listings, real estate news, and home prices on the site every month. Additionally, REA Group continues to increase its lead over the number two player (Domain Holdings), reaching 6 million more Australians and attracting over three times the monthly visitators of its peer, a gap which continues to widen. REA Group is Australia's #1 Property Portal Source: REA Group Adjacent to its privileged position with Australian real-estate customers, REA Group also has an indispensable relationship with real-estate agents. To effectively operate in the Australia market a real-estate agent has very few choices outside of subscribing to REA Group's agent administration tools to find clients, build an online profile and market their listings, this has translated into extremely strong and durable pricing power for REA Group. While the official strategy is to support agents and remain in their servitude forevermore, one cannot help but observe the increasingly potent value-added services it offers property buyers, sellers and renters, slowly disintermediating agents in the value chain, which is the natural progression of a genuine two-sided marketplace like the one REA Group oversees. As REA Group continues to reduce friction costs of buying, selling, and renting properties for customers, it is likely to capture a larger share of transaction economics over time. In Part-II of this series will discuss some of the powerful levers REA Group has at its disposal to increase its share of Australian real-estate industry economics and the numerous other valuable real options it holds within its portfolio. We are very grateful for the trust you have placed in Montaka Global to protect and grow your wealth, alongside our own wealth, and believe REA Group will continue to be a wonderful investment over the long-term. Funds operated by this manager: Montaka Global 130/30 Fund, Montaka Global Fund, Montaka Global Long Only Fund |

30 Jul 2021 - Hedge Clippings | 30 July 2021
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30 Jul 2021 - Have Emerging Market Funds Passed Their Used-By Date? Part I
Have Emerging Market Funds Passed Their Used-By Date? Part I Premium China Funds Management July 2021 Click here for Part II of this series Our contention is that use by date of Emerging Market (EM) funds has passed and that this has quietly happened over the last decade without much notice. In Part One of this discussion we will look at the make up of EM Indices and their comparison to Asia ex-Japan funds. What we will outline is that a decision to invest in an EM fund is already mainly a decision to invest in Greater China and the rest of Asia ex-Japan. What is leftover in EM are countries that are speculative commodity countries largely with questionable or poor governance. We contend that there are better ways of accessing resources and commodities than via a generalist manager. Specialists for both are the better way to improve investment outcomes. As well it is reasonable to think that some of the emerging markets - particularly Greater China have in fact emerged. What that means for investing is a rethink about asset allocations. Let's start our discussion with a quick look at Emerging markets. Following is a framework for assessing emerging market status[1]:
In China, Taiwan and Korea, and to some extent India, however you can already see a clear shift to consumer led economies vs export led. Let's start by breaking down the Emerging markets. If you consider the table below - Emerging Market Breakdown using the MSCI - what you can clearly see is that 75% of the index is made up of four Asian countries: China, Taiwan, Korea and India. Some EM indices also include Hong Kong which would further increase the dominant Asia exposure. Looking into the smaller weights, we then come to a group of four which represent the next 14% of the index. Brazil, South Africa, Russia and Saudi Arabia. These countries have two things in common in our view:
The final cohort of 19 countries in total represent only 11% of the index and individually and together are largely rounding errors, without also considering the Social and Governance challenges some face.
Emerging Market Breakdown (per MSCI 31.3.2021)
Let's now dive a little deeper and look at the next chart which shows that an EM investment is effectively already an Asia ex-Japan investment with a dominant exposure to Greater China.
EM and Asia ex-Japan deeper dive These charts show that investing in Emerging Markets IS already an Asia ex-Japan investment, but:
So, to us this reinforces our contention that specialists are a better approach to investing in emerging markets. Use of an Asia ex-Japan specialist with a deep China understanding combined with a Global resources or Commodities specialist makes more sense than an allocation to a generalist EM fund. [1] Source: Emerging Market Countries and their 5 Defining Characteristics; Kimberley Adao www.thebalance.com; Aug 2020 Funds operated by this manager: Premium Asia Income Fund, Premium Asia Property Fund, Premium China Fund, Premium Asia Fund |

30 Jul 2021 - Fund Review: Insync Global Capital Aware Fund June 2021
INSYNC GLOBAL CAPITAL AWARE FUND
Attached is our most recently updated Fund Review on the Insync Global Capital Aware Fund.
We would like to highlight the following:
- The Global Capital Aware Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.
- Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.
- Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.
For further details on the Fund, please do not hesitate to contact us.


30 Jul 2021 - Performance Report: Bennelong Emerging Companies Fund
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Fund Overview | The Fund may invest in securities expected to be listed on the ASX within 12 months. The Fund may also invest in securities listed, or expected to be listed, on other exchanged where such securities relate to ASX-listed securities |
Manager Comments | Over the past 12 months, the fund's volatility has been 14.9% compared with the index's volatility of 10.42%. Since inception the fund's volatility has been 32.15% vs the index's volatility of 16.01%. Since inception in the months when the market was positive the fund provided positive returns 84% of the time. It has an up-capture ratio of 309.01% since inception and 151.15 over the past 12 months. |
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29 Jul 2021 - Performance Report: Vantage Private Equity Growth
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Fund Overview | The Fund's investment strategy is focused exclusively on lower to mid-market Growth Private Equity. This segment of Private Equity focuses on investments into profitable businesses with proven products and services. These businesses typically have a strong market position and generate strong cash flows, which will allow the Fund to generate strong consistent returns to investors, while significantly reducing the risk of a loss within the portfolio. The Fund will invest in Private Equity funds based in Australia, along with Permitted Co-investments, to create a well diversified portfolio of Private Equity investments. These investments will be made by the Fund, by making Commitments to the Private Equity funds of the best performing Private Equity fund managers, that in turn make investments into profitable companies requiring Later Expansion and Buyout capital to accelerate their growth and enhance their value. Distributions are paid as distributions are received from underlying funds. |
Manager Comments | Vantage continued to build out the VPEG4 portfolio with approval to commit $20m to Advent Capital Partners 3 Fund continuing their successful relationship with the manager who is one of Australia's leading mid-market buyout firms. This commitment comes on top of their decision to commit another $10m in capital to the CPE 9 fund taking their total commitment to $20m. Investors in VPEG4 will now gain access to four managers and 6 portfolio companies with a number of new commitments to be made before the end of 2021. VPEG3 investors benefited from the recent listing of Best and Less (ASX:BST) which was a $60m IPO completed in July. Best and Less Group comprising of much-loved retail brands Best & Less in Australia and Postie in New Zealand, is a leading value speciality retailer with a focus on baby and kids' apparel. Best and Less was part of an acquisition by Allegro Fund III in November 2019 of Value Retail Group. Through a combination of repositioning its product range towards the value apparel market, focussing on e-commerce business, store network expansion and ongoing cost reductions net profits have grown from $13.8m in 2019 to a forecast $40m in 2021 in spite of the challenging conditions presented by COVID related temporary store closures. Vantage expect this exit will result in another pleasing result for VPEG3 investors and continues the series of excellent exits achieved for VPEG investors in the June quarter. |
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29 Jul 2021 - Performance Report: Equitable Investors Dragonfly Fund
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Fund Overview | The Fund is an open ended, unlisted unit trust investing predominantly in ASX listed companies. Hybrid, debt & unlisted investments are also considered. The Fund is focused on investing in growing or strategic businesses and generating returns that, to the extent possible, are less dependent on the direction of the broader sharemarket. The Fund may at times change its cash weighting or utilise exchange traded products to manage market risk. Investments will primarily be made in micro-to-mid cap companies listed on the ASX. Larger listed businesses will also be considered for investment but are not expected to meet the manager's investment criteria as regularly as smaller peers. |
Manager Comments | The Fund's 12-month up-capture and down-capture ratios, 245% and 84% respectively, indicate that, on average, it has outperformed during both the market's positive and negative months over that period. The Fund returned -5.29% over the June quarter. Top contributors included Geo (NZX: GEO) and iSelect (ISU). Key detractors included Scout Security (SCT) and 8Common (8CO). Equitable Investors noted that, after a catalyst rich run for the fund earlier in FY21, the June quarter was a quiet one as the Fund's big movers (both up and down) didn't have any significant news to drive them. Value catalysts are what Equitable Investors are looking for and they hope to see triggers for re-ratings across a number of key holdings in the December half. Stepping back from the individual investments to the broader market, they've observed a wide gap between the valuation multiples of larger and smaller stocks. They expect investors will be enticed to look at smaller stocks in a world where large caps are priced at extreme levels based on a number of measures. |
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