Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part 1 of our interview, Spaceship portfolio manager Jason Sedawie tells how he aims to double his clients' money every 5 years.
Investment style
The Motley Fool: What's your fund's philosophy?
JS: The fund we run here [within] the flagship Voyager fund is Spaceship Universe. So that was launched nearly 3 years ago and so we have this approach we call Where The World Is Going, WWG.
In that approach, we try to anticipate trends and think about what products and services are getting more relevant in the future. We're also focused on the moat, barriers to entry for potential competition — so that's the philosophy in how we think about investing.
MF: What's the typical investment horizon?
JS: So we tell our investors 7 years and when we're investing ourselves, I guess we're looking at a 5-year time horizon for the shares. We try to look over a 5-year period for the shares to double over that time. That works out to be 15% per annum, so that's what we're looking for.
MF: How has the fund performed in the past year?
JS: It ended up being a good year for the portfolio because the way we think about things is we talk about trying to anticipate trends and what products will be more relevant in the future.
So we're very focused on companies that are solving problems. A lot of these problems really came to light or they were just brought forward since people really needed to have an e-commerce solution or go online. A lot of our companies did really well. For the Universe fund, it was 54.96% for [the year to] February.
MF: What's the proportion between Australian and foreign shares?
JS: It's around 80% global and 20% Australian.
MF: Is the global portion dominated by the US?
JS: Yeah, a bit over half US.
MF: To give our readers an idea, what are your two biggest holdings?
JS: Good question. We run it equally weighted, so for me to say what are the two biggest holdings, it can fluctuate quite a lot.
But the largest holding at the moment, just given the market movements, is Rakuten Inc (TYO: 4755), which is an e-commerce player in Japan. So that's risen lately because Japan Post Holdings Co Ltd (TYO: 6178) just bought into the company and Tencent Holdings Ltd (HKG: 0700) have bought into the company.
They're obviously very large companies. You've got Japan Post on your side for delivery integration. Obviously Tencent's background as a super app is really interesting.
That will be our biggest at the moment, but it does change because we run it as an equally weighted portfolio.
MF: It sounds like Spaceship isn't afraid of Japanese equities, which many investors have shied away from for many decades.
JS: It's such a boom over there, [but] it's still down what, 20-25% from 30 years ago. So they've seen a lot of equity destruction over there. We only have two companies in Japan, Rakuten and SoftBank Group Corp (TYO: 9984).
It's a very modern economy but it's quite strange in some ways — the level of cash adoption is still quite high. There's still a lot of stamp usage and faxes, and so it's interesting for such a modern economy just to see some of the trends over there. But they're changing as well over time.
Buying and selling
MF: What do you look at closely when considering buying a stock?
JS: Probably like everyone else, we look for a couple of things. We have that Where The World Is Going approach — so to implement them we look at new habits being built, new solutions for problems or better ways to start doing things.
Secondly, a moat. Are they building a moat? Just some scalable plan that will have a network effect there?
Thirdly, management — do they understand if they are building a moat [and] how that fits with these trends.
And finally the fourth one is the expected return rate on the company doubling every 5 years.
MF: What triggers you to sell a share?
JS: Deterioration of moat, I'd say, is the first one. So some sort of event where they lose market share or some scale is at risk.
The second one [is] just a better competing product, some sort of disruption that might make the reason we own the stock change.
And then finally, a pretty common one is just we find a better opportunity… we just think there's something better out there with the capital.
MF: Have you ever had to sell a share because it fell out of that Where The World Is Going criteria?
JS: Yeah, it can happen quite a bit. With Netflix Inc (NASDAQ: NFLX) we just worried about the moat and the competition, and so we sold it just before COVID. And then obviously they benefited from COVID, but we just got concerned with the pricing power they had with [rivals like] Disney Plus and all the other services.
So yeah, it's not bulletproof but it's a process that works over time. You know, you just got to stick to that process if you think that moat is deteriorating a little bit — really reconsider the reason for owning it.
What's coming up?
MF: Where do you think the world is heading at the moment?
JS: COVID has really accelerated changes in habits.
Thankfully all these vaccines were put together in record time for COVID and I think that's really interesting what's happening in healthcare.
If I step back as a fund manager I look at some of the largest companies in the world — companies like Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG), Facebook Inc (NASDAQ: FB), Snap Inc (NYSE: SNAP), Twitter Inc (NYSE: TWTR) and TikTok — they've all grown up on a small percentage of GDP: advertising.
Advertising is only a bit over 1% of the US GDP. And half of that is online, so let's say 0.5% of GDP has created massive companies that we all know about. So I'm really interested just to see the change in healthcare. Healthcare has historically been an inefficient industry, around 17% to 18% of the US GDP.
You see things like mRNA vaccines and all this tele-health, I think it's a very interesting time in healthcare. And we're just seeing these changes sort of happen across a lot of other industries as well.
So for me personally it's a very interesting time as a stock picker, because a lot of these problems are getting solved in a better way. If we can find the companies that provide the solutions, that could be a really good opportunity for us and our investors.
Tomorrow: part 2 of our interview, where Sedawie reveals his most underrated and overrated stocks.
