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 2 of this edition, Anacacia Capital founder and managing director Jeremy Samuel explains how to manage risk with international shares. And 4 ASX shares that offer international exposure.
(You can find Part 1 of the interview here.)
MF: What returns are you targeting with your recently launched Global Fund?
JS: Our funds are typically targeting 10% plus annual returns. It's early days with the Anacacia Global Fund. We're still holding a considerable cash balance that we'll be deploying over the coming months.
So far, our positions are in positive territory and ahead of the key indices. However, we'll measure our success over many years not months.
It's a bit too early for us to disclose any specific positions from the Global Fund as we're still building them up for our investors. We expect to do this over several months in a high conviction way.
We've had success historically with Australian-based companies operating globally through our Australian focused funds with companies like Appen Ltd (ASX: APX), Nearmap Ltd (ASX: NEA) and Objective Corp Ltd (ASX: OCL).
Then there's Cogstate Ltd (ASX: CGS). It's a great Aussie business that is servicing international pharmaceutical businesses and recently saw a bump from Alzheimer's research.
What are your views on Appen, Cogstate, Nearmap and Objective Corp going forward? Do you still own those shares?
Yes to different extents, within our Wattle Fund, which we discussed last time, which invests in Australian equities. At various times we have a different view as to what's a fair price. But they are 4 interesting companies that at various stages we've had significant positions in.
These are good examples of companies listed on the Australian exchange but have significant overseas operations. Nearmap, for example, is operating in Australia and the US, and Canada as well. And Appen is very big in the US and Europe, with very little business in Australia. Objective Corp operates across Europe and the US and Australia as well. Cogstate has offices in Australia and the US.
That's 1 way for ASX investors to get exposure to international markets through these sorts of shares.
Also, investors can access index funds or managed funds. Our Wattle Fund, where Tom Granger is doing an outstanding job as the portfolio manager, is only open to wholesale and sophisticated investors. That's Anacacia's main avenue to managing our views on ASX listed companies.
As discussed in part 1 of our interview, it's early days yet for the Global Fund. But how are things looking after the first few months?
We've hired an exceptionally strong and internationally regarded portfolio manager, Oscar Hutchinson. He manages the Anacacia Global Fund day-to-day. Oscar is originally from the UK and has been in Australia for the last 3 years working with a credible large global fund manager.
I chair the Global Fund investment committee and beyond our formal weekly meetings, we chat most days like I do with Tom and also our private equity team. We'll be hiring a new investment analyst in the coming months also to work on the global fund. It's quite a specialised skill set.
There's also excellent sharing of insight both ways with our other funds, including the Wattle Fund.
We like to keep our funds small and focused on the mid-market segment. The Anacacia Global Fund is no exception. We've seeded it with $30 million from investors including the investment team, and we expect it will grow modestly over time like our other funds. The Wattle Fund started with $30 million and has now grown to over $200 million.
The Global Fund seeks to target returns north of 10% per annum over the long term. No guarantees, of course. These are target returns.
There's plenty of chatter about resurgent inflation and potentially rising interest rates. How important are these kinds of considerations in your investing strategy?
We are interested in what's happening in these macro themes. But we really try to look from the bottom up for each individual stock. As we're looking at the business we do try to work out how that might be impacted by inflation and exchange rates, and things like trade tensions.
Is the risk management you use in your international portfolio notably different from your ASX portfolio?
We have a similar approach to risk management as we do with our ASX portfolio. We're not trying to hug an index but rather back a portfolio of outstanding businesses. We look at this from the bottom up. However, we also add a screen to ensure we're not overly weighted towards certain factors.
Currency is an additional factor with international shares. Most of our investors are from Australia. They recognise that there's currency risk investing in international shares but they also realise that they're typically very exposed to the Australian dollar in their other investments. Rather than spending funds on hedging, we look for natural hedges within the portfolio by having a mix of businesses with exposures to different economies and currencies.
Are there any particular international shares you think our readers should consider adding to their portfolios?
Each investor will be different. However, for most investors, it probably makes sense to have a mix of Australian and international shares. For international shares, readers can access these directly by owning individual stocks, or through large or index fund managers, or through boutique managers like Anacacia.
For a smaller retail investor, accessing the larger international stocks directly or indirectly often makes most sense. Our expertise is not trying to work out if Amazon is better than Facebook or Walmart is better than Johnson & Johnson. They are each great companies.
It's too early to tell if our smaller companies will be the next large company. Ask me in a few years' time!
How can people invest into the Anacacia Global Fund?
The Anacacia Global Fund is only available to wholesale or sophisticated investors committing at least $500,000. It's available directly or through advisors on the Netwealth platform. The fund takes new subscriptions each month and redemptions quarterly, but it's really suited for investors with a longer horizon of at least 3-5 years as part of a balanced portfolio.
We're not chasing funds and have no business development team or placement agents. Rather we have put a material part of our own wealth into our funds and enable other sophisticated investors to come along with us if they're comfortable with the risks and return potential of the long term horizon we take.
I have to ask…what are your thoughts on Bitcoin and other cryptos?
It's not a focus of ours at all. Are they going to be our generation's tulips? I'm not sure.
I do think some of the cryptocurrencies will end up being sustainable. But I think it's a very risky asset class to invest in at this very early stage. There's a lot of speculation. There is some very interesting technology there. But it's got a long way to go before there are many real user cases and to justify the valuations.
So for now, we're steering clear of that market.
