Digital shares drive IP global fund’s momentum
IP GLOBAL MOMENTUM EQUITY FUND
- Raging Bull Award for the Best (SA-domiciled) Global Equity General Fund (for straight performance over three years to December 31, 2020)
IP Management Company (IPMC) is a collaboration of established financial services businesses that have operated unit trust funds in their own right for more than 15 years. IPMC provides own and co-branded portfolios to its investment management partners. One of these is Emperor Asset Management, a subsidiary of the Purple Group, which manages the IP Global Momentum Equity Fund.
The fund, which will be five years old in June, achieved an average annual return of 43% over three years to the end of 2020, according to ProfileData. Against this, the MSCI World Index achieved 14.97% a year in rand terms.
According to its fact sheet, almost half (47.82%) of the portfolio is invested in global tech and e-commerce stocks. The five top holdings at the end of 2020 were: The Trade Desk, a US online advertising platform (7.32%); media hardware manufacturer Roku (6.13%); Canadian e-commerce site Shopify (4.02%); Singaporean commercial platform Sea (3.48%); and Redfin, a Seattle-based real estate brokerage (3.17%).
Personal Finance asked fund manager Shaun Krom how the IP Global Momentum Equity Fund operates.
Please outline your investment philosophy/strategy.
In brief, we begin our analysis by narrowing our universe algorithmically. Specifically, we narrow down the universe into the best momentum, quality, value and stability companies. This is done by analysing the price movements, as well as the balance sheets and income statements, of the companies in the stock universe – this is done automatically.
Separately, we determine fundamental themes that are driving the global economy. Themes we are currently invested in include fintech, consumer brands that are digitising, cloud computing put to various uses, companies targeting niche markets, property disruptors, companies specialising in security and digital identity management, the green economy, the future of work and productivity, and biotech.
We then do a deep dive into each of the companies in our narrowed-down universe to determine if and how it fits into our themes. Such analysis includes whether the company is a leader in that theme, the depth of its moat (a company’s competitive advantage), the uniqueness of the business and who its competitors are, its customer retention levels, new product pipelines, ownership and leadership, and its profit margins and cash flow.
We then determine each stock’s allocation in the portfolio based on its factor strength, its leadership position within each theme, as well as whether a company can be classified under more than one theme.
To what do you attribute your fund’s outperformance over the past few years, and specifically during the pandemic?
We were well positioned during the pandemic in that many of the companies that we invested in are leaders in the digital economy or provide products that are in high demand (for example, home improvement suppliers such as Home Depot and Wayfair). We invested before the pandemic, as well as during the pandemic, in the infrastructure layer of digital TV (for example, Roku) and digital advertising that is not Facebook or Google. We did not and do not have much FAANG (Facebook, Amazon, Apple, Netflix and Google) exposure.
However, we have benefited by investing in world-leading companies such as Twilio, which develops and publishes internet and communications infrastructure; Shopify, which is arming the rebels to compete with the Amazon empire; MercadoLibre, which provides fintech and e-commerce solutions in South America; JD.com, which is like the Amazon of China; and Nike, a great brand capturing wallet share with an increasing margin as it goes direct to its users.
Were there any standouts in the portfolio?
Almost all of our companies performed well during 2020, the majority returning more than 50%, with some companies returning more than 100%.
How are you positioning the fund for the year ahead, considering the ongoing effects of the pandemic and other local and global opportunities and risks?
The fund is quite similarly positioned to last year. We have taken a slightly higher exposure to companies with new business models and applying unique technology in the property space, as well as companies involved in improving work productivity. Digital security and identity management continues to be a central theme, as does new commerce, brands and the genomic revolution.