Aubrey Podcast | Global Conviction: Storming Back

 

Transcript

Mark Martyrossian (MM): Good morning, everybody. Mark Martyrossian here from Aubrey Capital Management. I’d like to take up just 10 minutes of your time today with a quick presentation on the investment thesis that’s driving our Global Conviction Fund.

I’m joined by Andrew Dalrymple (AD), who, many of you know, has been at the wheel of the Global Conviction Fund since it kicked off in 2007, and he has one of his analysts with him, Tom.

Andrew, having faced pretty stern headwinds for the last couple of years, we are all delighted to see that the fund has come storming back, returning 44% last year. I know the index does not play any part in your process, but just for comparison purposes, the MSCI World returned just 20. Could you just give us a brief reprise on what success last year was down to before we move on to the meat of the presentation as to prospects for next year?

AD: Yes, good thanks, Mark. The answers are pretty straightforward and pretty simple. We started the year with about 70% of the portfolio committed to (North) America, and we kept it that way all year. We were also very bullish on India pretty early on, with about four or five holdings in the Fund in January. We’ve reduced that as the year progressed, but some of them paid off very, very handsomely.

Keeping in Asia for a second, we had nothing in China. We abandoned China entirely in July 2023 and have not revisited to any extent. We’ve had one or two little forays into China, but nothing of any consequence, no more than one holding, and I have to confess without great success. That also added very considerably to our advantage, I think, because part of running a fund is avoiding big potholes, and China has been a huge pothole for anyone committed to it in 2024, bar one brief huge rally in September.

Finally, just on last year, we did extremely well in Europe because, although they were fairly lethargic markets, certainly in comparison to America, we had some very good stock selection. We owned Novo Nordisk between January and August, at which stage we thought valuations were getting too high. We also owned Ferrari, a luxury goods company, which made us about 30% throughout the year. Between March and the end of the year, we owned Rheinmetall, the maker of the best tanks in the world, armoured fighting vehicles, and lots of ammunition. That also added good value to us.

Without labouring the point about Europe, we had a few other things here and there, semiconductor plays, none of which were hugely profitable but none of which did us any great damage either. So, principally America, principally India, but with a very good supporting cast in Europe.

MM: So just on the US, Andrew, obviously a big part. Was this the result of a bet on the Magnificent Seven?

AD: Definitely not. Actually, we have. In the first half of the year, we owned Alphabet. We’ve owned Nvidia all year round, which has been extremely helpful. In fact, Nvidia has not been our best stock. Our best stock in 2024 was a company called Axon Enterprises, which makes tasers and body cameras. Increasingly, policemen and security service personnel, and even people who serve sandwiches in Pret, I understand, are getting body cameras. It’s the body cameras as much as the tasers driving Axon up.

We also had some huge movers. We were big in data centres, big in semiconductors. We owned Arista, which plumbs data centers, Vertiv, which cools data centres, and Comfort Systems, one of the largest electrical contractors in America, focused on HVAC systems in commercial buildings. About five of these companies, our best-performing ones, contributed about 4% to the 43% performance we had.

In the second half of the year, we were slightly more in the Magnificent Seven, in as much as we owned Meta and recently bought into Amazon. So, it’s been a much wider gambit than just the Magnificent Seven. They’ve been very good, but so many other really good companies we’ve owned.

MM: Okay, that is interesting. The fund started the year with great gusto. The critical question is, how are you positioned now, and what is the outlook?

AD: Well, in some ways, the disappointing but perhaps reassuring thing is that the best place to be is more of the same. We have got 75% in America, a slightly reduced position in India. The market there is pulling back with some concern over valuations. We’re down to about 7 or 8% in India at the moment. We are finding a few more things in Europe beginning to attract us. Over the last couple of weeks, the American market has been absolutely on a tear, and it’s not inconceivable we might take the top off holdings that have really spiked higher.

I don’t see us going back into China anytime soon. Much will depend on what the Chinese Government does on the economic package front. But there’s never any calendar of financial announcements in China, so they might come at any moment and without warning. You can’t really invest with that prospect. By and large, as I say, I think it’s sort of situation unchanged, and we’ll carry on doing what we’re doing.

MM: Okay. And in terms of names, now, without giving away the secrets of the fund, which names have you got particularly high hopes for?

AD: I’ll pass to Tom for that. Why not?

TD: Yeah, sure I can. I can take that one. Thank you, Mark. A couple of names to maybe give to the viewers that we think are two of our more interesting ones heading into this year. The first one I’d like to talk about is Construction Partners, ticker ROAD.

That ticker is very appropriate because they’re a 5 billion market cap road builder for both public and private institutions. I think the main reason we like this one is its geographical focus, which is in the Sun Belt states of Florida and Texas, seeing really high levels of population migration, which only enhances the need for improved infrastructure.

This is backed up by the tailwinds of the IIJA, which they’ve already seen good effects from so far. And we think that’s going to continue. A lot of focus on what Trump is doing in his first few days, but it looks as though the IIJA is comfortable from where we’re standing.

A third point is their excellent track record of M&A, which I think will only improve. They’ve used this to expand their geographic reach further. They’ve recently acquired in Texas with Lone Star Paving and in Oklahoma with Overland as well. We think the environment going into this year sets them up to continue driving further growth with M&A and infrastructure spending still in its early days.

The other one, which is a slightly larger name and probably more well-known, would be Intuitive Surgical, which has done really well for us. We’ve owned it since about a year ago. It’s essentially the founding father of robotics within surgery. It helps surgeons complete complex procedures with far cleaner and better results.

We still think, even though it’s at a high valuation, robotics is still very much in low penetration. Procedures have grown 22% in the US since 2020 in terms of people using robots. So we still think we’re early in that cycle too.

More recently, they’ve launched a new product called the Da Vinci 5, which is their latest robot. That’s really the key driver going into this year. They recently released results suggesting they delivered 174 during Q4, 2024. These numbers are going to keep driving up in what is essentially a razor-razor blade model, where they make more money from their instruments and accessories than from the machines themselves. We think this will drive further incremental revenue and margin uptick through higher sales per system. That’s another name to keep an eye on. But I’ll hand it back to you now.

Andrew Dalrymple: Those two are very good examples, particularly Intuitive Surgical, which is an incredibly good example of the things we try to buy in America—American compounders. These are people who break into or develop a new market or product, and it becomes an enormous component of the medical industry. Every surgeon in the world nowadays is trained to use robotic surgical devices. There are 9,500 of these Da Vinci machines around the world.

It’s been an absolutely incredible example of American compounder shares. That’s where the whole portfolio is designed to find these opportunities and try to run with them as long as we can. Axon Enterprises, for example, we’ve owned since 2018, and it’s made us probably something like 8 or 9 times our original purchase price. America, in particular, is an area we find very fertile for these kinds of opportunities.

Mark Martyrossian: Okay. Well, thanks both. In a week when a landing on Mars in four years has been predicted, I think your views seem a little more grounded. If any of you in the audience would like further material or discussion on the points brought up by Andrew and Tom, please get in touch with your sales rep, and that can be arranged. Thanks again.

Listen to the podcast on Spotify.

Disclaimer

This is a marketing communication issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction Aubrey Capital Management has taken reasonable care to ensure the accuracy of this information at the time of publication but it is subject to change without notice and it does not in any way constitute investment advice or an offer or invitation to deal in securities.

Past performance is not a guide to future returns and may not be repeated. All performance data for the SVS Aubrey Global Conviction Fund Retail A Accumulation share class. Fund Source: Aubrey Capital Management. Performance data is calculated on a net basis by deducting fees incurred at fund level (e.g. the management fee and other fund expenses), save that it does not take account of initial charges or switching fees (if any). Income reinvested is included on a net of tax basis. Index Source: MSCI, MSCI AC World Index Net GBP income reinvested net of tax.

Please refer to the prospectus and the KIID before making any final investment decisions and if you are still unsure, seek independent professional advice. Investors in the Fund are exposed to fluctuations in the Fund’s value, which can go down as well as up, and may be subject to significant volatility due to market conditions and changes in foreign exchange rates.

Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. This document does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions. The Fund is not registered for sale in the United States and is not available to, or for the benefit of, U.S. persons as defined by U.S. securities laws. 


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