Podcast – Karara Capital
Ever invested into a small cap stock and it has failed? For my most recent fortnightly education session on ASX stock tips I was joined by Nick Greenway from Karara Funds Management and Daniel McDonald, creator of the ASX Stock Tips Facebook Group. If you're interested in hearing from an expert in small and micro-cap company investing, then tune in.
Hello folks good day to everyone out there in the live land I'm your host Stefan Angelini and
I'm here hosting an ASX Stock Tips Education Event I'm also the host of the Investor Types Podcast and here we are for a great event talking to an expert manager in the small cap and mid cap space and we're talking to Nick Greenway from Karara Asset management.
Most importantly today guys it's all about education educating yourself and getting yourself up skilled if you are thinking about trading shares obviously trade responsible anything you hear in this in this conversation today will just be general in nature so don't please don't consider it as personal advice if you are considering taking on any personal advice please go and speak to a licensed professional.
Alright good day everyone and welcome to the stream luckily we've got here today so Nick Greenway from Karara we've got Rene Daquino from Ironbark Asset Management responsiblefor the distribution of Karara and many other funds and also Daniel McDonald who runs McDonald Legal but also was the creator of the Facebook group.
So guys thanks a lot for joining us everyone good day great to see you look we're here to
talk about small caps obviously getting education on investing Rene you've been in the investing game for a long time I thought you'd be the best person to introduce Nick and even the fund so if you would mind?
Thanks Stefan and thanks Daniel yes so I'd like to take the opportunity to introduce
one of our portfolio managers from Karara Capital Nick Greenway. Nick Greenway joined Karara as an investment manager in May 2010 he has over 20 years investment market
experience and prior to joining Karara Capital.
Nick worked for more than eight years as a portfolio manager and an analyst focusing on listed Australian small companies, most recently prior to Karara Capital he worked with a firm called Patriot Asset Management, where he was also managing director and co-founder prior to joining Patriot.
Nick worked as an investment banker with UBS Warburg Corporate Finance and Merrill Lynch, where he held the position of Vice President in investment banking so as you can tell by the bio that I just read out to you all Nick has a wealth of experience and I'm sure that he'll enjoy our session today.
Amazing. Nick thanks for joining us you've obviously got a wealth of experience and you're in the most exciting space in the stock market but obviously also the most volatile and we'll call it the most emotional with the roller coasters that go up and down. If you look at the the ups and downs of say some of the buy now pay later is where in March, they were skyrocketing and then they fell if you look at Afterpay went from forty dollars down to eight dollars and then back up to ninety dollars and it just goes to some some periods of market volatility that if you don't I guess back up your your buyers and what you're buying with with research it's easy to get emotional and to run away.
Tell me a bit about your experience with market volatility and the the approach you take when we're in such volatile markets like we're saying now.
Thanks Stefan and thanks Rene for the introduction. Yeah I think the volatility through this year's been been really interesting and I think it really represents the culmination of a market
particularly in in small caps and micro caps that has been heavily driven by momentum
and the share price string swings can be a lot more volatile. Because the liquidity in those stocks is so much less than say you know the top 20 or top 50 I think really you know the keys
in this sort of market where you do have these wild swims is to have a have an anchor or you have to have a reference point or a valuation for your stocks and have a buy price and a sale price.
Otherwise if you're just moving with momentum it's very dangerous and you know you could have been holding Afterpay at 30 bucks and it takes a lot of fortitude or or confidence in your valuation anchor to hang on to it when it's sinking like a stone down to eight you know to eight dollars and I suppose that momentum isn't really our investment investing style.
We tend to be more of a fundamental investor and rely on you know some more traditional earnings and dividend type aspects in coming up with our valuations and so it's been tough for a value or or a more value orientated manager for us in a momentum driven market but I think yeah either way whichever style you know you follow and and another are valid at various times you really have to know what your your your buy and sell prices are otherwise you're just moving with that with the crowd.
Yeah definitely now growth is growth momentum has certainly been shooting the lights out hopefully value is making a comeback for sure I might just introduce you to Daniel McDonald. So Daniel was he's the creator of the Facebook group and as I said before so Daniel runs a law firm out of Melbourne Daniel any questions you've got for Nick before we kick up the presentation.
Yeah since no Karara is been around since 2009 I'm back just wondering how it all came into existence?
Karara was actually founded by three gentlemen the managing director David Slack, who
was a founder actually portfolio partners going back into into the 90s which was sold to Norwich and then two former colleagues of his from when they worked at Investco Rohan Walsh and Luke Sinclair form the company.
Gotcha and I'll see.
Within the company there's a few different focuses Nick Greenway obviously leads the small companies fund. So Nick what we might do is I might get into the presentation now for anyone that's out there that is watching and if you do have questions for us please feel free to leave a question. It will pop up for us and then we can ask Nick to go from there other than that. Nick you're gonna see this presentation pop up on your screen oh it's you let me know where you want to go Nick and talk to the talk to the slides if you can
Okay well just on slide three just gives a quick overview of our investment objective and essentially what we're trying to achieve our benchmark is the small water muse accumulation index and we're trying to achieve that over a rolling four year period the size of the fund. We manages or total funds we manage in this strategy are about 800 million dollars in terms of what we invest in we don't really go down into the real really small end of the micro cap or the nano cap market so we don't hold any companies with market caps of less than 70 million.
Well that's actually a hard rule and in reality we don't own many that have a market cap of less than less than 200. So our real sweet spot is is companies that have market caps from from 200 up until those companies really move into the the ASX 100 and by that stage looking at companies with market caps of over over two billion dollars and thereabouts. We can hold 15 percent of our fund in those cap those companies that move out of the small cap index up into the up into the top 100.
We currently hold about about 10 percent of the funding in those sort of companies. One of our main ones actually has been a gold company called Saracen Minerals, which we've held for a long time and done really well out of and you probably would have seen yesterday that they announced a merge with Northern Star to create the the second largest gold company in Australia behind Newcrest and actually has much better growth prospects than the Newcrest that's been well received by the market which is good turning to slide four.
Our fundamental philosophy is to buy companies that are under appreciated or around mispriced and we have a quality focus so we try and invest in what we refer to high quality companies that preferably have sustained earnings or sustainable earnings or a materially undervalued asset position and this sort of focused on focus on earnings really goes to that fundamentals or focus on fundamentals I was referring to before.
And I suppose in this sort of marketing environment where you have had a lot of non-profit generating companies you know really flying between the tech the tech space and so forth. It has made a difficult market for us to invest in because we do have a focus on on profitability what we do those have some scope to invest in non-profit generating companies and that's principally of advantage in the resources part of the market. We have a lot of companies that are say developing a minor or project and their pre-earnings or pre-revenue and often you can do very very well out of those companies and we have so we do have the ability to invest in companies that are non-profit generators.
But at the moment that's well well below less than ten percent of the fund and obviously in the tech space you know you've had companies like you know Afterpay and Zip and you know most of the buying our pay laters are are not profitable. We have had some exposure to them over the years we didn't have to Afterpay when it was in our in our benchmark and made some pretty good money out of it I think we sold out at 25 or 26 dollars and thought we were you know legends and it was fully priced and obviously it ran up into the 30s and then obviously then on the journey.
We've described you know back down to eight and and then then up obviously into the into the 90 90 bill we sort of invest with a longer term horizon. So we're not asset we're not we're not traders you know essentially we'll buy stocks with a with a viewer holding them for for three to five years that's the time frame we look at when we're making our investment decisions. So we're really trying to find those underappreciated medium-term growth stories not trying to find you know the next stock it's you know.
We think is going to fly up in the next week or so in terms of our approach it's really base around your discipline based around you know discipline we we bottom up stock pickers but I think a key point a difference for us compared to some other managers. We do take a lot of account of the of the broader macro environment with the top down overlay and we sort of spend a lot of time understanding you know companies and industries and particularly where those companies sit within an industry and what the challenges and threats are and fundamentally. We're not we're not a deep value manager or bet we do have a value orientation we're not looking to buy you know stocks that are impaired or in structural decline.
So we're not like an Ellen Gray type manager who'll buy those visually bombed out stories and wait for the or hope that you know the big turnaround once again that's a valid investment style and they're a very successful manager and done really well that's just not not our investment style.
So probably the next point in terms of the presentation if we turn to slide six how he's seeing the market overall at the moment and some of our positioning at the moment I think that the market is is quite expensive particularly the small industrials part of the market and a lot of the you know the tech names and you know software names and buy now pay later. So stocks are looking pretty pretty fully priced the market has been massively supported by stimulus.
Yeah really since the GFC you've only got a look at what the central banks around the world have done in terms of you know printing money expanding their balance sheets and now
that's really being augmented by government fiscal policy you've obviously seen you know
massive direct transfer payments you're in Australia with job keeper and job seeker and the like and now with the budget last night or be you know that there's a transfer or less reliance now on on direct handouts from the government to more tax incentives in terms of giving businesses tax breaks and and personal income tax rather than direct handouts.
You know that the markets I think still will be supported for quite some time by the by the actions of the government as well as the the central banks. So how we see things and how we're playing it in terms of our keep portfolio thematics. There's obviously been a massive acceleration digital transformation driven by you know Covid and you know working from home type type concepts increasing data usage and cloud computing and e-commerce so in that sort of in data or digital infrastructure space we've owned companies like NEXTDC and focus in terms of communications infrastructure.
We've also had Opticom and Uniti wireless more in the morphvox but the household fiber data consumption thematic there's more people working from home essentially those companies are competing with the the NBN in rolling at infrastructure and long life assets and there's actually a merger that's going through at the moment of those two companies. We're pretty positive on that part of the market infrastructure expenditure there's really gonna be a lynchpin also the domestic economic recovery to FY22. Obviously the government the at the federal level there's over 100 billion dollars of projects that will start coming start coming through that there is a bit of a lag but we think companies such as seven group over the medium term will be a very a very strong beneficiary there mining service is actually really interesting part of the market it's really lagged.
The relatively bullish resources market so obviously the gold stocks have been flying the iron ore stocks have been flying but a lot of the the mining services companies have really lagged
that we think there's some pretty good value down that part of the market so a couple of
companies. We own there one is mineral resources which is also an iron ore producer and
it's got some tier 1 lithium assets as well and also NRW which we think is undervalued emerging inflationary pressures key sort of thematic there is our exposure to precious metals primarily gold. I think at the moment you haven't seen the inflation really manifest in terms of consumer prices it's been more in asset prices and we may see some you know moderate deflationary forces going forward. But I think the actions of central banks and governments pretty much universally around the world to borrow and spend.
You know as far as the eye can see will mean that inflation will will emerge in the medium
term and so we've got some good exposure there through some gold stocks such as Saracen as I mentioned earlier then just lastly in terms of a couple other key things we're seeing or where we have exposures to Australia is I think increasingly playing to its natural advantages and demand for high quality food coming out of Asia.
So some of the exposures we have there at the moment are elders and and Costa and then East Coast energy or gas prices in particular. We think the outlook there looks pretty positive
over the medium term so we have exposures to cynics and cooper which is going through some training issues at the moment with the commissioning of your BassGas plant down here in Victoria but we think those will be resolved in the medium term and that stock gets pretty good value on a two to three year year.
Nick there seems to be a heap of mergers and acquisitions popping through around the market as you said with with Northern Star merging in the gold space are you seeing in in current markets like we are seeing where the gold price is quite high do you see a lot of mergers and acquisitions coming about in in those markets.
Yeah great question yeah we do yeah in the Australian mid caps and small gold space. I think there is the likelihood you may see you know another couple of deals over you know the next 6 to 12 months. So yeah I think there's there's a lot of synergies often to be to be reached where you have you know assets that are or either you know or mule constrained in in various respects and that was really one of the key drivers behind the the Saracen, Northern Star deal. So yeah I I think yeah this near hat's right for expansion and I'm sorry right for FMA so we do have some ideas there.
And you spoke a little bit before about I guess so NEXTDC work from home people obviously using more internet. So you see NEXTDC is NEXTDC is that a property in infrastructure play or is an NEXTDC more of an internet play an IT play.
Well it's really both it's it's it's it's infrastructure but infrastructure that's that's really exposed to you know to technology and increasing you know obviously you know cloud computing and data usage so in terms of you know going back say 10 to 15 years airports worked you know regardless the the high growth infrastructure play well you know I think now you can probably start looking at data centers as almost as a as a replacement in some respects for airport infrastructure because obviously people will be traveling less I don't I think it's gonna take quite some time for you know travel to pick back up to levels it was say in 2019.
I mean I know with our business that you know we can achieve an enormous amount now over the internet you know with Zooms with Zoom type calls and you know Webex and Teams and so forth I've got a conference on today that's actually up at up at Noosa and I'm just dialling into the presentations and it's like I'm there it's it's absolutely fabulous so and our whole team can dial in we don't have to go so I think yeah the data centers are a massive beneficiary of you know if this this dynamic and I don't think it's gonna go back to how it was.
Yeah no definitely I'm with you there and we've had some questions around SHV and MXI I'm not sure if you're aware of those companies at all essentially Select Harvest Limited considering someone saying that they might be undervalued if you're with your focus on agriculture
Yeah they've obviously just done an acquisition last week of some more almond orchards and close to where their existing orchards are I think it is a it is a pretty interesting you know medium term play obviously the almond price has been depressed but I think yeah the acquisition makes sense and you're expected that the stock should perform reasonably. Well particularly if the almond price can can recover MXI I think is MaxiTRANS I think yeah I've looked at that one for quite some time it's relatively small so I don't really have a view on that one.
No fair enough yeah it's only a very small cap really great questions just come through from one of the members on Facebook. So with the new number of traders that are entering the market since March and the influx of company stock prices rising since that time do you think that that prices are a little bit inflated previous to the fundamental analysis and how does he sort of change your opinion given the number of traders that have now come into the market especially in the small cap space
Yeah it's a fascinating dynamic and I think to answer the question generally yes I think
a lot of valuations are are overblown and it is a momentum driven market and yeah with a lot of retail investors coming in and you can see from the volumes going through on comsic and the other you know retail platforms it's a it is a you know a fairly significant part of the market.
But yeah I think that's just an area that makes us a little bit cautious but we need to also recognize that you know the prices can be driven by you know retail investors as much as
they can institutional investors so it's just an extra dynamic that we have to take into account and be be mindful of
Definitely Daniel mate any question?
Oh yeah well I do but I think are we still continuing we got some more of this presentation to go through or we finished
Yeah still got plenty of presentation to go through Nick you tell me where you want to go to
your next mate
Probably the in terms of just the performance prospects for our fund I think just going going
forward with the way we're structured given our our sort of focus on valuation we've got
what we describe as a bit of a barbell structure and I think given how fragile you know markets potentially are recognizing that a lot of this is being driven by you know stimulus government central bank and then obviously you know momentum you've mentioned that the retail investor factor coming in.
As well when you look at those factors compared to where the underlying economies are performing I think people just need to be mindful you know of the potential fragility around
the market and that's why we're structured at the moment with this barbell structure where we've got some you know defensive and growth you know names in our portfolio. So I'm not saying you know the market is necessarily gonna to fall over tomorrow. But I think just given where evaluation levels are in the small industrial space the PE is north of 20 which is at an all-time high it's above a two standard deviation level I think it's similar for the lot more earnings multiples apply to that the large cap industrials as well when you exclude the banks.
So I think it's just a time to be to be cautious as I said we saw in March what can happen yeah when if the market does does get a shock so I think that that's what explains how we're positioned. Yeah that's probably the you know probably on that on slide seven it's really that the last sub bullet point there that you know we're mindful that a predominant factor driving the markets has been you know negative real interest rates massive liquidity and and also ass allocations towards passive strategies has helped as well so the index funds become a bigger part of the market as well.
So the risks on slide eight I won't labor these too much you're probably well known to to most people you know following the markets but obviously Covid you know out there in the U.S it's still an issue I think 34 states in the U.S have recorded higher levels this month versus a month ago and that that's a potential you know threat to the U.S U.S economy and the reopening or the shape of the the recovery over there I've talked about low interest rates central banks geopolitical tensions are also out there and in a building. We've seen obviously that the rhetoric is amped up between the U.S and China particularly over the over the Coronavirus.
So it's something that you know is out there we need to be need to be wary of at the moment all this deficit spending the markets don't seem to be too worried about it at the moment in terms of the U.S is running massive budget and trade deficits one of Trump's focuses has been trying to to reduce the trade deficit by doing a better trade deal with with China now the focus seems to have moved wider up away from that more to Covid.
I think in the medium term there is a risk that you know if the the U.S does it lose its safe haven space because of these deficits the U.S dollar in the medium term is you know is potentially potentially at you know risk as well and the markets could revolve if we if we do see a greater focus on those those budget and trade trade deficits and then I think the role of stimulus measures.
Now I think yeah it's probably less of a risk I think we've seen the governments are pretty much going all in trying to keep you know the economies going but we do have that disjoint still you know even with all the stimulus you know we're still gonna face a pretty tough economic environment here and then probably the last two Australian house prices. I think are still vulnerable we've got a lot of people on you know on effective holidays in terms of their mortgage repayments and so forth and I think that's the fundamental reason why the government wants to keep.
You know everyone employed as best they can because not gonna affect you know to house prices and and household wealth will be immense if if if we do have employment full just given how highly leveraged the household sector is in Australia. There's just a brief snapshot of our performance on slide nine we've had a better year this year as I said it's been a bit tough for us over the last few years essentially you know given our style.
We have more of a you know evaluation focus and has been a very heavily momentum you know driven market I think for anyone out there if you are looking at at Karara or small capital or other managers, prefer in any investment class. I mean my personal views you should really consider people's you know 10-year records where people have been through a you know a cycle or two you know anyone can really have a hot six months or a 12 months and it's easy to get carried away with your your success over those shorter periods
But you know particularly for you know professional managers you know personally I'd I wouldn't invest with someone that didn't have a you know a decent 10-year record just probably turning to the end of it all the last page the presentation just some stock stories or some ideas that we sort of are liking at the moment I've got I've got three and they're all a bit different so hopefully this will you know pick some interest.
So the first one of those is is a company or store which is a a value play I was currently
trading on a PE of about 13 times coming down to probably 12 and a half for next year. The companies are one of the world's largest food builders in particular in the aluminium shipbuilding space they have a key exposure to military vessels for the the U.S navy. They're a primary a prime contractor to the U.S navy for their LCS warships notwithstanding it's a contracting business which tends to be you know lower quality this one has pretty significant ip around shipbuilding it is a low-cost producer and I think one of the important thematics driving this one is that we're seeing obviously with heightened geopolitical tensions increasing military spend and government spend more more broadly.
Last night the U.S navy actually came out and and enunciated their a new force structure target taking their navy up to 500 ships so it's a pretty sizable increase in ships the navy wants to build over the next few years and Austal is a key potential beneficiary of that I think the other key point with this company is with all the boats. They've been building for the U.S navy there's more and more of the boats obviously going into the water and there's a big opportunity for them to generate more sustainment revenue out of the boats you know essentially you know servicing the boats and maintaining once they go into the water.
We think that's one of the key things that the markets are under appreciated at the moment in terms of why the stocks trading at 13 times earnings when the the small industrials is 2021 essentially the market's concerned about a particular contract rolling off of the company for the the LCS program in 2024 and we think those concerns are probably overblown particularly given that the factor. I just mentioned the U.S navy's come out with this plan to substantially increase the fleet over the next the next 15 to 20 years and the navy's actually just granted hostile given them.
Well the U.S government has 50 million dollars to build up a steel ship building facility next to their current aluminium building facility in mobile Alabama. So we think it's you know reasonable to assume that the government wants to keep that ship building facility going beyond the role of the LCS program otherwise they wouldn't have given them 50 million dollars to to build a new facility it's a pretty tough economically exposed state in in Alabama and I think Austral's the second largest employer.
So it's highly likely that the government slash navy in the U.S will want to keep that facility going and we think they should generate some good levels of work going forward. So we think yeah the markets concerns are overblown and trading at 13 times earnings as I mentioned and stocks I think it's got about a two and a half percent yield it's it's it's a potential candidate for a re-rate over over time the second one the second stock I'd like to mention is a bit more of a growthy infrastructure play one of the mid-sized telcos and that's that's Uniti Wireless UWL the market caps about 700.
It's going through a merger process as I mentioned earlier with with Opticom which is I think got a market cap of about 600. So once they're put together which we think so has a very high chance of occurring will be a about a 1.3 billion dollar company and makes it pretty significant for small cap investors in the part of the market where I operate really the key business here is a fiber infrastructure business to to new or green field properties so both apartment and broad acre your housing developments.
So really that the company these two companies are trying to compete with the NBN and when they merge they'll be a pretty formidable competitor to the NBN in terms of rolling out you know fiber infrastructure to new to new premises so essentially they're the essence is they're much more efficient faster more flexible than the NBN Co and can add over-the-top services. So if you're building a housing development you want you know security and so forth incorporated you know when the development's done or other bells and whistles they're much more nimble and able to offer all those extra services than the NBN Co.
So essentially that's you know where their competitive advantage lies we really like the business 'cause they're long life effectively monopolistic assets like the NBN and you know we think notwithstanding that the recent things announced where the NBN will is obviously got some more funding from the government. We think the NBN's more likely to attack the wholesale enterprise market rather than you know the the wholesale residential market which is where where Uniti and and Opticom operate.
So yeah we really like this one taking a you know a two to three year view it's like an infrastructure you know growth asset a bit it's not dissimilar to the data center thematic as I mentioned before and then probably the final one I'd like to mention this one's a bit more of the exciting end of the the spectrum this is a medical software company that's recently listed about three months ago called 4DX that's the ticker of the company as well
So this is a medical software company that runs effectively it's assessed business model with exposure to the healthcare market so you've got a a great business model in that it really is a proper assessed business model in the healthcare market opportunities are typically very very large often they involve devices and and so forth that need to be produced or or drugs that need to be developed and that obviously usually costs a lot of money to go through trials you know phase three trials and like this one's great because it's actually a software company and essentially, what 4DX is offering is it's software that's used to measure lung airflows by effectively processing a series of x-ray images
So it takes what are existing or what is an existing technology basically an x-ray of the lungs or a series of x-rays of the lungs and then processes those using its software and then effectively provides a dynamic as an emotion based serial image of the of the lungs how the lungs are operated and effectively that provides really rich information for doctors looking at the performance of the lungs they can much more readily identify you know where the where the issues in a person's lungs are so it's it's a it's a great a great technology and the beauty of it is that it's a very efficient add-on for hospitals because essentially. All they do is upload the x-ray images that they already have and up into the cloud and 4DX's software processes those x-rays and then sends back or rendered moving image a four-dimensional image of the lungs and it's pretty cost effective too
So at the moment they're looking at basically a cost of 120 dollars for the x-rays and then 175 dollars for the test so that takes the total test total cost of 40DX is offering up to about $295
versus the most common alternative at the moment is the CT scan which involves more more radiation but also costs a lot more about $575
So it's cost effective as well provides great information the company's just got TGA approval in Australia and are expecting commercial sales next next calendar year so it's basically it's it's pre commercial revenue they do have FDA clearance in the U.S and they're getting a little bit of revenue over there they're in the process of building out key opinion leaders in the U.S or at six hospitals some of the majors such as John Hopkins, Cleveland Clinics. So it's a pretty exciting opportunity large addressable market the founder is a really interesting guy.
A guy out of Monash University, Andreas for U.S who had a background in Aeronautical Engineering and that was how he developed the software that has now you know essentially being applied to to these images of of lungs so yeah really interesting and also in the medium term this scope for new products too obviously at the moment the first one is one that measures airflow in the lungs they're working on another one that looks at blood flow or monitors blood flow in the lungs as well so again another potentially significant addressable market
So history stocks for a range of styles but three we think have pretty good medium term prospects
Very very range of styles couldn’t agree more with you more there getting involved in something like 4DX quite early on you said it was unlisted like three months ago did you get involved with them on IPO.
Yes in the IPO that particular fund I ran isn't able to take pre-IPO stakes so some other small cap funds or micro cap funds are able to do that we were aware of it at the pre-IPO
stage but our fund came in at the IPO stage.
You get a lot of excitement around IPOs and new listings and everyone wants to get on the CSL at $4 and write it to 300 or the Afterpay it at four a two and write it to a hundred how tricky is it to pick a good newly listed company
Yeah great question I think over my career it's yeah it's not easy I think in more recent times
it has been probably probably easier just given that the market has been momentum driven
and there has been a lot of excitement around you know particularly you know the buy now pay later is now some of these medical you know companies that are that are coming out you know like like 4DX.
So yeah I think it's it can change over time I think what we're seeing now though is that a lot of these tech tech based flights and companies that are coming up because of this acceleration of the transformation of the economy that's been driven by Covid. There is massive disruption that's coming through from a number of these businesses. So I think at the moment you know the markets are a pretty the outlook's pretty good for for technology related IPOs that are disruptive and you know I think people are willing to look at you know the potential medium-term opportunity in varying these companies rather than you know being so concerned about you know whether they're going to be making losses for the next one or two years
But it's an area where you you do need to be careful and and pick your winners.
Yeah definitely couldn't agree more Daniel.
The three stocks you put forward I notice they're in sectors of defense I ITT and and and medicine is that really in line with a with Karara's strategy around dealing with the next
sort of two years of a potentially Covid universe.
Yeah great question it's well as I mentioned part of our process we do take into account you know the top-down thematics and we are you know favorably disposed towards those
you know those that those things that you just mentioned Daniel I think fundamentally though each of the businesses you know looking at them from a bottom-up standpoint you can see how their outlook you know revenue and earnings will improve you know quite quite well over the next two or three years and that's really the key driver it's more just an outworking that that at the end of the day for us that they're the sectors that you know they've ended up in.
Even even in the Covid world they'll probably do quite well
Yeah exactly without a vaccine
Yeah one of the the rules of of Karara's investments as I note was under appreciated mispriced and sustainable earnings well obviously everything at the moment is probably under appreciated potentially for if if a vaccine is made available what are some of the the sectors that the Karara is kind of looking at in a post-vaccine world.
Yeah it's it's it's an interesting one you know I think in a post vaccine world which you know my personal views we probably won't see it until the middle of next year in terms of it being distributed you know widely distributed allowing for production times and and so forth. So
we're probably looking at more of a late 21 22 type impact you know for that but I think
you know key sectors that would pick up there you'd expect you know anything you know travel related and then I think really the way we're looking at from our universe and stocks is
you know the potential changes that you would see there would probably be a re-opening of the international borders.
So anything that would you know has been exposed to inbound you know tourism you know migration. So that would tend to be suggested that over that you know the year or two following that anything your housing you know in terms of your net migration would start to pick up again and anything in boundary tourism related maybe education with the unity sorry university sector.
You know in Australia obviously been hit pretty hard by the you know the foreign student numbers you know falling so you know companies like IDP education.
Well they've got the beauty that they're a global business they can shift their students around the globe to some extent but they've got a pretty big exposure to Australia but I think you know if we saw a vaccine and things really start to reopen companies like that would be pretty well positioned
But I think probably the key the key here is just around this digital disruption we don't see this as being just a short-term thing. Yeah that's been Covid driven I think this is a structural change now you know that's caused permanent changes in the way you know business you know can be done you know as I mentioned the start that's massive for us in our business. We you know our travel budget you know won't be nearly what it was in you know 2019 I think for quite some time you know probably borrowing you know international trips which we probably don't expect to do for the next couple of years
Yeah and just just on that before we finish that so in the in the the short term which
which sectors do you think are going to yield kind of instantaneous benefits from the
introduction of a vaccine
Instantaneous benefits right that's always a little bit hard I'd say probably the travel would be that the main one you know I think where we see value in the market in the sectors that we
think really really take off over the next couple of years we're probably quite positive around resources you know to be frank because I think if we see a vaccine and economies recover
and businesses open up and the economy goes back to how it was I think you've seen China probably has been the best example so far that they seem to have got the virus under control better than say you know the Western you know Western Europe and and obviously
But China is you know seems to be almost back to how it was and the demand for commodities out of China and going beyond oil price and so forth and that you know the copper price and what have been going going quite well and what you've had is over the last couple years a lot of under investment in in new mines you know mines have been high graded all the easy or has been taken and so forth and if the demand for commodities really picks up without you know meaningful increases in supply coming on board.
Obviously by definition with demand increasing in supply not pricing for commodities will be quite strong and I think you overlay with that what's happening globally with global monetary policy and what the central banks are doing particularly you know in the U.S with the fed you know creating money out of thin air I think that all goes well very well for global commodity prices so I think the resource small resources part of the market is is potentially set up to have a move like it did in 2011 and you know all commodities could really really really take off that's that's you know. I think if the global economy really starts to you know to fire you know other than technology which for the reasons I think technology is gonna do well you know those disruptors either way.
But I think if we do see you know a vaccine the economies pick up commodities you know could really do do fantastically well.
Just on that commodities with that commodity mineral space you're obviously very well versed there one of the one of the businesses one of our members asked about was ADN Andromeda Minerals I'm not sure if you've looked into this company at all or how you see that is it from an operational perspective.
No I haven't I haven't looked at our ADN I'm sorry I can't I can't offer a can't offer a review on it
That's good we throw these things out there don't expect to know everything there's been a question around brought brain chip as a small cap I've never heard of it I'm not sure if
Yeah it's a technology another technology company we haven't haven't done too much work I think it's had a had a massive run so yeah I probably probably wouldn't wouldn't offer a view at the moment on that one either sorry yeah
No clever that's the answer we want you can only become expert in so many businesses and find the ones you love and that's why sticking to an investment philosophy I guess is so important and that's why I guess a lot of my clients we trust the funds of expert managers like yourself and especially when you've got such a large a wide-ranging investable universe how many companies fall into your investable universe in the small micro cap space
Yeah it's interesting as we start x 100 so it's it's it's I haven't done a recent count in terms of the the potential universe but it's over a couple thousand probably more but we end up screening down to a realistic universe that we can invest in given stock liquidity and the number of stocks that we can hold in our portfolio that's an effective constraint on on how many you know you can or how what size you can really go go go down to so and how many you can look at so we probably follow actively or keep on our screens probably about about 200 but we really follow closely about 100 in our team of four so it ends up you know probably you know being around 25 30 stocks each that we know really really well and then a lot of others you know we know pretty well.
But I think to your point that in terms of your people's portfolios you know it's it's great to have your you know your money that you're happy to to invest with yourself and have you know some ideas or you know a more speculative you know part of your portfolio but yeah it's obviously good to have a you know a a solid a solid part of your portfolio as well
So I think yeah I think when the market's flying it's it's probably easy to get carried away sometimes with you know some of the you know the momentum and and exciting stocks
Yeah definitely and just on that point I might introduce you and just introduce, Rene Rene takes care of a lot of distribution for Karara Renee, if you wouldn't mind just for anyone out there who was listening who might want to find out more about Karara would you mind just introducing how they might be able to do that?
Yeah sure. Thanks Stefan sure if anyone out there is wanting some more information probably the best port of call I'd direct you to our website which is www.ironbarkam.com and there you'll be able to find a link that will take you into Nick's fund specifically and and if you're wanting to speak to someone over the phone there's a phone number or you there's an email address there as well
Beautiful. Daniel any closing comments matey?
No just look thanks Nick and thanks Rene for for being part of our education series it's been great to have you here at ASX Stock Tip group love to have you back in a few more months time and had to have a bit more further chat about where the market's happened maybe
in a that'll be a chat and a post-vaccine world.
Any closing comments for any of our investors out there part of the group some words of wisdom perhaps for any of the traders?
Probably if yeah for traders I'm not I'm not a trader I'm I'm more of an investor so I far from me to be giving traders advice but I think you know if I did it be obviously run your stop losses you know with discipline and yeah occasionally take some profits
And we're good Nick I'm an investor as well and at ASX Stock Tip groups. Look we love to promote rockets everyone wants a rocket or two in their portfolio but also just remember investment do with diligence do your own research thanks for listening today. But if you are thinking of investing into anything that's been mentioned make sure you do consider getting some professional advice in saying that everyone that's enough from us today.
Thanks a lot for all your questions for everyone listening out you can get access to this video on the Investor Types Youtube channel.
Daniel thanks again for starting the group it's been great.
Nick Greenway very much big thanks for joining us and
Rene thanks a lot for setting this all up so appreciate it
I'll speak to you all soon
Thanks Stefan. Thanks Daniel
See you guys bye.