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Growth Compass

By Simon Angelo

I bought an antique brass compass some years ago.  It's a British Army marching compass, stamped 1944.  It is marked and tired.  It looks and feels as though it has seen things it would rather forget.  And it reminds me of my late Grandfather who was taken a prisoner of that war.

The little compass has also been around the world with me. 

When we moved to Europe, it was shipped with our belongings.  Back to the land where it was made.  And there it stopped working.  Although I could see the French coast due north out my window, the compass refused to agree.  North pointed South.  Perhaps the magnet had been damaged in shipping I reasoned.  Or perhaps it didn't want to be brought back.

After a few years, we shipped everything back to New Zealand, including the compass.  It is on my desk now.  And it is working again.  The sun is brighter.  The coffee tastes like coffee.  At school my daughter climbs tall trees as opposed to being jostled about in a car park which had doubled as her school's playground.

But if you want to invest, you have to travel.  You have to explore.  Because when you leave the comfort of your home, you find new opportunities.

'Fear, uncertainty and discomfort are your compasses toward growth.'

The past month has seen some great opportunities with our investment targets.  One we topped up on for a few clients, one got away.

The opportunities arose out of fear and uncertainty.

Tassal Group [ASX:TGR], Australia's largest salmon farmer had two bad pieces of news, coincidentally at the same time.  

There was a listeria outbreak which affected 2 tonnes of Salmon.

CEO Mark Ryan sold 200,000 shares.

As a result of these two events combined, the share price crashed nearly 10%.

I investigated.  Of the 33,000 tonnes of salmon sold, only 2 tonnes was infected.  Those 2 tonnes were not released to the market. 

Ryan's share sale was partly to pay tax and his holding remains at 160,378 shares. 

The business remains positioned to capture growth from a worldwide situation where demand for seafood exceeds supply.  Asset backing is solid.  PE multiples reasonable.  Dividend income good.  The risk was oversold.  

Having previously got into the company around $3.60 per share, we had seen the price rise to over $5.  This presented the first opportunity in a while to top up at below $4.60.

The price quickly rose again to over $4.90.  And so far, although we took some risk, the trades have been very worthwhile.

Boeing [NYSE:BA] was the one that got away.  

Boeing has been the darling of Wall Street.  I'd wanted to buy it for a long time and missed the chance in 2016 when it was less than $150 a share.  Then Trump cut taxes.  The company ramped up staff against a backlog of orders and and the stock price rocketed over $440.

When the Boeing 737 Max 8 troubles emerged after the terrible crash with Ethiopian Airlines, the price fell to a low of $362.

With insurance in place, urgent fixes proposed and a remaining 8-year backlog of orders in the aircraft market duopoly, I wondered if fear had oversold the risk once again.

Boeing's PE remains high however.  Dividends are low by Australasian and European standards.  We placed some limit orders at a lower price, wondering where the low would come that would make the company really worth buying.

The limit orders were not reached.  The share price has now climbed above $390.  We've missed Boeing again this time.

My World War II Marching Compass, MK II 1944
Performance update & strategy
March 2019 showed growth of 3.74% across the composite portfolio (total aggregate, weighted return across all portfolios following the strategy).  This brings performance since the start of this year to 13.09%.  Average annualized performance since 2014 (after management fee) now shows 22.62%.*  Please see our performance chart for more details.
Stock take
McDonalds is innovating - from AI (artificial intelligence) at drive through to new vegan options...
McDonalds Corp [NYSE:MCD] has been a wonderful, defensive investment.  The stock has more than doubled in value over the past 5 years.  During that time it's paid a median dividend of 3% p.a.

I enjoy a Big Mac, and this performance makes it taste even better.

And the growth could keep going.  CEO Steve Easterbrook who took over in 2015 has led the charge on new innovations.  Innovations that a company with the size and scale of McDonalds should be able to make profitable.

The company recently acquired Dynamic Yield.  Their technology brings AI (artificial intelligence) to drive through menus.  It considers the weather, traffic, time, events, order history and popular items to update the board instantaneously and pitch you suitable offers.  Hot day?  Here's an ice cream sundae special!

Meanwhile vegan nuggets are about to join the menu. 

Greggs [LSE:GRG], a listed baker in the UK recently introduced a vegan sausage roll which blasted sales ahead 10% in just seven weeks, leading to a 7% boost in the share price.
The month ahead
Governments around the world appear permanently addicted to cheap money.  Our Reserve Bank Governor mentioned the potential for an OCR rate cut to help us through a flagging world economy.  This is on top of some of the cheapest interest rates since the 1960s.

The result:  A global hunt for yield.  And for those who have bought well and hold good positions in strong income-rich businesses - continued growth in share prices.  With property markets struggling - particularly in Auckland, it looks to me the new source of the wealth divide could be between those who own shares and those who do not not.

Indeed in the US, the richest 10% of households now own 84% of stocks.

A big worry for investors has been the prospect of a capital gains tax here in New Zealand.  It could well hit second properties.  Yet, it doesn't look like it can or will be levied on global shares.  Let's keep investing and following our growth compass.

Simon Angelo
CEO, Vistafolio


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*Past performance is not an indicator for future performance. Your actual portfolio will differ from the composite portfolio mentioned. Annualized returns are after management fees and after withholding taxes. The information contained in this document does not constitute an offer to sell or a solicitation to buy an investment, nor should it be construed as investment advice.  Vistafolio investment services are available to Eligible Investors and Wholesale Investors (not to Retail Investors) as defined in the Financial Markets Conduct Act (2013).
Copyright © 2019 Vistafolio, All rights reserved.

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