Fisher Funds - Philanthropy New Zealand

Fisher Funds: Reflections from a Long-Term
New Zealand Share Investor
Philanthropy Summit 2015
Long Term Investing in
New Zealand Businesses
Mark Brighouse
Chief Investment Officer
Disclaimer
The information given in this presentation is class advice and is not to be taken as personalised financial advice.
A disclosure statement is available on request. This document is confidential and is intended solely for the
information of the person to whom it has been delivered by Fisher Funds. It is not to be reproduced or
transmitted, in whole or in part, to third parties without the prior consent of Fisher Funds. This information
contained in this communication does not constitute an offer, an advertisement in respect of an offer or a
proposal or an invitation to make an offer to sell, or a recommendation to subscribe for or purchase, any units
or securities. No money is being sought and no applications for securities will be accepted or money received
until each subscriber has received an investment statement within New Zealand. The information and any
opinions herein are based upon sources believed reliable, but the Company, its officers and directors make no
representations as to its accuracy or completeness. All opinions reflect our judgment on the date of
communication and are subject to change without notice. Professional investment advice should be taken
before making an investment. Past performance is not a reliable guide to future performance.
Unique characteristics of charities as investors
Investor in perpetuity
Distinction between capital and income
Looking at share investments differently
If we want to see New Zealand businesses thrive, create jobs and deliver a
long stream of dividends we need to think differently as investors ...
Securities vs businesses
When you look at a security you look at things like …
Volatility
Correlation with other relevant securities
Liquidity
Market expectations
Contrast this with the things you look at in a business …
Products
Management
Suppliers
Customers
Competition
Substitutes
This is our focus in looking for long term holdings
The dangers of “short-termism”
Over-valuing short term payoffs
IBGYBG – “I’ll be gone; you’ll be gone” – a watchword for short-termism in
the mortgage industry before the GFC
The long term is not just the sum of the short terms
“In the short run, the market is a voting machine
but in the long run, it is a weighing machine.”
Benjamin Graham
What does “long-termism” look like?
Low turnover of investments in the portfolio
Close to the board and management
Not interested in selling for small gains
“If you aren't willing to own a stock for ten years,
don't even think about owning it for ten minutes.”
Warren Buffet, Chairman’s Letter 1996
Frameworks for analysing an industry
include “Porter Analysis”
Bargaining Power of Suppliers
Threat of New Entrants
Industry Rivalry
Threat of Substitutes
Bargaining Power of Customers
Source: Michael E Porter, Harvard University
Why “competitive position” is not just about competition
It’s about whether the company will even be around in ten years time …
The concept of economic “moats”
“In business, I look for economic castles
protected by unbreachable moats.”
Warren Buffet,
describing his investment in GEICO, 2010
What kinds of moats are there?
Intangible assets
Cost advantages
Switching costs
Network effects
Efficient scale
Source: The Morningstar Book of Moats
Our investment philosophy
We are investors, not speculators
We focus on factors we can predict and understand
It is possible to beat the market but not at all times
There is no substitute for first hand research
We have to be patient
Our investment philosophy
We aim to identify overlooked, misunderstood companies with history of
success, and ability to grow profitably over medium term. If they achieve
such profit growth, their share price will ultimately follow suit
It is not our intention to buy shares in new or unproven companies, nor do
we look for bargains
We are mindful of price, we seek to avoid overpaying for growth
We are careful not to sell at the first sign of success
Our research process - STEEPP
Strength of business
Track record
Earnings history
Earnings forecast
People
Price
“There is absolutely no better investment technique than
wearing out shoe leather and visiting companies.”
Peter Lynch
Ryman Healthcare – investment thesis
Owned since 2003
Ryman has capital efficient model and builds ‘wave of earnings’ behind it from
a combination of:
o
development margins of ~23%
o
deferred management fees (e.g. 20% over four years)
o
resale gains
o
care fees
Has easily exceeded medium term target of 15% p.a earnings growth, and
looks readily achievable going forward given increase in ‘build rate’ to 850
units / beds from 2017 and move into Melbourne market
Source: Ryman Annual Results Briefing 2013
Source: Ryman Annual Results Briefing 2013
Ryman Healthcare – portfolio positioning
Strength of
Business
5
4
Price
3
 Ryman scores highly on our STEEPP
Track Record
2
1
0
Earnings
History
People
Earnings
Outlook
score and consequently is one of our
largest positions
Mainfreight – investment thesis
Owned since 1998
Global supply chain logistics provider, specialising in handling of freight, businesses operating
branches throughout NZ, Australia, Europe, Asia, USA
Full range of logistics services all linked by technology with full supply chain transparency
Company's goal of earning 85% of revenue from outside NZ by 2017 looks achievable
LA freight operations, leased substantial premises adjacent to its existing operations, first dedicated
US warehousing operations
Plans to roll-out over the next few years in the USA as it expands its footprint and provides an
integrated offering
Warehouse is large (190,000 sq ft, more than 2.2x the size of its Australasian warehouses) and will
free-up space for its pure domestic freight
Mainfreight culture
“Special people, special company” embodies Mainfreight and its unique culture
All decisions are made on basis that Mainfreight will be here for another 100 years
A customer of a Mainfreight Group company can rely on:
o
“anything is possible” attitude
o
commitment to delivering on time and damage-free; and to promptly and honestly resolve issues
when they arise
o
improvement in service through reinvestment in people, facilities, equipment, technologies
Promote people from within, encourage innovative, non-hierarchical, decisive outlooks
Every branch reports weekly results that are available for all team members to see
Individual responsibility, accountability for quality reinforced
Mainfreight branches have quality boards, internally audited every six months
Mainfreight – investment thesis
“… we measure our success by the long-term progress
of the companies rather than by the month-to-month
movements of their stocks.”
“Warren Buffet on Business”, 2010
Conclusion
Shares are a long term investment … charities are long term investors
Looking at the characteristics of the securities is only part of the process
Looking at the characteristics of the underlying business can help create
alignment with the investor’s needs
A competition framework helps identify business with long term
survivability
“If a business does well, the stock eventually follows.”
Warren Buffet
Fisher Funds: Reflections from a Long-Term
New Zealand Share Investor