• Sean Rapley

February 2021 - Luke's Global Fund Performance Update


Luke's Global Fund achieved a return of -1.7% (in constant currency) return over the month of February, and a 47.9% gain to date for FY21 on a constant currency basis. International markets ended February up slightly over the month, with the S & P 500 returning 1.0% for the month of February.


Our portfolio as at February 28, 2021:


February saw our portfolio rally strongly in the first half, followed by a sharp decline in the second half of the month, as US 10 year bond yields increased by 50 basis points over the month. Our portfolio, consisting predominantly of high growth names was disproportionately impacted, with the market discounting future cashflows, and shifting capital from high growth businesses to value / cyclical businesses.


Stone Co and Sea Ltd were the only positive contributors during February, as the market anticipated strong growth in these businesses as the global economy recovers from the pandemic.


We trimmed our position in Crowdstrike during the month on valuation grounds, at $242.53, and sold a portion of our Alteryx holdings (The CRO was fired – the problem with turnarounds is they rarely go according to plan), to initiate a position in Snowflake (SNOW). Snowflake reached an all-time high of $390 in December, and we opened a position at $270.53 in February. Snowflake is currently trading on an EV/S of 67, but we believe it is an exceptional business. We highly recommend this analysis by mujji, which highlights the powerful network effect Snowflake has created. In their Q3 results, SNOW reported 115% year-on-year growth, and a net revenue retention rate of 162%. SNOW will report full year results on March 3. This is significant, as a large proportion of SNOW shares will be released from lock-up at this time, and we anticipate this will create a buying opportunity over the coming weeks.


Teladoc Health announced its full years results on February 24, reporting headline revenue growth of 145% year on year. However, this number is somewhat disingenuous, as Livongo Health acquisition numbers were included in the Q4 2020. During the earnings call, Teladoc Health clarified organic growth for Q4 was 79% year-on-year. Teladoc health reported 75% of visit volume was related to non-infectious diseases, and increase from 50% in Q4 2019, and growth in specialty visits, such as behavioural health, experienced visitor growth of over 500% in 2020. Teladoc also reported good progress in cross selling Livongo Health, with multiple cross sales since the acquisition. The ability to manage chronic conditions and deliver virtual care across a broad spectrum of services for enterprise customers is reportedly resonating across the marketplace, and Teladoc Health. Teladoc Health are forecasting 40-43% organic revenue growth over 2021.


Mid-month, we shifted a portion of cash into gold and silver, as our portfolio valuations appeared to rise above our comfort level, and our desire to build an inflation hedge, as we have in Luke’s Fund. It appears we were early on this call, as the 10-year bond yield began to rise ahead of inflation, impacting precious metal prices. We expect this trend to reverse, as inflation is allowed to rise ahead of bond yields, but this may take some time.


KEY LEARNINGS THIS MONTH:


Our greatest takeaway this month, is the reminder that turnarounds can be messy affairs. Alteryx management have a lot of work to do to transform their software to a cloud native service. This will take time. The CRO sacking is an example of what often occurs in turnarounds. Turnarounds require a lot of changes, and change is difficult. Change generates more risk, including recruitment risks in this case.


If you have any opinions on the companies we hold, or would like to know more about our investments, we would love to hear your feedback.


Regards,


Sean

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