June 2021 - Luke's Global Fund Performance Update

Luke's Global Fund achieved a return of 5.7% (in constant currency) return over the month of June, and a 48.3% gain for FY2021 on a constant currency basis. Our International benchmark, the S & P 500, returning 2.3% for the month of June, and the benchmark is up 37.9% over FY2021. Luke’s Global Fund outperformed the S & P 500 by 10.4% over FY2021.

FY2021 was a year of two halves, as can be seen in the table below. The divergence in performance is due to the market sentiment switching from high growth, high margin businesses, fuelled by low real interest rates, to cyclical, value businesses expected to benefit in a recovering and inflationary environment.

Our portfolio weightings, as at June 30, 2021 are outlined graphically below:

The distribution of performance over FY2021 is outlined graphically below:

Of the 17 portfolio holdings over the financial year, 59% were successful investments. The majority of gains came from just three holdings, and the majority of losses, came from two holdings. In terms of errors, we were too slow to sell out of Alteryx. Alteryx failed to transition their software business to a cloud based model, and continued to kick this difficult to execute transition down the road, the CEO was replaced, among other challenges. It became a turnaround story, and these stories generally don’t end well.

COMPANY REPORTS & NEWS OVER JUNE

There was little in the way of company news over June, in the lead up to June quarter results, but there was some interesting developments for:

Upstart

Upstart announced a partnership with NXTsoft to deliver AI-Based Lending Platform to Banks and Credit Unions.

With Upstart, bank and credit union partners can approve up to 3x the number of borrowers at the same loss rates as traditional FICO score-based models with near-zero default rates. In addition, Upstart offers an all-digital lending experience to borrowers allowing them to apply from any device at any time with over 70%3 of funded loans being fully automated with no human interaction.

As a result of integration with NXTsoft’s APIs, financial institutions will now be able to more quickly integrate Upstart’s AI platform into their existing services. NXTsoft’s OmniConnect has established API connectivity to 99% of all U.S-based core systems and can provide API connectivity between these core systems and any ancillary fintech solution. NXTsoft has been in the API marketspace for over 25 years and has numerous partners and over 1,000 financial institutions that currently utilize its OmniConnect secure API solution to transmit data real-time between core systems and ancillary applications.

Stone Co.

The Brazilian Antitrust Authority has approved Stone Co.’s acquisition of Linx, a leading provider of retail management software in Brazil.

PORTFOLIO CHANGES FOR THE MONTH

The only changes made over the month was that we took some profits off the table following a strong run up in the Upstart share price.

KEY LEARNINGS THIS MONTH:

We are quite satisfied with our performance over the year. However, the last 6 months has demonstrated to us that the market will test one’s patience at certain times. This is inevitable, as are periods of underperformance.

One key lesson we are reminded of when reviewing our portfolio’s performance is that the winners tend to be the market leaders, with a superior / disruptive product or service, that gives them the ability to maintain pricing power, and to acquire and retain customers with better than their peers, it indeed they have peers. Our portfolio top performers are all market leaders with a significant lead in their sectors, whilst the mediocre performers were not market leaders. What we take away form this, is do not settle for second best. Wait for an opportunity to buy the market leading businesses.

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.

Thank you for your time, and we wish all our readers/subscribers a prosperous FY2022.

Regards,

Sean