Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Narrowing AIM sees Aitken benefit from consumer recovery
Charlie Aitken’s AIM Global High Conviction Fund delivered a solid update to investors this week following an eventual financial year. In his role as portfolio manager, Aitken discussed individual stock ideas in the portfolio and the fund’s preference for businesses that could earn sustainably high returns on capital, while sticking with quality.
While not shooting the lights out, the fund did well, likely due to its preference for quality over cyclicality. It returned 25.8% for the year, which was a touch below the 27.5% achieved by the MSCI World Index benchmark.
Aitken accepted that the portfolio had lagged the benchmark index, but stressed the fact that AIM takes less risk than other funds, saying “what is most important is that the average return in negative monthsis a lot less. It may not be the greatest pitch to investors, but in down markets, the fund loses less than its peers and performs better than a vast percentage of funds.”
Aitken also compares the fund’s FY2021 return profile with the team’s expected return profile during the cycle. He highlights the fact that the FY2021 return profile was in line with its expected profile and that a full “return cycle” played out in just 18 months – whereas it usually took a lot longer.
Aitken says strong brands and a direct-to-customer business model shifts and changed behaviour underpinned the strength of customer-facing businesses such as LVMH (+66.8% in A$ terms), Nike (+45.7%), and Estee Lauder (+55.8%).
The shift to online shopping and the use of digital payments over cash to fund retail purchases supported both Mastercard (+13.8%) and PayPal (+45.6%). Companies such as Google parent Alphabet (+62.6%), Microsoft (+23.3%) and Accenture (+27.7%) also did well, playing a vital role in people’s everyday business.
On the flip side, Tencent (-2.9%) was one of the worst performers. The company was told by regulators to put its finance-related business into a new financial holding company, where it can be better supervised, and is set to order the company to give up exclusive rights to music labels.
The pandemic changed the playing field and flipped much of the investment dynamic investors had become accustomed to. Stock disruption remains key.
Aitken expands on one particular holding that is he believes is in a “sweet spot.”
The NYSE-listed HEICO is an aerospace parts supplier and a major supplier to airlines. It’s not a new business and has been around for the last decade, reverse-engineering airplanes and replicating their parts.
Customers come to the company to re-engineer a part of a model (a critical part of the engine) with confidence. Keep in mind, replicating aerospace parts, the build must be of very high-quality without compromising reliability. This makes the barriers to entry extremely high. While there is a scale advantage, the company has only a 2% market share.
Aitken says “due to the extremely niche and mission-critical nature of HEICO’s products and significant regulatory barriers to entry that must be overcome by any potential competitor, we believe HEICO has a long runway of profitable growth ahead.”
