Techtronic is driving a generational shift from corded to battery power tools. The company which owns popular brands Ryobi (DIY-home improvers) and Milwaukee (professionals) is growing sales and profits rapidly thanks to its scale advantages, captive customer base and high caliber management. The Fairlight Global Small and Mid Cap Fund has taken advantage of the recent market concerns over global trade to increase its investment in Techtronic.
Australian investors understand the case for including domestic small and mid cap (SMID) companies in their portfolios and have typically benefited from these allocations. This is however, at odds with their more sparing allocations to global SMID, leaving them underweight this non-trivial USD $13 trillion asset class (approximately 40x the size of the Australian SMID market).
Auto Trader is the UK’s dominant online used car marketplace, connecting consumers with 13,000+ used car retailers. The business has many quality characteristics; recurring revenues, excellent cash flow conversion and strong organic growth. With a cloud of Brexit-related uncertainty hanging over the industry, we believe Auto Trader represents underappreciated quality.
Fairlight takes a generalist rather than sector specialist approach to investing. Not only is this framework helpful in generating investment ideas across sectors, more importantly it protects investors against the biases that might exist within the team. A generalist approach is increasingly supported by academic research.
Ansys is the dominant player in the simulation software industry, helping the world’s most innovative companies such as Ferrari, Dyson and Tesla design and test new products. Each year Ansys outspends its rivals on R&D, extending its competitive advantages and opening new avenues for growth such as IoT and digital twins. Ansys is an excellent example of a high quality business that balances profitability today with investing for growth tomorrow.
Ritchie Brothers is the largest marketer of second-hand industrial equipment globally. A recent digital transformation has simultaneously widened its economic moat, increased its customer reach and driven cost leverage. And whilst Ritchie performs well in strong conditions, it thrives during downturns – a profile we believe provides good ballast within a diversified equity portfolio.
Constellation’s track record of creating economic value for shareholders belongs in the equity hall of fame with revenue and earnings per share having compounded at 26% and 35% per annum for the past decade respectively, despite proving to be the exception to several usually reliable heuristics commonly employed by investors.