Contributors and detractors

The Fund fell 1.0% in the month of November.

In this month’s commentary we provide insight into some of the portfolio’s largest contributors and detractors.

Top Holdings (alphabetically)

Lamb Weston Holdings Inc

United States

Consumer Staples

NEC Electronics

Japan

Information Technology

Rakuten Inc

Japan

Consumer Discretionary

Subaru Corp

Japan

Consumer Discretionary

Telix Pharmaceuticals Ltd

Australia

Health Care

US COVID vaccine developer Novavax rose 48% after Indonesia became the first country to approve the vaccine. The Australian government and European Union have both hinted that approval for the vaccine is imminent. The company will have an Omicron-specific vaccine ready by January, which is likely to be in high demand as a booster shot given that existing vaccines seem less effective with the mutation. Novavax is also conducting a phase 1 combination study of its combined flu and COVID shot where the company has a lead over competitors.

US optical equipment producer Ciena rose 18% on little news and is up another 19% MTD in December after reporting excellent results where it raised its long term revenue growth from 4-6% to 6-8% benefiting from surging internet data traffic. The stock is reasonably priced on 21x PE with no debt.

US optical component (lasers) producer Lumentum rose 11% after reporting positive results. The company is experiencing similar trends due to its major customer Ciena, namely explosive data traffic growth fueling the need for more lasers in networks. The company is also attractively valued on 15x PE with no debt and will have substantial synergies from the acquisition of competitor Neophotonics, which is due to close mid-next year.

Australian radiation therapy producer Telix rose 11% after the Australian Therapeutic Goods Association, the drug regulator, approved Telix’s first product Illuccix, which is used to diagnose Prostate cancer. The US Food and Drug Administration (FDA) is expected to approve the product on or before the 23rd of December.

Japanese semiconductor producer Renesas rose 9% following strong results at end of October and a continued global shortage of semiconductors, which is likely to last until mid-2022. The company is well-positioned in the Auto market where the semiconductor content per car is expected to rise strongly in the future.

On the negative side Advertising technology company, Magnite fell 30% after reporting weaker than expected results.  Although they were not a long way short of expectations, then the news came hot on the heels of a very upbeat annual investor day some weeks earlier when the company gave upbeat long-term revenue growth forecasts of 25% per annum. The short-term cause of the weakness was the loss of TV advertising by auto dealerships, which had no cars to sell thanks to the semiconductor shortage, and travel companies, which suffered from COVID restrictions. These factors should resolve themselves in 2022 along with expected strong mid-term election political advertising in the USA. The shares are now trading on 22x PE for 2022, which is very attractive for a company growing in the neighborhood of 25% per annum for the next 5 years fueled by a move from linear TV advertising to App-based advertising (CTV) on Apps such as NineNow and SevenPlus.

Norwegian bladder cancer diagnostic producer Photocure fell 19% after weaker than expected results due to COVID restrictions keeping patients away from clinics. We expect the situation to normalize in 2022.

Fitness company F45 also fell over COVID concerns and after reporting a small miss on revenue. We like the company because it has already signed up a large number of gyms in the US, which are yet to open due to supply chain issues. The company is very attractively valued in our view on 9x EV/EBITDA, which is much lower than other US franchise businesses which generally trade on 20-30x.

Australian Cancer immunotherapy company Immutep fell 15% despite reporting positive news. The company has now fully enrolled its Tacti-002 study for its key drug Eftilagimod, an immunotherapy agent which is being combined with the world’s leading immunotherapy drug Keytruda from Merck in Lung cancer and Head and Neck Cancer. Results from the study will most likely be reported in May next year. Lung cancer represents a USD20bn opportunity and Head and Neck cancer USD2bn. Early results were encouraging, and the US FDA has given fast-track approval to the drug in Head and Neck Cancer, and a new larger Head and Neck cancer trial Tacti 003 also started recruitment this month, which should report initial results for some patients late next year. The market cap of the company is AUD400mln with approximately $100mln of cash, which will see it through until late 2023.