Insync Dec 2018 Fund Commentary

January 22, 2019

The Volatility Continues 

 

The level of volatility increased in December resulting in the worst December performance for global equity markets in decades. The major drivers included anxiety around the path of interest rate increases in the United States and the pace of quantitative tapering which has the impact of tightening credit conditions.

 

Other contributing factors included trade tensions, oil plunging and uncertainty around future Trump policies. Both the equity market and the bond market are rapidly discounting an impending recession.

 

December Fund Results

 

Positive contributions originated from Tencent, London Stock Exchange, Wirecard, Intercontinental Hotel Group and PayPal Holdings. Negative contributors were Booking Holdings, Nvidia Corp, Adobe Systems, Intuit and Accenture.

No currency hedging continues across both funds. Insync considers the main risks to the Australian dollar to be on the downside. For Global Capital Aware Fund investors we hold ‘out of the money’ Index Put Options as a buffer against sharp and deep falls in portfolio price. For those in the Long-Only version, the Global Quality Equity Fund, our policy is to remain near fully invested. Indeed recent falls have us considering many excellent discounted opportunities for investment.

 

​​​​​​​The Shifting Workforce Megatrend

 

As the “Gig” economy continues to expand, more and more professionals are working as freelancers, contract workers or consultants rather than as traditional employees. The “Gig” economy refers to freelancers of all stripes -- those on online platforms like Uber and Lyft and also more traditional freelancers like plumbers and electricians. The gig economy is now estimated to be about 34% of the workforce and expected to be 43% by the year 2020.

 

Consulting firm McKinsey says that there are currently around 68 million freelancers or self-employed in the US, with around 4 million Americans providing work through gig marketplaces like Lyft or Airbnb. The freelance economy is growing three times faster than the overall US workforce.

 

Intuit is a clear beneficiary of the growth in the gig economy as the leading provider of accounting solutions for small businesses (the QuickBooks franchise) and tax preparation solutions for consumers (TurboTax) in the United States. Intuit's very strong competitive position is reflected in the high switching costs because of the time it takes to learn to use the majority of its applications.

 

Importantly, Intuit has built a platform that links functionality among its multiple products, making users of one of the firm's applications more likely to adopt an additional product as their needs expand. 

 

The company has moved away from being a North American desktop software company to a global cloud-driven product and platform company.  This transition to a cloud-based platform has resulted in an increase in recurring revenue and makes it easier to bundle and cross-sell its services to customers.  This has resulted in Intuit expanding their total addressable market for QuickBooks to 224 million prospects from what had been 20 million prospects. Intuit has also recently introduced TurboTax Live creating an additional $20 billion total addressable market that they have historically not been able to serve. Intuit is a high ROIC business with a long run way of growth benefitting from the shifting workforce megatrend.

​​​​​Disclaimer

EQT Responsible Entity Services Limited (“EQT”) (ABN 94 101 103 011), AFSL 223271, is the Responsible Entity for the Insync Global Capital Aware Fund .  EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).  This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

 

 

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