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.
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