The future looks bright for the Estia Health Ltd (ASX: EHE) share price, according to one expert.

Wilson Asset Management portfolio manager Tobias Yao is backing the aged care provider’s stock for the coming year.

At the time of writing, the Estia Health share price is $2.18.

Let’s take a look at what about Estia Health appeals to the fundie.

Are Estia Health shares a buy for 2022?

Yao is backing the Estia Heath share price for 2022, stating the aged care sector could be in for a golden year.

Yao told Livewire the sector has had a rough trot recently, but it’s poised to boom – and he believes Estia is a particularly “efficient operator” within it.  

As Yao pointed out, the aged care industry was recently the focus of a Royal Commission. It was also hit hard by the COVID-19 pandemic.

The Royal Commission into Aged Care Quality and Safety’s findings were handed down in March. They included recommendations of minimum qualifications and an increased award rate for aged care staff and that aged care facilities should always have a registered nurse on-site.

Additionally, in its financial year 2021 results, Estia stated all its facilities were impacted by COVID-19 over the 12 months ended 30 June. Victoria’s second wave of infections saw occupants testing positive to the virus at 11 of Estia’s facilities. Sadly, the outbreak resulted in 36 deaths among Estia’s residents.

However, the space now looks to be a hot bed for takeovers and potential government funding, says Yao.

Estia’s formerly ASX-listed aged care peer, Japara Healthcare was recently taken over. Washington H Soul Pattinson and Co Ltd (ASX: SOL) also attempted to takeover aged care operator Regis Healthcare Ltd (ASX: REG) last year.

Finally, Yao is bullish on the aged care stock following the most recent federal budget. Within it, the federal government committed to provide $3.5 billion to the sector each year for the next 5 years.

The Estia share price is already boasting a strong recent run. It has gained 23% since the start of 2021.

The post Why this fundie says Estia Health (ASX:EHE) shares are a smart pick for 2022 appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Webjet Limited (ASX: WEB) share price will be on watch this Monday morning. This comes following a broader market sell-off on the S&P/ASX 200 Index (ASX: XJO) at the end of last week.

The new Omicron coronavirus variant seems to have spooked investors across global markets.

At Friday’s closing bell, the online travel agent’s shares finished down 5.14% to $5.35 apiece. Its shares have fallen by more than 11% in the past week and could be in for another turbulent day ahead.

How has Webjet been performing?

Before ascertaining when Webjet’s earnings will return to normal levels, we take a look at its latest financials.

Last Wednesday, the company released its first-half results for FY22, highlighting a rebound across the international travel industry.

Webjet reported a cash surplus of $3.5 million per month, a significant turnaround compared to FY21. Severe lockdowns led the company to record an average monthly cash burn of $5.5 million in the previous financial year.

Total transaction volume (TTV) revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) all soared over the 6-month period. TTV stood at 63% of pre-COVID volumes in its WebBeds B2B business, with many travel markets still yet to reopen. On the other hand, revenue came to $55.4 million, more than double the $22.6 million achieved in H1 FY21. EBITDA registered a loss of $38.2 million, an improvement from the $114.4 million loss in the prior corresponding period.

Expenses were also down materially compared to pre-COVID, reflecting strategic initiatives implemented by the company.

Is a full recovery coming for Webjet’s earnings?

Much of Webjet’s earnings are dependent on how the world responds to the new Omicron variant and if lockdowns recommence.

Urgent genomic sequencing is underway to understand exactly how deadly the mutated virus is. It is said to have 30 spike proteins which is double what has been detected in the Delta variant. This means it could easily bypass current defences from existing COVID-19 vaccines.

Pharmaceutical giant Pfizer has signalled that if Omicron is resistant, it can have an updated vaccine ready in 100 days. It expects to have results within 2 weeks to understand if its current mRNA vaccine is effective.

If there is no cause for concern, Webjet’s TTV could reach pre-COVID levels by the second half of FY23. On top of that, its group portfolio will be a much leaner business, having trimmed 20% of operating costs.

Webjet share price summary

In the last 12 months, Webjet shares have gained just 5% following heavy selling by investors last week. Although this can quickly change, depending on the next few days.

Based on valuation grounds, Webjet has a market capitalisation of around $2.03 billion, with approximately 380.51 million shares on issue.

The post When could Webjet (ASX:WEB) earnings return to pre-COVID levels? appeared first on The Motley Fool Australia.

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• Why are ASX 200 travel shares having such a shocker today?
• Brokers name 3 ASX shares to buy today
• Leading broker upgrades Webjet (ASX:WEB) shares to a buy rating
• Why Webjet, Whispir, Whitehaven Coal, and Woodside shares are pushing higher

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Are you looking for some small cap shares? Then have a look at the ones listed below.

Both these ASX shares have been named as buys by analysts. Here’s what they are saying about them:

Bigtincan Holdings Ltd (ASX: BTH)

The first small cap to look at is Bigtincan. It is a growing sales enablement platform provider that allows users to drive the sales process with high quality sales content anywhere, anytime, and on any device.

Demand for its offering has been growing strongly in recent years, underpinning strong recurring revenue growth in recent years. Pleasingly, this is expected to continue in FY 2022. For example, thanks to a combination of organic growth and the recent acquisition of Brainshark, management is guiding to a 124% year on year increase in annualised recurring revenue in FY 2022.

Analysts at Morgan Stanley are positive on Bigtincan. So much so, they have an overweight rating and $2.10 price target on its shares. This is almost double the current Bigtincan share price of $1.07.

Catapult Group International Ltd (ASX: CAT)

Another small cap to look at is Catapult. It is a global sports analytics company that provides elite sporting organisations and athletes with real time data and analytics to monitor and measure athletes.

Catapult’s products are used by many of the biggest sports teams and organisations across the world. This includes Chelsea FC, Cricket Australia, the English Cricket Board, the New York Knicks, and the Wallabies, to name just a handful.

Although demand softened during the worst of the pandemic, it has rebounded strongly since then. This led to Catapult reporting a 13% increase in revenue to $37.5 million during the first half of FY 2022. This was driven by 29% growth in subscription revenue, which reflects Catapult’s strategic shift to a focus on high quality recurring revenue SaaS deals. It also boasts an ultra low churn rate, which demonstrates the stickiness of its products.

Earlier this month, the team at Morgans put an add rating and $2.45 price target on Catapult’s shares. This is notably higher than the current Catapult share price of $1.52.

The post 2 exciting small cap ASX shares named as buys appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended BIGTINCAN FPO and Catapult Group International Ltd. The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. The Motley Fool Australia has recommended BIGTINCAN FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Here we go again. 

A new variant of COVID-19, named Omicron, over the weekend prompted many countries to close borders and sent share markets tumbling.

The S&P 500 (SP: .INX) sank 2.3% on Saturday morning, while the STOXX Europe 600 (STOXX: SXXP) fell a shocking 3.7%.

The futures market is tipping the S&P/ASX 200 (ASX: XJO) to drop 1.4% on Monday morning, in its first trade after Omicron was declared.

Prime Minister Scott Morrison has called an urgent national cabinet meeting to form a national response to the new health threat.

“It’s about whether people are getting a worse illness or it’s going to put stress on your hospital system,” he told Nine’s Today show.

“The fact we’ve had a new variant is not a surprise. We’ve been saying all through the pandemic that new variants also come.”

All hell is breaking loose. What does this mean for our ASX shares?

No need to panic, says one expert

One expert is urging investors to hold tight and not panic.

DeVere Group chief executive Nigel Green predicted over the weekend that Omicron would trigger a temporary correction, but that would be quickly shrugged off.

“The fact that a new strain has been discovered and, critically, that at this stage we know little about it has caused jitters in the financial markets, which loathe uncertainty,” he said. 

“The headlines have caused a knee-jerk reaction.”

He added it didn’t help that US markets were closed for 1.5 days last week due to the Thanksgiving holiday, meaning market movements were exaggerated.

“This wobble is likely to be temporary with markets remaining bullish for the time being.”

Just look what happened after Delta arrived

Green pointed out that the Delta variant of the coronavirus triggered only a temporary shock on markets earlier this year.

“Global shares have jumped 16% this year with investors focusing on the post-pandemic economic rebound. They largely shrugged off the Delta variant that caused a mini wave of market nerves in the [northern] summer,” he said.

“It’s likely that markets will do the same with this new variant.”

Health authorities would have been expecting new types of the virus to pop up and would be better prepared after the experience of Delta.

And this, according to Green, would mean stock markets can quickly move on from Omicron worries and focus on other issues.

“Global financial markets will be focusing on other pressing issues including high inflation caused by supply side bottlenecks and the likelihood of a quicker pull away from ultra-loose monetary environment,” he said.

“Markets will temporarily wobble on the uncertainty of this new Covid variant, but will remain bullish.”

The post COVID-19 Omicron can’t stop shares charging up: expert appeared first on The Motley Fool Australia.

More reading

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Investors in at the ground level on a new artificial intelligence ASX share did pretty well for themselves on Friday.

Shares for Artrya Limited (ASX: AYA) listed on the ASX that morning and closed its first day at $1.52.

That’s a handy 12.6% up from its initial public offer issue price of $1.35 per share.

What does Artrya do?

The Perth business develops technology to automate the diagnosis of coronary artery heart disease, which can lead to cardiac arrest.

According to Artrya co-founder and managing director John Barrington, internationally 9 million people die from such disease each year.

“This number is expected to increase over the next few decades, as ageing populations continue to put pressure on health systems,” he said.

“This float will assist the company in pursuing further growth in the US, UK, Canada, and Europe.”

A 10 November supplement to the original IPO prospectus showed that Artrya recently won a tender to be appointed as an artificial intelligence supplier for the National Health Service Shared Business Services (NHS SBS) Framework.

The deal means that Artrya is among a shortlist of pre-approved suppliers that UK public institutions, including 1,250 hospitals, can purchase from.

What’s Artrya’s pipeline?

Artrya’s flagship software product is called Salix, which detects the presence of “vulnerable plaque” within a person’s arteries in roughly 15 minutes.

According to the prospectus, such plaque may rupture and cause heart attacks.

Salix was developed as a collaboration between the University of Western Australia, the Harry Perkins Institute of Medical Research, and the Ottawa Heart Institute.

The software suite is scheduled for an “unrestricted launch” in Australia early in the new year. Overseas expansion will take place soon after that.

“We are keenly focused on product development and market entry strategies to ensure our shareholders are rewarded for their belief in an innovative Australian business,” said Barrington.

Artrya chair Bernie Ridgeway said in the prospectus that coronary artery disease impacts an estimated 126 million people around the world. 

And the majority will have no warning signs before experiencing a heart attack.

“As the prevalence of CAD rises due to an ageing population, global health systems will have to deal with more CAD cases.”

In November 2020, Salix was added to the Australian Register of Therapeutic Goods (ARTG) as a Class 1 medical device.

Artrya will sell the software in a subscription model.

“This model will help Artrya penetrate the global CCTA and ICA markets because healthcare providers pay no upfront costs to use Salix,” Ridgeway said.

“Artrya believes the software-as-a-service model could deliver annuity revenue and profitable margins for the company.”

The post New artificial intelligence ASX share rockets 11% on debut appeared first on The Motley Fool Australia.

More reading

• COVID-19 Omicron can’t stop shares charging up: expert
• This ASX share is a buy after it dodged a MASSIVE bullet: analyst
• ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity
• Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore?
• This sector could be a $50 trillion investment opportunity: expert

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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In an odd turn of events, a particular ASX share has been upgraded from “hold” to “add” by one investment house because of a failed business deal.

Shares for energy infrastructure firm APA Group (ASX: APA) have not lit the world on fire of late. They closed Friday at $9.64, which is pretty much where they were at the trough of the COVID-19 crash in March 2020.

In an attempt to diversify its business, APA in September submitted a takeover bid for electricity company Ausnet Services Ltd (ASX: AST).

Eventually the Ausnet board went with another suitor, Brookfield Asset Management Inc (TSE: BAM.A), in a bitter blow for APA.

APA’s proposal reeked of desperation

But Morgans senior analyst Nathan Lead has no doubt APA’s takeover bid was terrible and investors were absolutely relieved the proposal was not accepted.

“We estimated APA needed to bridge a more than $3 billion gap in order for the acquisition to have zero value per share impact,” he wrote in a Morgans memo.

“This willingness to pay overs to diversify into electrification may signal that APA is concerned about the long-term prospects for its existing business.”

The market certainly agreed with Lead, pushing APA shares up more than 17% in less than a month since Ausnet killed the takeover offer.

Morgans analysis shows APA’s 2049 “terminal value” now assuming “mildly declining perpetuity cash flows”.

“Alternatively, APA’s penchant for M&A could see its cost-of-equity rise as it is viewed by the market as cum-capital raising.”

But now macroeconomic conditions could trigger revenue upgrades

So why is a loser who missed out on a business deal now so attractive to the Morgans team?

Inflation, pure and simple.

Lead explained that APA’s revenue changes are correlated to the consumer price index via “contracted price escalations”.

“The low inflation environment has reduced APA’s earnings growth in recent years,” he said.

“However, APA should benefit from a CPI surge in 2022. Circa 32% of EBITDA is sourced from the Wallumbilla-Gladstone Pipeline, whose US$ revenues escalate annually on 1 January based on November CPI in the USA.”

The November CPI figure is expected to be reasonably high, following October’s year-on-year 6.2% increase.

“Furthermore, we understand domestic CPI for the December quarter drives annual escalation of a mass of AU$ contract revenues in 2022 (and the September quarter CPI was a solid 3%),” Lead said.

“Long-term we assume Australian and USA CPI averages 2.4% and 3% per annum through to 2030 respectively, as per market implied expectations in yield curves.”

The Morgans team is therefore upgrading APA shares from “hold” to “add”.

“At current prices, we estimate a 12-month and 5-year potential return of circa 11% and 7.6% per annum, respectively.”

The post This ASX share is a buy after it dodged a MASSIVE bullet: analyst appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares could be a buy for ESG focused investors.

That’s the view of analysts at Bell Potter, which have retained their buy rating on the banking giant’s shares this morning.

What does Bell Potter think of ANZ shares?

According to the note, the broker has retained its buy rating and $31.00 price target on ANZ’s shares.

Based on the current ANZ share price of $27.07, this implies potential upside of 14.5% for investors over the next 12 months.

But it doesn’t stop there. The broker is forecasting a generous dividend yield of 5.2% over the period. Combined, this brings the total potential return on offer with ANZ’s shares to almost 20%.

What did the broker say?

Bell Potter notes that ANZ has just held another ESG meeting and highlights that the bank is aiming to be Australia’s leading bank in supporting customer transition to net zero emissions.

Its analysts believe this has the potential to be a very lucrative market for the bank to target. And if it gets it right, it could have positive consequences for ANZ’s shares in the future.

The broker commented: “There are significant opportunities from decarbonising the economy and the bank is well positioned to facilitate to net zero emissions. This is also in line with ANZ’s clear path of driving forward with sustainable investments. So it’s not just about Australia but more so on a global basis, and especially the amount needed to spend: ~$125 trillion and with >50% in the Asia Pacific. One key element for example is the US$10 trillion needed for electric vehicle conversion. The ambition is thus to be Australia’s leading bank in supporting customer transition to net zero.”

Bell Potter accepts that this will not be an easy task but one that could generate significant benefits in the future.

It explained: “The bank’s success in supporting a net zero transmission will be largely driven by financing customers to reduce their emissions. Getting it right is the hard part however – it would probably take a long time but the benefits are massive.”

“ANZ is already working with 100 largest emitting customers to do so. Some of them have closed the gap but all have welcomed the engagement. The bank already has skills and would be able to understand the implications of sustainability better. As a prudent lender, ANZ will be judged with not loosening their credit standards. Likewise as a prudent saver, the bank has to be sure that things do not get out of hand,” it added.

All in all, combined with its strong position in business banking, Bell Potter remains bullish on ANZ’s shares and has reiterated its buy rating.

The post ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It has been a terrible month for the Zip Co Ltd (ASX: Z1P) share price.

Since the start of November, the buy now pay later (BNPL) provider’s shares have lost 20% of their value.

This means the Zip share price is now down 7.5% in 2021.

Why are its shares sinking this month?

Investors have been selling down the Zip share price this month despite the release of a positive update at its annual general meeting.

At the event, Zip’s Managing Director and CEO, Larry Diamond, revealed that Zip’s strong growth continued during October.

He commented: “October was Zip’s highest TTV month on record processing over $770m in transaction volume for the month, which was a 94% increase on October 2020, with the Company now annualising at over $9b. Off the back of the rebrand, October delivered a 24% MoM increase which provides outstanding momentum entering the seasonal peak period.”

However, this good news may have been offset by reports in the United States which suggest that fraud is rising in the BNPL industry.

An investigation apparently shows that criminals are exploiting weaknesses in the application process for BNPL loans and stealing items. Investors may be worried what impact this will have on margins.

Is the Zip share price now too cheap to ignore?

One leading broker that appears to see the recent weakness in the Zip share price as a buying opportunity is Morgans.

A recent note reveals that its analysts have put an add rating and $8.56 price target on the company’s shares. Based on the current Zip share price of $5.17, this implies potential upside of almost 66% for investors over the next 12 months.

Morgans is positive on Zip due largely to the company’s bold long term global ambitions and its current valuation. Its analysts highlight that in comparison to Afterpay Ltd (ASX: APT),  Zip’s shares are trading on significantly lower multiples.

The broker commented: “We continue to see longer term upside if Z1P can execute on its ambitions of becoming a global payments player. Noting the stock continues to trade at a significant discount to peer APT (~6x sales versus ~25x), we maintain our ADD recommendation.”

The post Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore? appeared first on The Motley Fool Australia.

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• Are Zip (ASX:Z1P) shares a buy? Some pros and cons from Motley Fool analyst Kate Lee
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There is one fund manager that believes there’s an investment opportunity with a sector out there which could be worth up to $50 trillion.

Nick Griffin from Munro Partners was speaking to Patrick Poke from Livewire Markets when he said he thinks a particular part of the global economy could have an opportunity of between $30 trillion to $50 trillion.

What’s the investment opportunity?

Mr Griffin believes that global decarbonisation could have a total cost of between $30 trillion to $50 trillion. He points out that this cost is directly a $30 trillion to $50 trillion revenue opportunity for the companies that can provide these solutions.

There are a number of areas that he believes could see significant growth in the coming years. He said on the Livewire podcast:

As we see here today, electric cars are roughly 3-5% of all cars sold in the world today. Renewable energy is less than 20% of all electricity generation globally, and electricity is actually only 25% of the energy mix. So, if you truly want to de-carbonise the planet, IE, get to net zero by 2050 and that’s the goal, then electricity as just a share of our energy generation has to more than double, IE, oil has to be replaced with electricity, if that makes sense, to power all these electric cars.

And then renewables’ share of electricity has to go from 20% to 80%. Some simple maths tells you you’re getting between an eight and a 16-fold increase in renewable energy over the next 30 years. There are a plethora of investments you could look at here. Whether it’s wind-turbine generation, OEMs (original equipment manufacturers), or whether it is solar equipment, or whether it’s the semiconductors.

Mr Griffin named the German power semiconductor business Infineon as a potential opportunity as its addressable market multiplies.

In terms of the areas of where Munro Partners is thinking there will need to be significant areas of investment, it thinks that there are opportunities with “many climate related technologies are in their infancy and thus have significant long-term growth potential”.

What areas will need huge investment?

Munro Partners points out areas like electric cars, energy efficiency, hydrogen, batteries, distribution grids, transmission grids, renewables, heating, charging stations, buses and tracks.

Circular economy solutions is another area that Munro Partners is looking at, that’s where there are efforts to improve recycling, use alternative packaging materials and manage wastewater.

Munro Partners is a globally-focused fund manager, so didn’t name any ASX shares to think about.

But there are some ASX shares that have a growing exposure to green initiatives and decarbonisation.

One example is Australian Ethical Investments Ltd (ASX: AEF), which is a fund manager that tries to find investments that are both compelling to make returns and fit a number of ethical/green criteria for investors.

Cleanaway Waste Management Ltd (ASX: CWY) is one of the biggest businesses involved in the recycling sector. It’s currently rated as a buy by the brokers at Macquarie Group Ltd (ASX: MQG).

Macquarie itself has a growing division that specialises in lending for green projects.

Being the resource-heavy stock market that it is, the ASX has lithium miners like Pilbara Minerals Ltd (ASX: PLS) and Orocobre Limited (ASX: ORE) – both rated as buys by Macquarie. Even Wesfarmers Ltd (ASX: WES) is getting in on the lithium mining action with Mt Holland.

The post This sector could be a $50 trillion investment opportunity: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part 1 of this edition, Sam Granger, Founder of Equanimity Partners, explains the benefits of holding a smaller portfolio and reveals this year’s top-performing share in the Equanimity High Conviction Fund.

Motley Fool: How would you describe your fund to a potential client? 

Sam Granger: The Equanimity High Conviction Fund provides exposure to a concentrated portfolio of 10 to 15 outstanding businesses which we judge to have exceptional risk/reward characteristics.

We have a flexible mandate that allows us to search very broadly for potential winners, and then we conduct extremely thorough independent due diligence to whittle down this opportunity set into a small number of our very best ideas.

The fund has been running for almost 5 years and has been compounding investors’ capital at 20.0% per annum, net of all fees, since inception.

MF: What advantages do you see with the concentrated investment approach of holding only 10-15 shares? 

SG: If you have more capital in your very best opportunities you clearly have the potential to earn higher returns, provided your analysis is correct, of course. Concentration also gives us the time to do very deep fundamental research without the distraction of marginal ideas.

MF: Would more diversity from owning a larger number of shares reduce volatility?

We believe there is a trade-off between the higher returns on offer in a concentrated portfolio and the associated higher levels of volatility that a concentrated portfolio creates. We’re happy to accept this trade-off because over the long term we don’t view owning 10 to 15 exceptionally high-quality businesses as particularly risky.

At the moment we have 12 holdings.

MF: You established the Equanimity High Conviction Fund in May this year after executing a management buy-out from Totus Capital, where you helped establish the fund in 2017. What was your rationale here? And has anything changed with the fund? 

SG: That is correct. I originally established the fund in partnership with Totus Capital in January 2017, and then purchased Totus Capital’s share of the business in 2021.

The rationale for this was that I wanted independence, the challenge of running my own business, and the ability to devote all my time to the High Conviction Fund. Independence has enabled me to spend more of my time focused on investment research, which now occupies 95 per cent of a normal day for me.

Ben McGarry, the founder of Totus, was extremely gracious in allowing me to buy him out of his share of the business, which ensured a great deal of continuity for our investors.

The only thing that really changed was the name of the fund.

MF: You hold both large and small-cap shares. What are the pros and cons of investing in small caps compared to blue chips?   

SG: Small caps are currently around 20% of our portfolio and have historically been an important driver of our returns. The allure of small caps is that you can discover underresearched businesses at attractive prices before their quality is fully recognised by the broader market. The negatives are that often the liquidity in the shares is poor and the business models are less proven.

Our portfolio started out with a very significant focus on small caps, but this exposure has actually been coming down through time.

MF: What sectors look promising to you in the year ahead?    

SG: We’re focused on the bottom-up analysis of businesses rather than being thematically or sector-driven. And we generally take a 3-to-5-year view on the performance of the businesses we own rather than a single year.

With that said, we are finding more attractive opportunities in offshore markets and have bought very little in Australia over the past 12 months. We are generally finding better risk/reward in the larger and more established blue-chip businesses offshore and are finding the valuations in small-cap Australia quite demanding.

The Australian market is actually quite expensive for high-quality businesses. Those that are listed here tend to attract a massive premium. Over the last 2 years or so, I’ve been finding better opportunities offshore.

MF: What’s been your best investment for the fund over the past year?   

SG: Alphabet Inc (NASDAQ: GOOG) has been our best. That’s currently up 69% year-to-date. The business is an extraordinary collection of competitively advantaged assets with structural tailwinds for growth as commerce continues to shift online.

Key assets in the Alphabet stable include Google Search, YouTube, Android, Google Cloud Platform, and Google Maps. We first purchased our position in Alphabet almost four years ago and continue to be happy shareholders today.

**

Tune in tomorrow for part 2 of our interview, where Equanimity Partners Sam Granger profiles 3 international shares with strong growth outlooks.

(You can find out more about the Equanimity High Conviction Fund here.)

The post This international share has returned 69% in 2021 and there’s more to come: fund manager appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares). The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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