Jason Del Vicario, portfolio manager, Hillside Wealth Management, iA Private Wealth

FOCUS: North American and global growth stocks

 MARKET OUTLOOK:

Our thoughts never waver regardless of the macro backdrop; if anything, we favour challenging economic periods, as this is when deals are most readily available.  We seek to buy high quality companies at favourable prices.  Our key defining factor of a "high quality" business is one that consistently generates strong returns on invested capital. We run a concentrated portfolio of 31 global businesses that meet our strict quality criteria. We view multiple currency exposure as a strength. We think and behave with a long-term mindset.  When your investment time frame is decades and not months or weeks, short-term factors beyond our control such as interest rates, inflation and geopolitics become irrelevant, as we assume we’ll encounter all sorts of macro regimes over time.  We own a collection of businesses that we feel can compound shareholder wealth strongly over decades.

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TOP PICKS

Kakaku.com (2371 TYO)

Kakaku is a business we’ve owned since March 2020.  They operate two main business lines: Japan’s largest price comparison website and Japan’s number two restaurant search/review/reservation website.  These two businesses are growing, albeit slower than in the past but the company continues to innovate and bring new web-based services to market.  A spawner business model of sorts.  The company is one of the few we’ve come across that has a stated ROE target; a lofty 40 per cent no less.  The company sports an asset light business model, no debt and has consistently returned capital to shareholders via dividends and buybacks.  We were finally able to take the position to our desired five per cent weight at the end of March 2023 at 1850 Yen. We expect to hold Kakaku for decades. Current valuation is favourable in our view.

Credit Acceptance (CACC NASD)

U.S.-based CACC commands ~10 per cent market share of the subprime auto lending market. What sets them apart from other lenders is they are very disciplined capital allocators.  When the economy is strong and liquidity is flowing, they pare back lending when spreads fall and will then either pay down debt or buy back shares.  In contrast, when the economy is weak, liquidity constrained and competitors are pulling back, they will lend more aggressively to achieve better returns on capital deployed. From 2020-2022 they bought back 32 per cent of their outstanding shares.  Since then, as rates have risen and liquidity has dropped, they have reduced their share buybacks and increased lending.  In their most recent release, loan volume is up 20 per cent y/y.  We have held CACC since April 2021 when we took it to a five per cent weight in the portfolio in the high US$300 range.  We expect to hold CACC for decades.  Current valuation is favourable in our view.

Calnex Solutions PLC (CLX LON)

Scotland-based Calnex designs and markets test instrumentation for networks such as cellular and data centres. The company is founder run/owned, has no debt and excellent returns on capital, albeit a short history as they have only been listed less than two years.  They also sell durable goods, which can yield lumpy results. We have sized our position at a little over one per cent and look forward to learning more and potentially raising our conviction level over time. The company is AIM listed and cannot be held in registered accounts. In our opinion, current valuation is favourable and we hope to hold CLX for decades. We have owned since March 2022 and added most recently last week at £1.00.

PAST PICKS: March 11, 2022

Games Workshop PLC (GAW LON)

• Then: 6,660.00 GBP
• Now: 9,415.00 GBP
• Return: 41%
• Total Return: 50%

Plus500 (PLUS LON)

• Then: 1,399.50 GBP
• Now: 1,434.00 GBP
• Return: 2%
• Total Return: 7%

Topicus.com (TOI CVE)

• Then: $82.81
• Now: $96.79
• Return: 17%
• Total Return: 17%

Total Return Average: 25%