Global Growth Portfolio Update

Our ultimate aim with the Global Growth Portfolio is to maximise absolute return through investment in high conviction US-listed equities. One of the keys to achieving our portfolio objective is constant monitoring of our holdings and, where necessary, making tweaks to ensure that we are only invested in companies that we have a high conviction for.

With this in mind, we are going to make some changes to our holdings this week, and we would like to take this time to talk about what we are changing, and why.


Sell: Netflix (NASDAQ: NFLX)

Netflix is a true success story. Founded in 1998, the company was originally a DVD rental store, a competitor to the now-defunct Blockbuster. Unlike Blockbuster, however, Netflix was able to capitalise on the burgeoning media streaming market and began offering streamed content in 2010. Since then the company has enjoyed huge growth as the first and largest major player in streamed media content. The company has also taken an active role in content creation since 2012, with its creation of Netflix Originals.

However, while expectations of the company growth (and share price!) have increased exponentially in recent years, the financial figures have been somewhat disappointing. The company has consistently struggled to achieve profitability and it’s not clear what the path to profitability even looks like. As competition in the streaming sector increases (Disney+, Roku and Stan to name a few), the company has also started to lose its dominant grip over market share. In its most recent earnings report, Netflix announced that it had begun losing subscribers within the US. A worrying sign for a company that needs the lion’s share of the market to cover its enormous recurring costs.

Increasing costs and competition are serious headwinds for Netflix’s long-term health, and given the company’s lofty valuation (nearly 120 times earnings) we are moving it to the ‘watch and see’ basket until the companies’ growth prospects and share price move to more commensurate levels.


Buy: ResMed (NYSE: RMD)

A rapidly ageing population and rising obesity rates are two of the most worrying demographic trends affecting the Western world over the past few decades, leading to ever-increasing prevalence of disease and demand for healthcare solutions. One of the most common diseases, estimated to affect over 46 million people in the US alone, is sleep apnoea: a sleep disorder that disrupts a person’s ability to breath while asleep.

ResMed is the world’s leading sleep apnoea treatment company, treating over 4 million customers globally and counting. ResMed’s product portfolio consists of a number of cutting-edge treatment devices (masks, pillows and respirators to name a few), as well as a cloud-based database of their customers sleep patterns. As of 2019 ResMed has over 1.5 billion nights of sleep in their database. This huge amount of information is immensely valuable to ResMed, allowing them to conduct research and analysis on a huge scale, ensuring that their research and innovation is always industry-leading.

The company has increased revenues virtually every year since 2005 and is showing no signs of slowing down. While revenues grow ResMed is also able to keep a lid on costs by providing its products and services to customers for use in their own home, cutting out the huge potential costs of hospital space and staff. The cost-efficiency of this ‘outpatient’ model allows ResMed to reinvest their profits back into further research and development, cementing their spot as an industry leader.

With demographic trends on its side, first-mover advantage, huge amounts of data to analyse and cutting-edge products ResMed’s has a vice-like grip on the booming sleep apnoea sector and their growth should only increase in the decades to come.


Buy: Roku (NASDAQ: ROKU)

One of the leading tech trends in recent times has been the rise of video and audio streaming in households all across the world. Viewers have been abandoning traditional television in favour of on-demand services that cater to their particular content needs. Most people associate entertainment streaming with companies like Netflix (NFLX), but Roku (ROKU) has created its own niche. Founded in 2002, the company adopts a different strategy to some of the other incumbents.

Roku manufactures digital media set-top box players to stream video and audio. This hardware and open-software solution includes on-demand and live content. Apart from its own steaming ‘channel’, content comes from thousands of channel partners including streaming services like Netflix, Hulu and Amazon Video. Roku also licenses some of its hardware to third parties. Another distinction is that the company operates an advertising business, allowing advertisers to directly target Roku’s users.

In late 2017 the California-based business listed on the NASDAQ with a valuation of US$1.3bn after raising capital at US$14 per share. Within three months the share price surged above US$50. This year has marked a transformational period for the company, with its stock rising more than 330%. With a lot more to play out in this growth story, this could be just the beginning.

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