WASIX Commentary (Q3 2020)
September 2020
As always, we begin our report this quarter with a presentation of WASIX and benchmark returns over the past quarter, year, and three years. We believe that a quarter is such a brief period of time that the results presented are mostly random noise; they can’t be used to evaluate how the fund is performing. Even the results for a year are largely noise. For this reason I like to include results for the trailing three years, as this longer period provides better information for assessing fund performance. Three years typically is sufficiently long to include both rising and falling markets. The relevant performance numbers for the Strategic Income Fund for the past quarter, year, and three years are in the table below.
| Periods ended 9/30/20 | WASIX | MSCI ACWI Index | Bloomberg Barclays US Aggregate Bond Index |
|---|---|---|---|
| Quarter | 13.70% | 8.13% | 0.62% | Year | -1.60% | 10.44% | 6.98% | 3 Years | 2.17% | 7.12% | 5.23% |
A fund’s performance for very short time periods may not be indicative of future performance. Data shows past performance. Past performance is not indicative of future performance and current performance may be lower or higher than the data quoted. The gross fee for the fund is 1.76%. For the most recent month-end performance data, visit www.sevencanyonsadvisors.com. Investment returns and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The Advisor may absorb certain Fund expenses, leading to higher total shareholder returns.
WASIX had another decent quarter as the strong results of the second quarter continued during the third quarter. As the above table shows, WASIX rose 13.70%, handily beating both our stock and bond benchmarks. Our shift towards a smaller cap and more global portfolio continues to pay off. Of course, a couple of quarters is much too short of a period to judge our strategy shift, but the early results are promising. Both for the past year and three year periods, we continue to trail our benchmarks. I am optimistic that our new focus will continue to lift our performance relative to those benchmarks.
For the quarter, we had several stocks which made strong contributions to our returns. Future PLC was the primary contributor, providing nearly 3% of our return. Future’s primary business involves buying special interest magazines and converting them to a digital format. Earlier this year Future acquired the UK’s dominant magazine company TI Media with titles such as Woman’s Own and Golf Monthly. Future’s rise this quarter has been fueled by rapidly realizing greater than expected synergies between their business and that of TI Media.
Seegene, Granules, and Burford each contributed around 2% to our return. Seegene is a Korean molecular diagnostics company that also happened to be the first company globally to produce a Covid-19 reagent test. We met with them on our visit to Seoul in mid-January and purchased shares based on their superior testing capabilities vs industry behemoths (e.g. Roche). Although we bought the stock for non-Covid reasons, shortly thereafter Seegene announced their Covid testing capability. As the severity of the virus became clear, we added to our position. After reaping large gains, we exited the position late this quarter.
Granules is an Indian generic pharmaceuticals manufacturing company with the largest active pharmaceutical ingredient (API) batch volumes in the industry. Granules is capable of making six to seven tons of an API in a single batch while the leading competitors can only produce one ton batches. This gives Granules massive scale advantages and allows them to be the lowest-cost producer of APIs for drugs such as Ibuprofen and Paracetamol. Granules is gradually transitioning from its traditional high-volume low-value business to more differentiated APIs and formulations. Its stock price has risen as it shifts from merely providing ingredients, to fully producing its own drugs.
Burford provides financing for legal cases in exchange for a share of the eventual settlement outcome of the case. Burford’s team of lawyers vet cases and fund only those where Burford expects a beneficial result. In recent years, Burford’s stock price has suffered from attacks by short sellers. Burford is vulnerable to such ambushes because its profits are inherently lumpy and accounting for them is complex. In response to these attacks, Burford has attempted to relieve investor concerns by increasing its accounting transparency. Burford’s efforts paid off this fall, when it received approval to be listed on the New York Stock Exchange, successfully complying with the NYSE’s stringent regulatory and governance requirements.
We owned a few stocks which impacted our returns negatively. Fortunately none of those companies hit our returns sufficiently to be called out.
I expect markets to continue to be challenging, especially in the short-term, as the Presidential candidates seem to be focused on calling out their opponent’s failures rather than spending time describing their own plans and policies. However, in the long-term, our emphasis on companies with both the ability and the willingness to pay a growing stream of dividends will allow us to navigate these choppy waters.
I continue to be one of the largest shareholders in our fund. I appreciate your willingness to invest alongside me. We are all vested in safely guiding our ship on a successful voyage. While I believe we have made significant progress in that direction, there is still more work to do.
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, visit www.sevencanyonsadvisors.com or call us at +1 (833) 722-6966. Read the prospectus carefully before investing.
Seven Canyons Funds are distributed by ALPS Distributors, Inc.