05 March 2019

    Back to basics

    Company performance and the long run.


    Back to basics – company performance and the long run.

    The state of the global economy and volatile markets has been the focus of much discussion in past few months.  It makes for great conversation and a lot of, mostly scary, newspaper headlines.

    While interesting it’s not what really drives the long run return of your investment portfolio. Ultimately it’s the power of companies earning greater profits and being rewarded with higher share prices that delivers long run returns. The noise of the now invariably disappears to a whisper in the long run.

    It was nice to be reminded of that in February.

    One of our long term investments in our Australian share portfolio, Nanosonics released its profit result for the past six months. It was a good number with the highlight being strong top line growth, as well as revenues being up 36% and healthy profit margin expansion as the company was able to leverage investments made in previous years. This strong result was rewarded with the stock rallying 24.2% over the month.

    Nanosonics is one of the quiet performers of the Australian portfolio and aptly demonstrates the value of a long term investment approach.

    Nanosonics provides a globally leading disinfection solution for ultrasound probes. The company has been in our portfolio since December 2009 and over that time has gone from a being small firm with an emerging technology and a few customers in Australasia, to the leading global provider of ultrasound disinfection technology.  Its business partners are the who’s who of global medical companies.

    While the company itself has executed well, and frankly its strategy today is entirely consistent with the promise we saw when we first invested, you might not realise that from its volatile share price over the years.

    Since December 2009 Nanosonic’s share price is up 622%. This equates to a gain of 23.9%pa. However over this time it had one fall in price of more than 55% and on top of that had 4 further declines of more than 24% with 2 of those falls being more than 35%.

    As history now shows these were all buying opportunities but unless you knew the fundamentals of the company well, had a long term patient perspective with, sometimes, more than a little courage thrown in, it would have been easy to panic and sell, missing out on the wonderful gains that followed.

    The Nanosonics story is a great example of what we are trying to do each and every time we invest – take a long term view, be patient and reap the rewards that come from owning high quality, growing companies.

    Thankfully the company profit reporting season we have just gone through has delivered more than just one positive story like Nanosonics.

    Each of these positive outcomes is the result of thoughtful work by our team identifying companies with strong competitive positions, selling products that customers love and that are able to grow profits for many years to come.

    It’s also thanks to the diligent hard work of people who work for the companies we are all invested in. So thank you to the folks at A2 Milk, the team at Delegats and thanks for Vista Group’s market leading software. Further afield thanks animal pharmaceutical provider Zoetis and the team providing great priced clothes at TJ Maxx. The hard work of people of all of these firms has meant great results for investors at Fisher Funds.

    I am sure in the months to come we will go back to the big picture of the macro economy and the angst of more volatile markets but for now let’s enjoy a couple of good months and remind ourselves that long run investment success is built on finding those great companies that can do their magic today and hopefully in the years to come.