The Australian share market has been an amazing place to compound wealth over the last 25 years. The reality, though, is that 98% of the world’s market equity value is located outside of Australia. The world’s most dominant and valuable technology companies — think Google’s Alphabet, Visa, Facebook and more — are all located outside of Australia.
We love Australia, but the big goal with the Lakehouse Global Growth Fund is to bring a fresh range of opportunities to local investors.
Australia does punch above its weight, but our top-heavy local market is also dominated by cyclical and slow-growing companies. And while I’m bullish on Australia’s future I’d have to be asleep at the wheel not to notice the medium-term headwinds of stagnating wage growth, high property prices, and high levels of household debt have on the Australian economy.
The dominance of Google’s platforms, for example, is staggering. Alphabet (best known as the parent company of Google), is a business whose reach and consumer insights are hard to overstate.
Google has 7 different services that have reached more than 1 billion monthly users — search, Android, Maps, YouTube, Chrome, Gmail, and Google Play — which intertwine to provide Google with an unparalleled view into the lives of its users.
Google search has 92% global market share. Chrome is the world’s most widely used web browser. Android is the world’s most popular mobile operating system with 2 billion-plus active users. YouTube is watched for more than 1 billion hours a day.
An underappreciated facet of Google’s strength is the self-reinforcing nature of its leadership positions. Google search results continue to be refined at the global, national, regional, local, and personal levels thanks to the trillions of searches that flow through each year, 15% of which have never been searched before. YouTube continues to draw more viewers because it is drawing more content: more than 500 hours of video are uploaded to YouTube every minute. And Android, which is a tremendous strategic asset, continues to attract more app developers, device makers, and users in a virtuous circle.
Even more lucrative to Google than those towering individual pillars, though, is the intersection of user profiles, data, and experiences that makes for a meta-layer of lock-in on top of an already strong degree of loyalty within the individual product verticals. This is the ghost in the Google machine that allows it to serve up increasingly more relevant ads to users, and indeed advertising makes up around 88% of the company’s revenue.
Lastly, Alphabet has about US$100 billion in cash which, for a sense of scope, is larger than the combined market values of Telstra, Woolworths, and Macquarie.
Can I pay with Visa?
It’s hard to conceive just how enormous Visa is. This year, it’ll process about 10 trillion dollars in transaction value, which for context is about 7X the GDP of Australia. Imagine 7X the value of Australia’s goods and services all getting swiped through Visa card — and that’s what Visa flows through its network every year!
Visa was the very first credit card company and it’s by far the biggest processor and transactor of payments round the world. Because they were the first mover they have the widest adoption rates with merchants, most people carry visa cards with them, and it’s the card that’s used most frequently per card as well. And banks like to issue them because that’s what the merchant accepts, and that’s what customers want. It has an incredibly strong network effect and has a self reinforcing loop that has come from being a first mover in that space.
The business today is wildly profitable, spins off a lot of cash but is still investing in growth — and there’s still a lot of growth ahead. There are lots of markets where people are spending more and more on cards, and we’re seeing that here in Australia where fewer and fewer transactions are being done with cash, and that’s a trend that’s happening everywhere.
In less developed economies as the middle classes rise they spend more, they borrow more, they transact more, and they’ll do a higher proportion of that with plastic, and Visa is the biggest beneficiary of that trend.
Digital-first businesses are top-of-mind for us but we’re not limiting ourselves to American big-cap tech with the Lakehouse Global Growth Fund. We have our eyes on other themes, as well, including urbanisation and the rise of the Asian consumer.
Urbanisation: How the great migration is turbo-charging wealth
Rural dwellers around the world are gravitating towards cities in waves that are shifting the ways we live, work, play, and spend — and the investing implications are vast.
It’s hard to overstate the magnitude of the ongoing global shift towards urbanisation. Consider the following numbers from a United Nations report that physicist Geoffrey West references in his groundbreaking book, Scale:
- 1.5 Million. An average of about 1.5 million people are expected to be urbanised each week between now and 2050. That’s like 52 brand new Adelaides each year.
- 2 Billion. The global urban population is expected to increase by more than 2 billion people by the year 2050, equal to about 430 new Sydneys springing from the ether.
- 2X: The percentage of the world’s citizens who live in urban areas is expected to more than double from around 30% in 1950 to about 66% by the year 2050.
Great opportunities come in many shapes, sizes, industries, and markets, which is why we’ve armed the Fund with the ability to own businesses across the spectrum of listed global markets.
Why Lakehouse Capital?
Lots of Motley Fool followers told us that they loved our investment guidance but didn’t have the time or interest to put their money to work for themselves — so we established Lakehouse Capital. It’s a business set up by The Motley Fool Australia aimed at managing funds for investors who wanted a “do it for me” solution from Foolish managers.
Our style should look very familiar to Motley Fool followers. We’re business-focused investors who put time on our side by investing for the long term. Our aim is to back talented, aligned leaders of companies with strong competitive advantages and bright futures.
We prefer to focus most of our effort, and our investors hard-earned cash, on industries that are known for extremely loyal customers, historically high and stable returns on capital and have bright long-term prospects. For example, we have an affinity for enterprise software companies, and we’re fond of them because they tend to have ultra-loyal customers, pricing power, and attractive returns on investment.
We’re also believers in backing our best ideas by running a concentrated strategy. The Fund will typically hold 20 to 40 high-conviction investments at a time, as we see little appeal in putting capital behind a 41st best investment idea.
Contributing to our mindset is: 1) our long-term time horizon, and 2) that very few companies meet our high standards. We also prefer to know our companies very well which better suits a concentrated strategy.
More specifically, at the position level the Fund is searching for companies that present the following characteristics:
- Strong positions in growing markets.
- Pricing power with customers and suppliers.
- Durable competitive advantages grounded in; scale, strong brands, network effects, or high customer switching costs.
- Aligned and experienced management teams with strong track records of capital allocation.
- Conservative balance sheets.
- Attractive valuations that afford upside to our estimate of fair value.
The Fund will typically hold 5% to 15% of assets in cash but may hold up to 25% based on the prevailing opportunity set. The Fund does not invest in derivatives (including for the purposes of currency hedging), sell short, or borrow to invest.
Who should invest in the Fund
The Lakehouse Global Growth Fund investor has a meaningful stake in the fund, not a punt. We prefer investors who share our long-term time horizon. Like us, they measure success over years, not months. They know that trends come and go but that proven, repeatable investment processes win out over time.
Lakehouse Capital is a big commitment and exciting opportunity for us and we want to share that same sense of conviction and enthusiasm with our early investors. The minimum investment for the Lakehouse Global Growth Fund is $100,000.
While it’s still early days and we’re the first to say that past performance isn’t indicative of future returns, we’re pleased to say that the Fund is off to a good start towards its goal of long-term outperformance.
Unit Price as at 30-Jun-18
|Lakehouse Global Growth Fund||Date||Entry ($)||Mid ($)||Exit ($)||Unit Price History|
|Monthly Unit Price||30-Jun-18||$1.0870||$1.0854||$1.0838||Click Here|
Net Performance as at 30-Jun-18
|1 month||Since Inception|
|Lakehouse Global Growth Fund, Net ^||3.2%||8.5%|
The Lakehouse Global Growth Fund is now accepting new investors
Investing in the Fund is a big decision for investors and it’s important to make an informed choice. Potential investors should read and consider the Product Disclosure Statement (and seek professional advice) when deciding whether to acquire units in the Lakehouse Global Growth Fund.
What should potential investors expect in the application process?
After first reading the product disclosure statement, applying for units in the Lakehouse Global Growth Fund is a 2-step process. Once potential investors have decided the Fund is right for them, all they have to do is:
- Complete the application form, and
- Transfer funds
We’ve made the online application form as simple as possible and applicants can get prepared by having their tax file number, and identity documents such as a driver’s licence and passport, ready.
In advance of filling out the direct application form, (and especially if applying in the name of a SMSF/ Company/ Trust etc) we strongly encourage potential investors to watch this brief 3-minute instructional video:
Potential investors, to access the Lakehouse Global Growth Fund application form, please click the button below:
As ever, thank you for your time and trust.
Joe Magyer, CFA
Chief Investment Officer
P.S: Potential investors should read and consider the Product Disclosure Statement (and seek professional advice) when deciding whether to acquire units in the Lakehouse Global Growth Fund.
Got questions about the application? Registry are available to help! All questions can be directed to: firstname.lastname@example.org or +61 2 8188 1510.
Lakehouse Global Growth Fund (ARSN 621 899 367) (Fund). The responsible entity for the Fund is One Managed Investment Funds Limited (ACN 117 400 987) (AFSL 297042). The information included in this message has been prepared without taking account of the reader’s objectives, financial situation or needs. All of the commentary, statements of opinion and recommendations contain only general advice. Any person reading this message should, before deciding to invest in the Fund, read the product disclosure statement and seek professional advice. Figures accurate as at 12 April, 2018. Lakehouse Global Growth Fund PDS | Lakehouse Global Growth Fund AIB