Portfolio changes to the Polen Capital Global Growth Fund
In the June 2024 quarter, the Polen Capital Global Growth Fund purchased new positions in Zoetis (ASX:ZTS) and Shopify (NYSE:SHOP) and eliminated our position in Autodesk (NASDAQ:ADSK). We also trimmed our positions in Microsoft (NASDAQ:MSFT), ServiceNow (NYSE:NOW), Amazon (NASDAQ:AMZN), and LVMH Moet Hennessy Louis Vuitton SE (EPA:MC) and added to our existing position in MSCI (NYSE:MSCI).
We re-established a position in Zoetis after holding a position from late 2017 to late 2021. Our sale came after a successful holding period and was solely driven by valuation, which we felt was stretched at the time. We had an opportunity to re-establish a position at a lower price than we sold in September 2021 despite Zoetis having a roughly 25 per cent higher earnings base. In short, we’ve taken advantage of the recent dip in valuation to buy back what we think is an attractive safety business capable of sustaining durable low double-digit earnings growth.
Shopify, a leading cloud-native commerce software platform, is a business we’ve been studying since 2018 and which we have long admired. At its core, Shopify’s goal is to be the operating system of retail, helping to democratize commerce via lowered barriers to entry, the rise of DTC (direct-to-consumer), and hyper-targeted digital ads.
Shopify’s business model combines 1) a mission-critical software business where merchants can run all their business operations from one dashboard and 2) a payments business with a long runway to increase attach rates and grow alongside merchants.
Additionally, we believe the business possesses significant optionality to continue attaching existing merchant solutions and adding more merchant services as high-margin cross-sells. With several powerful tailwinds at their back (e-commerce, mobile commerce, social media, digital payments, seamless omnichannel, DTC, cloud software digitization) and a highly scalable business model, we think their growth will likely prove to be stronger for longer than investors expect.
We sold our small position in Autodesk to help fund our purchase of Shopify. We still think Autodesk is a great business, with 95 per cent+ recurring revenue, dominant in its end market, and with nice tailwinds behind digitisation in that end market. It should be a durable grower over time, perhaps with continued fits and starts, but we found the risk-reward around Shopify to be more compelling at this time.
We trimmed Microsoft and ServiceNow purely for valuation reasons. We remain confident in both businesses over the long term.
We trimmed our position in Amazon purely as a function of position size management, as it had grown over 10.5 per cent weighting in the Portfolio. We still feel great about the business, its competitive advantages, growth runway, management team, and valuation relative to its long-term growth prospects, hence why it remains our largest position.
We trimmed LVMH from 2.6 per cent to 1 per cent. We think that after a period of excellent business performance, the business should see slower growth in revenues and margins over the next few years. While a portion of their demand is certainly durable due to its luxury positioning, it will still likely prove more cyclical in an economic downturn. Given its current prospective high single-digit/low double-digit earnings per share (EPS) growth profile (which will likely be high in a downturn), we thought it was more prudent to allocate this capital to a business with more safety-like characteristics in Zoetis. However, we kept a 1 per cent position in LVMH because we believe it remains a phenomenal business with durable advantages that are hard to replicate. We hope to own more of it someday when the business fundamentals and valuation are a more attractive combination, all things considered.
We added to our existing position in MSCI, increasing it from less than 2 per cent to a 3.5 per cent weight. The stock sold off recently after reporting a decrease in net new subscription sales during the first quarter. New subscription sales were up modestly versus the prior year, but there was a bolus of cancellations due to “business events,” most notably UBS (SWX:UBSG) acquiring Credit Suisse and adjusting their subscriptions. While net new subscription sales might be a little softer near-term, retention rates remain high for this highly recurring and profitable business. This short-term softness does not change our view on the competitive advantages or long-term growth profile of the business. We used the selloff as an opportunity to bring MSCI up to a full-sized position.
We continue to believe global growth equities are well-positioned to deliver long-term, mid-teens-or-better earnings growth that will drive our long-term investment returns.
Disclaimer
The Polen Global Growth Fund owns shares in Zoetis, Shopify, Microsoft, ServiceNow, Amazon, LVMH and MSCI. This article was prepared 8 August 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Zoetis, Shopify, Microsoft, ServiceNow, Amazon, LVMH or MSCI, you should seek financial advice.
If you would like to learn more about the Polen Capital Global Growth Fund, please visit the fund’s web page to learn more: Polen Capital Global Growth Fund
Past performance is not an indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.
This report has been prepared for the purpose of providing general information, without taking into account your particular objectives, financial circumstances or needs. The issuer of units in the Polen Capital Global Growth Fund (ARSN: 647 518 723) is the Fund’s responsible entity Fundhost Limited (ABN 69 092 517 087) (AFSL: 233045). The Product Disclosure Statement (PDS) contains all of the details of the offer. Copies of the PDS and Target Market Definition (TMD) are available from Montgomery Investment Management, contactable on (02) 8046 5000 or at www.montinvest.com and at https:// fundhost.com.au/ An investment in the Fund must be through a valid paper or online application form accompanying the PDS. Before making any decision to make or hold any investment in the Fund you should consider the PDS and TMD in full. The information provided is general in nature and does not take into account your investment objectives, financial situation or particular needs. You should consider your own investment objectives, financial situation and particular needs before acting upon this information and consider seeking advice from a licensed financial advisor if necessary. You should not base an investment decision simply on past performance. The investment returns of the Fund are not guaranteed, and so the value of an investment may rise or fall.
Established in 1979, Polen Capital is a high conviction growth investment manager with offices in the US and UK. Polen has been dedicated to serving investors by providing concentrated portfolios of the highest-quality companies for more than three decades. The firm’s established team manages US$71 billion in total assets and their longest-running flagship investment strategy has delivered on average double digit annual returns for more than 30 years.
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