WEEKLY MARKET COMMENTARY BY H.E.R.O. (5 to 9 Oct 2020)
WEEKLY MARKET COMMENTARY BY H.E.R.O. (5 to 9 Oct 2020)
The Portfolio of dividend-yielding global H.E.R.O. Innovators rose for the fifth consecutive week during the week ended 9 October 2020, maintaining her overall absolute positive and relative outperformance against major world indexes since her recent birth on 28 August 2020, during which MSCI ACWI All World index declined -0.1%, S&P 500 -0.9%, NASDAQ -1%, and Greater China stocks slumped with Hang Seng index -5.1%, CSI 300 index -3.4% and HSCEI -6.7%, and gold physical spot (in USD) -1.8%.
The separate equity portfolio of H.E.R.O. innovators for our clients rose +5.3% during the week to a new record high with +50.7% in average returns since it was invested in March 2020 when the H.E.R.O. research methodology was implemented in March 2020.
- North American, Australia, Japan and Nordic stocks were key contributors during the week, led by: (1) Canada’s Dominant #1 Overnight Domestic Freight Cargo Network with a Near-Monopoly Share of 95% (+14.2%); (2) Japan’s #1 E-Manual Database SaaS Innovator (+14.5%); (3) Australian Global #1 Leader in Hand-Held Metal (Gold) Detection & Ground Radar Technology (+10.2%); (4) Sweden’s #1 Cloud Accounting & Financial Management Software Leader for Small Businesses & Accounting Firms (+10%); (5) Australia’s #1 Enterprise Content Management (ECM) Cloud Software Leader for Mission-Critical Operations of Governments and Regulated Industries (+7.6%); The World’s Largest Pure-Play Dedicated Semiconductor Foundry (+9.9%), etc.
- The K-shaped recovery divergence, coupled with the worsening U.S.-China relationship, points towards the new world order in the post-pandemic future that marks the ascent of the quiet Nordic powerhouse region – comprising of Sweden, Denmark, Norway, Finland and Iceland with a combined GDP of over US$1.6 trillion, combined population of around 27.3 million people, and the highest regional GDP per capita in the world at over US$62,000 – where they are a Winter War kind of country: innovation happens when things are tough, not when they’re easy and comfortable.
Portfolio Snapshot: Japan's #1 E-Manual Database SaaS Innovator
[Week 5 to 9 Oct: +14.5%]
One of our portfolio companies in the Portfolio of dividend-yielding H.E.R.O. Innovators from our selection, Japan's #1 e-manual database SaaS innovator, is up +14.5% during the week (5 to 9 Oct 2020) and +43.4% since the inception on 28 August 2020, versus MSCI ACWI World index/NASDAQ -0.1%/-1% over the same period. The rising dividend-yielding company has also compounded +1,289% in capital gains in the recent 4 years vs MSCI ACWI World index +37.2%.
Founder, Chairman & CEO Mr. M shared: "VISION is the ultimate AI-AR (augmented reality) manual that anyone can use easily, which does not need the user to see nor memorize tens of thousands of pages of manuals, not only in Japanese and English, but also in any language. We want to escape from the conventional manual that has bothered engineers so far and have AI to monitor and guide the worker to prevent mistakes and complaints, and to shorten the training period for new workers. We have over 30 years experience in preparing manuals entrusted by manufacturers and we incorporated our existing product of cloud 'e-manual' know-how in AI and developed VISION. VISION is possible only because we know the manual. We are familiar with where to watch out and what kind of warning should be given. High performance machine vision in complicated shape recognition is also a big feature of VISION. The AI also recognizes procedures such as tightening the valves, injecting liquid etc and tells the workers how to do it and displays how many times to do so. In addition, it is also possible to call and talk to workers working in different places, so it will be useful for tasks that require team work, such as checking the work progress of the members.”
Portfolio Snapshot: Australia's #1 Enterprise Content Management (ECM) Cloud Software Leader for Mission-Critical Operations of Government and Regulated Industries
[Week 5 to 9 Oct: +7.6%]
One of our portfolio companies in the Portfolio of dividend-yielding H.E.R.O. Innovators from our selection, Australia's #1 enterprise content management (ECM) cloud software leader for mission-critical operations of government and regulated industries, is up +7.6% during the week (5 to 9 Oct 2020) and +12% since the inception on 28 August 2020, versus MSCI ACWI World index/NASDAQ -0.1%/-1% over the same period. The rising dividend-yielding company has also compounded +707% in capital gains in the recent 5 years vs MSCI ACWI World index +43.6%.
Founder, Chairman & CEO Mr. W shared: "Our ultimate vision is to connect government, by enabling processes and information to transcend organisational boundaries and also connect with private organisations and citizens. To connect government the culture of government had to change and the technology had to change. With both of these occurring, our company is uniquely positioned to allow an organisations to drive more efficiency and greater strategic value from their information. . A lot of people are coming back to market, not necessarily just looking for the next generation of product, but because they didn’t really succeed in implementing ECM and managing unstructured data the first time."
"If you look at the heritage of our company, we’ve been implementing multi-server systems across government for a long time. There are still massive silos of information across government and we are finally able to link those up. Our solution enables the connection of information and processes across those departments and agencies. A government process typically involves a document or case file of some sort. Our solution allows you to securely manage that case file through the reviews, approvals and conversation threads that occur around those documents. Our solution is all about connected process management.”
Portfolio Snapshot: Australian Global #1 Leader in Hand-Held Gold Detector & Ground Radar Technology
[Week 5 to 9 Oct: +10.2%]
One of our portfolio companies in the Portfolio of dividend-yielding H.E.R.O. Innovators from our selection, the Australian global #1 leader in hand-held gold detector & ground radar technology, is up +10.2% during the week (5 to 9 Oct 2020) and +13.3% since the inception on 28 August 2020, versus MSCI ACWI World index/NASDAQ -0.1%/-1% over the same period. The rising dividend-yielding company has also compounded +1,279% in capital gains in the recent 5 years vs MSCI ACWI World index +43.6%.
CEO Mr. M shared: "We are the world leader in handheld metal detecting technologies for recreational, gold mining, demining and military markets. Despite the challenges presented by the global COVID-19 pandemic, our company has once again achieved its highest ever sales and profitability, as we continued to successfully implement our strategic growth plan. This was driven by the strength of our gold detector sales into the artisanal gold mining market, continued growth in sales of our recreational metal detectors and several major contracts delivered by the Communications business which designs and manufactures mission-critical communications equipment for global military and public safety applications. The demand for our recreational detectors has been remarkably resilient right through the pandemic, which we attribute to metal detecting being a remote outdoor hobby that has the potential to find items of value. We also provide unique, high-precision tracking, productivity and safety solutions for underground hard-rock mines. Our technology allows real-time monitoring and control of mining operations in order to optimize productivity and enhance safety. It is an enabling technology required for mining automation."
Portfolio Snapshot: Canada's Dominant #1 Overnight Domestic Freight Cargo Network With a Near-Monopoly Share of 95%
[Week 5 to 9 Oct: +14.2%]
One of our portfolio companies in the Portfolio of dividend-yielding H.E.R.O. Innovators from our selection, Canada's dominant #1 overnight domestic freight cargo network with a near-monopoly share of 95%, is up +14.2% during the week (5 to 9 Oct 2020) and +25.8% since the inception on 28 August 2020, versus MSCI ACWI World index/NASDAQ -0.1%/-1% over the same period. The rising dividend-yielding company has also compounded +817% in capital gains in the recent 5 years vs MSCI ACWI World index +43.6%. Dr. V was recently recognized as Strategist of the Year, as well being named one of Canada's top leaders of 2020 representing the best corporate leadership, innovation, vision and responsibility by the Globe and Mail's Report on Business.
CEO Dr. V shared: "We posted the best quarter in our company’s history. The momentum that we started in quarter one has picked up speed in quarter two. Virtually all our key metrics including revenue, gross margin, adjusted EBITDA posted strong record growth level and this is allowing us to strengthen our balance sheet and create further capacity to capture hyper growth. We are experiencing a strong tailwind driven by several factors. Let me highlight a few things that help drive a strong quarter. Number one, let me begin with our charter business. We had a very strong charter revenue in quarter two. With passenger airlines cutting down over 90% of their flight schedules, there was a worldwide shortage of cargo flying capacity. The freight that used to fly in the bellies of passenger airplanes had no other alternatives. This led to a strong demand of our charter services and we flew charter flights to bring personal protective equipment from Southeast Asia and Europe for various federal and provincial agencies and some private companies in Canada."
"The online shopping or e-commerce as a percentage of total retail doubled in April compared to Q1 of this year. This trend continued in May and we have no reason to believe that it is slowing down. We are about 7% to 8% of total retail sales prior to COVID on e-commerce, and the rest was all still traditional sales. I can tell you that, us talking to many customers, everybody feels that this will certainly enhance and speed up Canada catching up to U.S., where 15% or 16% of the sales are on e-commerce, and in Europe and Asia, over 20%. Our customers are handling more B2C packages than Xmas or Black Friday. It is worth pointing out that the growth in e-commerce was not restricted to traditional larger retailers only. We saw thousands of small and medium-sized merchants shift their sales to online channels. We expect this trend to continue. We can accept cargo till 15 minutes of the flight and load it. So when people see the differences and we've noticed that in many cases, it same like when you're sitting home and ordering supplies online your habits have changed.”
“I would like to see a bigger stimulus package, frankly, than either the Democrats or the Republicans are offering,” Trump said on a radio program on Friday, saying he’s going in the “exact opposite” direction from his earlier stances. “Covid Relief Negotiations are moving along. Go Big!” Trump added in a tweet Friday. The hot air of stimulus hopes that’s widely expected to be announced before the U.S. elections has ballooned up the market to its best weekly gain in four months after the seemingly recovered Trump completely reversed his stance following his shocking unilateral walk away from U.S. fiscal relief talks on Tuesday. Markets continue to rise even as U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin failed on Friday to reach agreement on a COVID-19 stimulus package. Pelosi has proposed a $2.2 trillion plan, down from the $3.4 trillion package the House passed in May, while Mnuchin floated a new $1.8 trillion proposal, but the differences between the two sides involve more than money. They also differ on how it should be spent. Senate Majority Leader Mitch McConnell, the top Republican in Congress, said he doubted lawmakers would pass a package before the election. Underpinning the bullishness is the view that more stimulus is inevitable, regardless of who wins. The most bearish scenario for the market and a recovery is a Biden win with Republicans holding the Senate, which would make further stimulus least likely. The “Biden-is-bad for Wall Street” narrative is starting to fade as markets are repricing increasing odds of a Blue Wave scenario with Democrats winning the White House and the Senate, while retaining control of the House of Representatives, which is viewed as bullish despite the prospect of higher taxes, because of the potential of an even larger fiscal stimulus package and a less hostile relationship with China.
Notably, the S&P 500 had experienced a “breadth thrust,” the term used to describe a 10-day period in which advancing stocks outnumbered decliners by at least 2-to-1. That doesn’t happen very often—just 29 times since 1990—and it signals massive buying pressure in the market. Yet, interestingly on Friday, the dark crawling creatures of Cyclicals and Financials, who have been feeding off the misty vapors of stimulus hopes to a V-shaped recovery, were retreating back to their holes even as overall market gains, which looks to bode well for structural growth innovators to take back the market leadership as the grim reality sets in from the continued worrying and stubborn rise in global coronavirus cases dampening the stimulus efforts.
The earnings season will be starting again soon, with 25 U.S. S&P 500 companies worth $2.5 trillion reporting third-quarter numbers next week. This time round, the bar will be higher and the market beast is unlikely to be satiated with just the beating of conservative earnings expectations and will demand more of a positive and visible outlook prognosis to keep dancing.
While the short-term day-to-day price movement can be volatile, what continues to be crystal clear is that the quiet structural growth H.E.R.O. innovators remain the most visible and vibrant pathway in a foggy, volatile, whipsawing, uncertain market to deliver sustained outperformance with their healthy fundamentals results.