Do You Have a Quiet H.E.R.O. In Your Portfolio Protecting & Fighting For You? [Nordic Global Medtech Leader in Glaucoma]
Case Story: Nordic Global Medtech Leader in Glaucoma
Consider the case of one of our portfolio companies in the Fund, a Nordic-listed global medtech leader in ophthalmic diagnostic, screening and treatment technologies and devices related to eye diseases, which is up 8.5% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-7.7% since 28 August. The rising dividend-yielding company has also compounded 371% in capital gains in the recent five years vs MSCI ACWI World index +47.6%. Its current product portfolio extensively covers everything related to screening and treatment of glaucoma, a symptomless eye disease that progresses to blindness. Its devices are also used for diabetic retinopathy and macular degeneration detection, diagnosis and treatment. Its easy to use, handheld tonometers are painless to the patient, which utilise the company’s extensively patented rebound technology (RBT), which is continuously gaining market share from outdated tonometry.
The company's story of sisu began with Dr. K, who wanted to find a new, easy and patient-friendly method of measuring intraocular pressure. A major breakthrough was obtained in the 1990s after a decade(!) of hard work in research by Dr. K which lead to the development and invention of the rebound tonometer. Illustrative of the power of sisu is the fact that it has taken nearly 30 years for the company's technology to be recognised as the de facto industry standard. The use of its tonometers does not require anesthetization of the patient’s eye or specialist ophthalmological expertise. The growth of the company has been based on replacing old technologies (air puff, anesthesia and applanation) in the use of ophthalmologists. In comparison to its competitors, the company's medtech product has been overwhelming in terms of accuracy, usability and cost. The key strengths of the fundus imaging devices are their high quality, ease of use, and the extraordinarily true color of the images. Its tonometers enable hygienic and effortless eye pressure measurement that is barely noticed by the patient, making it suitable for all patients from the very young, to the older generation, even for post-surgical applications. Its tonometers are safe because of the use of a single-use sensor probe. About two thirds of the company’s revenue derives from this unique product, and the rest derives from disposable probe sales.
The company's customer base of over 80,000 satisfied users in more than 50 countries, in addition to ophthalmologists, are opticians, optometrists, general practitioners, first aid stations, nurses, and vets. The new HOME device extends the potential customers’ base to include patients. It is estimated that 150 million people suffer from glaucoma, approximately half of them without knowing it. The ageing population is the main growth driver, and the commonality of the disease is 4 % in over 65 year olds. The number of patients is expected to double by the year 2050, which translates to 45 million new patients. Home measurements make glaucoma monitoring more reliable because intraocular pressure may fluctuate a lot at different times of the day. For monitoring data to be reliable, measurements are needed at different times of the day. Round-the-clock monitoring of intraocular pressure makes the company’s tonometer, designed for self-monitoring, available to glaucoma patients. Its mobile application connects patients, who measure their intraocular pressure at home, to their doctor via a cloud service.
The company has delivered resilient results amidst the coronavirus pandemic: It reported healthy 2Q2020 (Apr-Jun) sales +15.6% YoY and operating profit +27.75 YoY. CEO Mr. T commented: "Demand for tonometers started to grow during May-June 2020, as did demand for single-use, sterile probes. The World Glaucoma Association has recommended avoiding traditional air-puff technology, as it is suspected of causing droplets, which enables the spread of viruses. In our view, it is quite possible that the remote digital monitoring of patients will receive a significant boost as healthcare professionals need to devise new methods to monitor the health of patients without meeting the patient.”
The H.E.R.O. Investment Framework
The H.E.R.O. framework, methodology and strategy are powering equity portfolio asset for our institutional client.
This is the only equities strategy in the market that focuses on both dividend yield and innovation-driven capital gains to enhance total shareholders’ returns. This is also the only dividend-yielding equities strategy in the market that is entirely not dependent on and with zero exposure to: (1) cyclicals (concentrated in economically-sensitive and rate-sensitive sectors such as financials, property & construction, energy & materials) that may not be resilient in economic downturns, and (2) cheap-gets-cheaper yield- and value traps. It also applies the proprietary forward-looking fact-based accounting fraud detection system that was pioneered and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS), to mitigate downside risks which escape detection by typical western-based forensic tools.
I. Strategic Focus on Quiet Innovators & The H.E.R.O. Investment Framework
Our investment strategies distinguish from all other tech- and innovation-themed funds with its singular focus on quiet innovators, which present structurally mispriced opportunities and avoid overcrowded misopportunities that stem from the human tendencies to equate flashy popularity with excellence, and have an active ratio of over 95% (vs the MSCI World Index). The portfolio companies are exceptional innovators and focused market leaders in their respective fields with unique, scalable, recurring-revenue and high-profitability business models delivering innovative products and services indispensable to our well-being in daily life and run by high-integrity, honorable and far-sighted entrepreneurs with a higher Purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – Honorable. Exponential. Resilient. Organization.
H.E.R.O. is operationalized into a systematic 4-step investment process and investment framework powered by sustainability & ESG principles to identify the winners, to distinguish between the true innovators and the swarming imitators, between the devoted missionaries forging a greater Purpose and the mercenaries. Not only do the H.E.R.O. innovators generate high profitability at the inflection point of their exponential growth trajectory, more importantly, they are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out.
We use the framework and positive criteria of the United Nations Sustainable Development Goals (SDGs) to integrate environmental, social, and governance (ESG) considerations into the research and investment process in selecting companies that generate sales in products and services that contribute to the achievement of the UN SDGs. The central focus of our impact investing is on innovators who contribute to the UN SDG Goal 9: Industry, Innovation, and Infrastructure — “Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation”.
H.E.R.O. is unique in eliminating the downside risks from accounting tunneling fraud and misgovernance through unusual related-party transactions, consolidation accounting craftiness (opportunistic shifting of expenses and debt into unconsolidated entities), and hidden balance sheet liabilities at the wider pyramidal business group level etc., which escape detection by western-based forensic tools through a proprietary forward-looking fact-based accounting fraud detection system developed by KB, and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS). For instance, prevalent across Asian companies, previously Big-4 audited “cash” in the balance sheet are often misclassified “cash equivalents” disguised from improper short-term related party loans employed by the insiders to expropriate or tunnel out cash from the company after initially propping up financial numbers artificially to create false positive signals to lure in funds.
II. Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose
“Innovators” are companies that generate sales in technologically enabled new products and services that potentially transforms the way the world works. We seek to identify companies capitalizing on innovation in offering faster, cheaper, more productive, more cost effective, more compelling products and services, or that are enabling the further development of an innovation theme in the markets in which they operate.
III. Quiet Innovators Thrive in Stormy Times
Prepare and position a winning portfolio for a post-pandemic world with innovators who thrive in stormy times and transform crises and trauma into opportunities for the future. The coronavirus crisis has helped accelerate innovation and enhanced the leadership of innovators. Market positions are not redistributed during sunny and calm times, but during times of crisis. The pandemic crisis has changed the behavior of both consumers and businesses. Companies offering faster, cheaper, more productive, more cost effective, more compelling and innovative products and services are gaining significant share.
Market leadership and resilient winners in stormy market environment and in the post-pandemic future will be much less about the overcrowded popular trades in mega-cap tech and loss-making tech/biotech, as defined by FAANGT-STAMP (U.S.: Facebook, Apple, Amazon, Netflix, Google, Tesla; Asia/China: SEA, Tencent, Alibaba, Meituan-Dianping, Pinduoduo), who also do not pay any dividends (with the exception of Apple and Tencent), and will be led more by highly-profitable quiet innovators, including dividend-yielding cloud Software-as-a-Service (SaaS) companies.
Notably, of the 90+ cloud software companies listed in the U.S., nearly all (>95%) do not pay any dividends, with many still looped in a negative free cashflow position, while the 20 global SaaS portfolio companies in the Fund are unique in being exceptional market leaders in their respective field with ample internal cashflow generative capacity to reinvest for higher-margin growth and still consistently produce rising dividend yield to reward shareholders.