IFP Global Franchise aims to achieve a long-term total return (before fees and expenses) that exceeds the MSCI World ex Australia Index, in $A unhedged with net dividends reinvested (Benchmark). Independent Franchise Partners LLP (IFP) is an active, value-based investment manager, managing the Fund in a benchmark unaware fashion applying bottom up fundamental research. The Manager believes that a concentrated portfolio of exceptionally high quality companies, whose primary competitive advantage is supported by a dominant intangible asset, especially when selected with an absolute value bias, will earn attractive returns with less than average absolute volatility, i.e. standard deviation. Whilst noting the value characteristics of the style, it is nevertheless important to note that quality most often tends to be associated with growth investors. It is noteworthy that the Fund can display growth characteristics through a cycle; however valuation and not overpaying for cash flows is a key discipline.
• The Fund returned -3.91%, net of fees, in September 2023, compared with a return for the Benchmark of -4.01%.
• Most sectors detracted in September in unhedged terms, with the Energy sector being the sole contributor. For the Fund, the largest relative sector contributors included holdings in Health Care, such as GSK and Novartis, and holdings in Materials, such as Corteva. Relative detractors included holdings in Financials, including ICE and S&P Global, and a lack of exposure to the Energy sector.
• GSK was among the top individual contributors to performance in September. The company’s recently launched respiratory syncytial virus (RSV) vaccine, Arexvy, is performing ahead of market expectations. Early data suggests its market share in the US is close to 70%, well ahead of initial market expectations of a 50:50 split with Pfizer. Arexvy also received regulatory approval in Japan, a large market with significant unmet need for adult RSV vaccines. This adds to the regulatory approval gained in Europe in June.
• Zillow was among the top individual detractors from performance in September. The stock’s weakness appeared to be driven by a combination of profit taking following strong year-to-date performance and a rise in longer-term US interest rates that is likely to continue to depress US housing transaction volumes. Franchise Partners are mindful that the on-going weakness in housing transactions could significantly reduce Zillow’s near-term free cash flow generation. However, Franchise Partners maintain the belief that the company can deliver above market revenue growth next year even if US housing transactions remain low due to new product initiatives that are starting to lead to large market share gains.
• During the month, Franchise Partners completed the initial purchase of Estee Lauder, and the final sale of Microsoft. Estee Lauder has leading market positions across all major luxury sub-categories of skincare, make-up and fragrances. Having followed the company for many years, the opportunity to initiate the position arose from the 60% share price decline price from its April 2022 peak. This decline was driven by a rapid slowdown in the company’s most profitable travel retail channel, particularly in Asia. Franchise Partners view this slowdown as transitory and expect profits, margins and cash flows to revert towards historic levels in the years ahead. This recovery is underpinned by long term demographic trends that are supportive of Asian travel retail, including growing female workforce participation in Asia, a growing middle-class population, and increased international travel. Although Franchise Partners continue to admire the quality of the Microsoft business, having generated attractive returns since the position was initiated, the valuation no longer represents an attractive risk-reward proposition.
What is IFP Global Franchise IFP Global Franchise is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Fundamental Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The IFP Global Franchise has Assets Under Management of 1.67 BN with a management fee of 1.38%, a performance fee of 0.00% and a buy/sell spread fee of 0.29%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the IFP Global Franchise has returned -0.64% in the last month. The previous three years have returned 10.53% annualised and 11.17% each year since inception, which is when the IFP Global Franchise first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since IFP Global Franchise first started, the Sharpe ratio is NA with an annualised volatility of 11.17%. The maximum drawdown of the investment product in the last 12 months is -5.28% and -26.22% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The IFP Global Franchise has a 12-month excess return when compared to the Foreign Equity - Large Fundamental Index of 0.36% and 1.77% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. IFP Global Franchise has produced Alpha over the Foreign Equity - Large Fundamental Index of NA% in the last 12 months and NA% since inception.
What are similar investment products? For a full list of investment products in the Foreign Equity - Large Fundamental Index category, you can click here for the Peer Investment Report.
What level of diversification will IFP Global Franchise provide? IFP Global Franchise has a correlation coefficient of 0.87 and a beta of 1.12 when compared to the Foreign Equity - Large Fundamental Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on IFP Global Franchise and its peer investments, you can click here for the Peer Investment Report.
How do I compare the IFP Global Franchise with the Developed -World Index? For a full quantitative report on IFP Global Franchise compared to the Developed -World Index, you can click here.
Can I sort and compare the IFP Global Franchise to do my own analysis? To sort and compare the IFP Global Franchise financial metrics, please refer to the table above.
Has the IFP Global Franchise been independently verified by SMSF Mate? This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
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Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the IFP Global Franchise. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 • The Fund returned 2.20%, net of fees, in August 2023, compared with a return for the Benchmark of 1.60%.
• Most sectors advanced in August in unhedged terms, led by Energy, Health Care, and Communication Services. For the Fund, the largest relative sector contributors included holdings in Financials, such as Aon and ICE, and holdings in Consumer Discretionary, namely Booking Holdings and eBay. Relative detractors included holdings in Materials, namely Corteva, and a lack of exposure to the Energy sector.
• News Corp. was among the top individual contributors to performance in August. The company released better-than-expected fourth quarter results. Digital represented more than 50% of total revenues for the full year, the first time in the company’s history. The growth of business-to-business products in the Dow Jones division was strong and is likely to be the largest contributor to the division’s profits next year. Further, subscription video service Foxtel returned to growth and is expected to complete a refinancing that should facilitate repayments of outstanding shareholder loans from News Corp., a first step towards a potential IPO.
• Electronic Arts was among the top individual detractors from performance in August. The company reported solid first quarter results, but management’s guidance for the full year was weaker than expected. Franchise Partners are not overly concerned about the full year outlook, as it is driven by weakness in EA’s lower-value shooter title Apex Legends and its mobile division. Importantly, performance of the company’s core sports titles is strong, and Franchise Partners expects revenues and margins to improve next year once the multiple titles currently in development are released.
• There were no initial purchases or final sales within the portfolio during the month.
Performance Commentary - July 31, 2023 • The Fund returned 0.50%, net of fees, in July 2023, compared with a return for the Benchmark of 2.09%.
• Another positive month for the benchmark saw all sectors advance, with Financials, Communication Services and IT making the largest contributions. The largest relative sector detractors from the Fund included holdings in Financials, including Aon and S&P Global, and holdings in Communication Services, including Fox and Nintendo. Relative contributors included holdings in Real Estate, namely Zillow, and holdings in Industrials, including RB Global and TransUnion.
• RB Global was among the top individual contributors to performance in July. The company’s shares appeared to benefit from a number of analyst upgrades during the month. Franchise Partners believes it is too early to assess the success of the acquisition of IAA, however there are signs that market conditions are improving. North American used equipment market trend data indicate used equipment prices are easing, which is starting to lead to increased auction volumes. In addition, Franchise Partners’ analysis of thirdparty data suggests that IAA’s market performance has not been adversely affected by the integration.
• Aon was among the top individual detractors from performance in July. The company reported solid second quarter results, however industry-wide weakness in M&A services revenues affected Aon more than its peers due to the larger size of this segment within its business mix. Franchise Partners thinks this M&A services slowdown is due to short term, cyclical reasons rather than structural ones. The company remains on course to achieve at least mid-single-digit organic revenue growth and operating margin expansion, and double-digit free cash flow growth for the full year. Further, Aon’s core business continues to perform well, with average retention rates of approximately 95%.
• There were no initial purchases or final sales within the portfolio during the month.
Performance Commentary - June 30, 2023 • The Fund returned 3.29%, net of fees, in June 2023, compared with a return for the Benchmark of 3.12%.
• A strong month for the index saw most sectors move higher, led by Consumer Discretionary, Industrials and Materials. The largest relative sector contributors to the Fund included holdings in Communication Services, such as Fox and News Corp.; holdings in Industrials, led by RB Global; and holdings in Financials, including Aon and S&P Global. Relative detractors included holdings in Consumer Discretionary, which lagged the rise of the broader sector, and holdings in IT, namely Salesforce.
• RB Global was among the top individual contributors to performance in June. Shares in the company recovered following weakness in May driven by the market rotation towards more cyclical stocks. Franchise Partners continues to think RB Global is a high-quality company with attractive market shares that benefit from strong brands and two-sided network effects, as well as databases with extensive buyer and inventory data.
• Salesforce was among the top individual detractors from performance in June. Salesforce’s shares declined following the release of first quarter results that were in line with management’s guidance, but which did not meet the market’s elevated expectations. Given the greater than 50% share price appreciation since the start of the year which has, in part, been driven by the market’s elevated expectations, Franchise Partners took the opportunity to reduce the position size last month.
• There were no initial purchases or final sales within the portfolio during the month.
Performance Commentary - May 31, 2023 Performance summary
• The Fund returned -0.63%, net of fees, in May 2023, compared with a return for the Benchmark of 1.18%.
• A strong performance by the IT sector disguised an otherwise tepid month for the index, with the Energy, Consumer Staples, Financials and Health Care sectors, amongst others, detracting. For the Fund, the largest relative sector detractors were an underweight to IT, as well as holdings in Consumer Staples, particularly BAT and Philip Morris, and an overweight to the sector. Relative contributors included a lack of exposure to Energy, and holdings in Financials, namely S&P Global.
• Salesforce was among the top individual contributors to performance in May. Shares in the company appeared to benefit from the broader market rotation towards faster growing, more cyclical stocks, particularly those in the IT sector and specifically companies focused on artificial intelligence. Given the share price rise, Franchise Partners took the opportunity to reduce the position size in Salesforce towards the end of the month.
• BAT was among the top individual detractors from performance in May. Shares in the company appeared to be affected by the broader weakness in the Consumer Staples sector, as well as the unanticipated announcement that CEO Jack Bowles has been replaced by CFO Tadeu Marroco. Franchise Partners understand the market’s negative reaction to the CEO’s unexpected departure but believe Marroco is a solid appointment and do not think the company’s strategy is likely to change significantly. Bowles’ departure follows a recent large fine from the US Department of Justice for engaging in commercial activity in sanctioned countries in the AsiaPacific region in the early-to-mid-2010s. The company has subsequently overhauled its global compliance function and increased senior executive oversight to help prevent a repeat of this activity. • There were no initial purchases or final sales within the portfolio during the month.
Performance Commentary - April 30, 2023 • The Fund returned 4.50%, net of fees, in April 2023, compared with a return for the Benchmark of 3.16%.
• Gains in global equity markets were broad-based, with all sectors rising, led by Consumer Staples, Energy, and Health Care. The largest relative sector contributors for the Fund were holdings in IT, led by Microsoft and Oracle, and an underweight to the sector, as well as holdings in Industrials, such as TransUnion and Ritchie Bros. Relative detractors included holdings in Real Estate, namely Zillow, and an underweight to the Energy sector.
• Novartis was among the top individual contributors to performance in April. The company continued to benefit from the announcement in March of positive clinical trial results for the expanded use of its drug Kisqali in the treatment of early-stage breast cancer. Franchise Partners estimates that it represents a US$6-8 billion revenue opportunity for Novartis. The company also reported stronger-than-anticipated quarterly results in late April. Revenue and operating profit were both ahead of market estimates, driven largely by the strength of its recently launched pharmaceutical products.
• Bristol-Myers Squibb was among the top individual detractors from performance in April. The company announced the failure of a clinical trial for the use of its drug Sotyktu to treat Crohn’s disease, as well as the pending retirement of Giovanni Caforio as CEO in November 2023. Caforio will be replaced by Chief Commercialisation Officer Christopher Boerner. Franchise Partners have met with both Caforio and Boerner since the announcement, and do not expect Bristol’s strategic priorities to change materially. Caforio has been CEO for eight years and will continue in the role of Executive Chairman, while Boerner is an internal appointment who has been with the company since 2015. Bristol also announced solid quarterly results during the month.
• There were no initial purchases or final sales within the portfolio during the month.
Performance Commentary - March 31, 2023 The Fund returned 4.33%, net of fees, in March 2023, compared with a return for the Benchmark of 3.88%.
• IT, Communication Services and Health Care drove the market higher again in March, while the Financials sector was the only major detractor. For the Fund, the largest relative sector contributors were holdings in Financials, including Aon and ICE, and an underweight to the sector, as well as an underweight to Energy. Relative detractors included holdings in Communication Services, namely Fox, and holdings in Consumer Staples, namely BAT, though both were partially offset by overweight positioning.
• Salesforce was among the top individual contributors to performance in March. The market has continued to react positively to activist involvement in the company; four activists have now purchased the stock since Franchise Partners initiated the position in Q1 2022. A key component of the initial investment thesis was the opportunity to improve margins, which could be realised more quickly than initially expected due to the increased focus from these activists. Franchise Partners will continue to closely monitor the activists’ demands and Salesforce’s response to ensure that the long-term health of the franchise remains intact.
• BAT was among the top individual detractors from performance in March. The company reported operational results that were in line with market expectations, but also announced the suspension of its share buybacks for the next 12 months. Franchise Partners expects this to be a temporary move to bolster its balance sheet in relation to litigation payments that are finally coming due.
• During the month, Franchise Partners completed the final sale of Alphabet. The decision was driven by uncertainty over the long-term growth potential for Google Search. Google Search’s sheer size means that it will be challenging for the company to meet consensus expectations of double-digit growth going forward. In addition, internet search is close to 35% of total global ad spend, and Franchise Partners do not think that Google can gain further significant market share in the next decade. There is some scope for margin expansion, however Franchise Partners do not think it will be a focus for management given the competitive threat posed by the shift to AI-driven search. While the short-term impact of ChatGPT on Bing and Google search revenue is likely to be limited, there is now a plausible long-term competitor in the form of Microsoft.
Performance Commentary - January 31, 2023 • The Fund returned 4.56%, net of fees, in January 2023, compared with a return for the Benchmark of 2.97%, as improved investor sentiment around a potential end to the global rate-hiking cycle drove equity market gains.
• Most market sectors, led by IT and Consumer Discretionary, advanced in January; Health Care and Consumer Staples were notable exceptions. For the Fund, the largest relative sector contributors were holdings in Real Estate, namely Zillow, and in Industrials, led by TransUnion. Relative detractors included an overweight to Consumer Staples and holdings in Financials, which lagged the rise of the broader sector.
• Zillow was among the top individual contributors to performance in January. Shares in Zillow moved higher as improved US mortgage application data pointed to a stabilisation, and then an increase, in US home buying interest in January. Franchise Partners continues to think Zillow is well placed to improve medium-term revenues and margins by better monetising its strong brand. Almost 70% of US consumers start their home search on Zillow, but the company currently only monetises around 3% of housing transactions. Zillow has several near-term product development initiatives that should help to close this gap.
• BAT was among the top individual detractors from performance in January. The company appeared to be affected by the market’s rotation away from more defensive stocks towards faster growth stocks and stocks.
• During the month, Franchise Partners completed the initial purchases of Ritchie Bros. Auctioneers and IAA, and the final sale of Western Union. Ritchie Bros. is the leading North American auctioneer of industrial equipment, with a market share of approximately 85%. IAA is a US focused salvage car auction platform and operates in an attractive market duopoly. The opportunity to purchase shares in both companies arose following the announcement in November of the potential acquisition by Ritchie Bros. of IAA. The deal should enable Ritchie Bros. to accelerate its highly successful satellite yard strategy, improving its proximity to potential inventory consigners, but notes that both companies are attractive as standalone businesses should the acquisition not receive shareholder approval. While Franchise Partners continues to think Western Union has a strong, globally recognised brand and network of exclusive retail affiliates, the company was sold over concerns about the pace of the transition in its digital operations, given the increasingly competitive digital money transfer market.
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