Our Nearshore Strategy...
We wrote a couple of weeks ago that over the next few issues, we would discuss our themes and the companies that we have in the portfolios and mandates that represent those themes. Last week, we wrote about our Technology theme and how it evolved over many years from an initial investment in Microsoft Corp (MSFT:US).
Like our Technology theme, when we started Pathfinder, we had limited exposure to industrial stocks. At that time, Canada had a number of good, value companies but not many in the industrial sector. Since then, our investment view on Canada has changed dramatically, which has provided more opportunities to invest in a broader set of industries. Themes usually develop with a single connection. We begin with research on that connection and it “takes us down a rabbit hole”. We bought WPT REIT, an industrial REIT, in 2016 for $13.62. It was a great company focused on e-commerce fulfilment centers in the mid-western US. WPT was eventually taken private by Blackstone in 2021 at $27.52. This led us over the years to follow other businesses along the same value chain. As tensions increased between the US and China, we could see that businesses would want to secure their supply chains by moving production back to the West (i.e. de-globalization). Thus, we moved to invest in companies that provide logistics, robotics and industrial real estate supply, given our view that production nearshoring will require a significant improvement in productivity. We assumed that this would be critical for governments given the recent political reactions to inflation. The theme is expressed with the following “downstream” exposure:
- Industrial Technology & Logistics (Emerson, Daifuku, FedEx, Kion & GXO), we note companies in common with our Technology theme provide a clear example of how one theme can blend into another.
- Mexican Industrial Real Estate (Prologis & Terafina), we note that lease rates are the same on either side of the border, but it is still cheaper to locate production in Mexico because of the labour savings.
“This means that” like our view on technology, we believe this theme has years to go. Companies cannot adjust as quickly as geopolitics. Supply chains, logistics and labour do not move as quickly as a shift in government relations. This theme has a smaller allocation than our technology theme so we will continue to remain focused on its strategic direction and adding more companies as opportunities present themselves.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.